AIG 2007 Annual Report Download - page 229

American International Group, Inc. and Subsidiaries
General Re; (2) concealed that it marketed and misrepresented its
12. Commitments, Contingencies and
control over off-shore entities in order to improve financial results;
Guarantees
(3) improperly accounted for underwriting losses as investment
Continued
losses in connection with transactions involving CAPCO Reinsur-
Securities Litigation. Subsequently, a separate, though similar, ance Company, Ltd. and Union Excess; (4) misled investors about
securities fraud action was also brought against AIG by certain the scope of government investigations; and (5) engaged in
Florida pension funds. The lead plaintiff in the class action is a market manipulation through its then Chairman and CEO Mau-
group of public retirement systems and pension funds benefiting rice R. Greenburg. The complaint asserts claims for violations of
Ohio state employees, suing on behalf of themselves and all Oregon Securities Law, and seeks compensatory damages in an
purchasers of AIG’s publicly traded securities between Octo- amount in excess of $15 million, and prejudgment interest and
ber 28, 1999 and April 1, 2005. The named defendants are AIG costs and fees.
and a number of present and former AIG officers and directors, as Derivative Actions — Southern District of New York. On
well as Starr, SICO, General Reinsurance Corporation, and November 20, 2007, two purported shareholder derivative actions
PricewaterhouseCoopers LLP (PwC), among others. The lead were filed in the Southern District of New York naming as
plaintiff alleges, among other things, that AIG: (1) concealed that defendants the current directors of AIG and certain senior officers
it engaged in anti-competitive conduct through alleged payment of of AIG and its subsidiaries. Plaintiffs assert claims for breach of
contingent commissions to brokers and participation in illegal bid- fiduciary duty, waste of corporate assets and unjust enrichment,
rigging; (2) concealed that it used ‘‘income smoothing’’ products as well as violations of Section 10(b) of the Exchange Act and
and other techniques to inflate its earnings; (3) concealed that it Rule 10b-5 promulgated thereunder, and Section 20(a) of the
marketed and sold ‘‘income smoothing’’ insurance products to Exchange Act, among other things, in connection with AIG’s public
other companies; and (4) misled investors about the scope of disclosures regarding its exposure to what the lawsuits describe
government investigations. In addition, the lead plaintiff alleges as the subprime market crisis. The actions were consolidated as
that AIG’s former Chief Executive Officer manipulated AIG’s stock In re American International Group, Inc. 2007 Derivative Litigation.
price. The lead plaintiff asserts claims for violations of On February 15, 2008, plaintiffs filed a consolidated amended
Sections 11 and 15 of the Securities Act of 1933, Section 10(b) complaint alleging the same causes of action. AIG may become
of the Exchange Act, and Rule 10b-5 promulgated thereunder, subject to litigation with respect to these or similar issues.
Section 20(a) of the Exchange Act, and Section 20A of the Between October 25, 2004 and July 14, 2005, seven separate
Exchange Act. In April 2006, the court denied the defendants’ derivative actions were filed in the Southern District of New York,
motions to dismiss the second amended class action complaint five of which were consolidated into a single action. The New York
and the Florida complaint. In December 2006, a third amended derivative complaint contains nearly the same types of allegations
class action complaint was filed, which does not differ substan- made in the securities fraud and ERISA actions described above.
tially from the prior complaint. Fact and class discovery is The named defendants include current and former officers and
currently ongoing. On February 20, 2008, the lead plaintiff filed a directors of AIG, as well as Marsh & McLennan Companies, Inc.
motion for class certification. (Marsh), SICO, Starr, ACE Limited and subsidiaries (ACE), General
ERISA Action. Between November 30, 2004 and July 1, 2005, Reinsurance Corporation, PwC, and certain employees or officers
several Employee Retirement Income Security Act of 1974 of these entity defendants. Plaintiffs assert claims for breach of
(ERISA) actions were filed on behalf of purported class of fiduciary duty, gross mismanagement, waste of corporate assets,
participants and beneficiaries of three pension plans sponsored unjust enrichment, insider selling, auditor breach of contract,
by AIG or its subsidiaries. A consolidated complaint filed on auditor professional negligence and disgorgement from AIG’s
September 26, 2005 alleges a class period between Septem- former Chief Executive Officer and Chief Financial Officer of
ber 30, 2000 and May 31, 2005 and names as defendants AIG, incentive-based compensation and AIG share proceeds under
the members of AIG’s Retirement Board and the Administrative Section 304 of the Sarbanes-Oxley Act, among others. Plaintiffs
Boards of the plans at issue, and four present or former members seek, among other things, compensator y damages, corporate
of AIG’s Board of Directors. The factual allegations in the governance reforms, and a voiding of the election of certain AIG
complaint are essentially identical to those in the securities directors. AIG’s Board of Directors has appointed a special
actions described above. The parties have reached an agreement committee of independent directors (special committee) to review
in principle to settle this matter for an amount within AIG’s the matters asserted in the operative consolidated derivative
insurance coverage limits. complaint. The court has entered an order staying the derivative
Securities Action — Oregon State Court. On Febru- case in the Southern District of New York pending resolution of
ary 27, 2008, The State of Oregon, by and through the Oregon the consolidated derivative action in the Delaware Chancery Court
State Treasurer, and the Oregon Public Employee Retirement (discussed below). The court also has entered an order that
Board, on behalf of the Oregon Public Employee Retirement Fund, termination of certain named defendants from the Delaware
filed a lawsuit against American International Group, Inc. for derivative action applies to the New York derivative action without
damages arising out of plaintiffs’ purchase of AIG common stock further order of the court. On October 17, 2007, plaintiffs and
at prices that allegedly were inflated. Plaintiffs allege, among those AIG officer and director defendants against whom the
other things, that AIG: (1) made false and misleading statements shareholder plaintiffs in the Delaware action are no longer
concerning its accounting for a $500 million transaction with
AIG 2007 Form 10-K 175