(CN) - A federal judge in Manhattan certified a class of stockholders suing American Internal Group for securities fraud but refused to do the same for bondholders.
U.S. District Judge Deborah A. Batts ruled that certain equity shareholders could pursue their claims, choosing to modify the class "to exclude all bondholders, as well as in-and-out traders" who did not hold stock when AIG allegedly overstated its assets in phony financial statements.
Three Ohio state pension funds accused the insurance giant, former chairman and CEO Maurice "Hank" Greenberg, auditor PricewaterhouseCoopers, and several other AIG executives and affiliates of inflating the company's stock price through phony transactions and making false statements about its financial condition.
The class claims the bailed-out insurance company overstated its worth "through the creation of sham transactions, mislabeling, redirecting, and directly misstating and omitting financial information on AIG's quarterly and annual financial statements."
"Lead plaintiffs allege that since the 1990s, AIG and other insurance companies paid non-party Marsh & McLennan Companies billions of dollars in illegal contingent commissions in return for Marsh steering business toward them, all the while styling these payments as related to various 'services,'" the ruling states.
An attorney for the pension fund argued that the so-called bid-rigging fraud "led to an artificial appearance of greater premium income, which then flowed through the various financial statements. ... That, in turn, made the company look rosier than it was." This, coupled with a separate accounting manipulation scheme, led to the inflated stock price, according to the plaintiffs.
But Judge Batts said purchasers of AIG's debt securities were excluded from the suit, because while they claimed to have "relied on defendant's publicly issued statements ... the amended complaint made clear that plaintiffs were aware of the misstatements in those documents before they purchased the debt securities," including a press release that acknowledged "irregularities in the company's financial records and the need to restate its financial results."
The Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio and the Ohio Police & Pension Fund originally brought the suit in 2004, saying the fraud "ultimately caused them substantial economic harm when the price of AIG securities declined due to the pubic disclosure of those omissions and misstatements," according to the ruling.
The pensions serve hundreds of thousands of current and former Ohio state employees and hold combined assets of more than $100 billion.
In 2006 AIG agreed to pay the SEC and New York state more than $1.6 billion -- with $800 million going to the commission -- to settle similar accounting and bid-rigging claims, and charges of improper use of workers' compensation funds.
Greenberg and another defendant, General Re Corp., previously settled their claims.
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