WASHINGTON (CN) - AIG investors lack jurisdiction to pursue a $5 billion class action over allegedly bogus equity units they bought, a federal judge ruled.
In a 2012 federal class action against American International Group, lead plaintiff Kathryn Campbell said AIG hoped to pump its stock prices by selling equity units at a value deflated 95 percent during the height of the financial crisis, in violation of Delaware and New York law.
The complaint alleged that AIG had designed the "equity units" to fail so that its regular stock would rise.
"In January 1987, defendant established its infamous AIG Financial Products unit," it stated. "Permeated by 'recklessness and greed,' the Financial Products Division manufactured 'immensely profitable' and 'deceptive' financial products that eventually poisoned the entire global financial system resulting in a taxpayer funded 'massive bailout' of AIG in 2008 to the tune of 182 billion dollars! 'AIG's Financial Products Unit finally died the week of August 6, 2011. It was 24."
In a footnote, apparently to explain the source of the apparent quotations, the complaint states: "Defendant has a long history of unrelenting dishonest business practices. See, inter alia, In re American International Group, Inc., 965A.2d763 (Del. Ch., 2009).")
Campbell added in the complaint: "Aware of the impending financial crisis its reckless and deceptive activities are about to unleash, AIG embarked upon a 20 billion dollars capital raising effort in May 2008. Among the devices it concocted to raise new capital was the issuance of what it called AIG Equity Units.
"The Equity Units were offered in what defendant called 'Prospectus Supplement' dated May 12, 2008. It asserted that the subject prospectus was a supplement to the 'Prospectus dated July 13, 2007.' But, as set forth below, the Equity Units are original issues securities and had nothing alike to supplement.
"The Prospectus for the Equity Units was in accord with the infamous tradition of AIG's Financial Products Division for devising complex and dishonest financial instruments devoid of good faith and fair dealing, permeated by deliberately confusing formulas set forth in the context of its specialized knowledge and expertise, and further imbued in bad faith. Thus, the Prospectus consisted of two-hundred-and-five (205) pages - all in fine print; all in 10 point pitch!"
Campbell claimed that AIG sold the poisoned equity units to investors at $75 a share, while "the 'Who's Who' of Wall Street Titans" - including Citigroup, JP Morgan and Bank of America - could get the same units at the bargain price of $1.31 a unit - a 98.25 percent discount.
U.S. District Judge Contreras dismissed the complaint March 1 for lack of subject matter jurisdiction.
"She does not allege a federal cause of action, nor does she argue that this court has diversity jurisdiction over her state law claims," Contreras said of Campbell.
"Ms. Campbell has identified no statute that grants the district court jurisdiction over this suit, if indeed the Constitution would allow it," the judge concluded. "Her case will therefore be dismissed."
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.