American International Group Inc. (AIG) engaged in widespread fraud in connection with its U.S. bailout and should be forced to repay “treble damages” to taxpayers, two people said in a civil lawsuit in California.
AIG, four banks and 100 unnamed “John Doe” defendants repeatedly lied to the Federal Reserve Bank of New York and the U.S. Treasury in connection with an $85 billion loan rescuing the insurer in 2008, according to a complaint filed in September and unsealed April 28 in San Diego federal court.
“Each time AIG was caught engaging in fraud it promised to reform its ways,” the complaint alleges, citing financial reporting failures at the company in the years before the bailout. “Each time, AIG reverted to its unlawful and fraudulent way of doing business.”
AIG Chief Executive Officer Robert Benmosche is attempting to resolve legal disputes as the Treasury prepares to sell its 92 percent stake in the New York-based company. AIG, once the world’s largest insurer, has settled lawsuits with investors and former CEO Maurice “Hank” Greenberg since the 2008 rescue.
The lenders, Bank of America Corp. (BAC)’s Merrill Lynch unit, Deutsche Bank AG (DBK), Goldman Sachs Group Inc. (GS) and Societe Generale, allegedly lied about how AIG’s bailout money was used, according to the complaint. The suit was filed by Derek and Nancy Casady, who say they uncovered evidence through an examination of data using “established investigative methods used by certified fraud examiners.”
The lawsuit was reported by the New York Times earlier today. The newspaper described the Casadys as veteran political activists who live La Jolla, California.
‘Devoid of Merit’
AIG said in a statement that the Casadys only had standing to sue because the Department of Justice declined to intervene in the action or pursue its own lawsuit.
“This was a sensible decision since the claims are devoid of merit,” New York-based AIG said in the e-mailed statement. “We would have hoped that the individuals’ counsel, whose previous California state court case against AIG was dismissed at the pleading stage for failure to state a claim, would not have brought another case in federal court relying on many of the same allegations made in the first, discredited case.”
Goldman Sachs spokeswoman Sophie Bullock, Societe Generale (GLE) spokeswoman Laetitia Maurel and Deutsche Bank spokesman Christian Streckert declined to comment. A call to Merrill Lynch’s London press office wasn’t immediately returned.
The companies are referred to in the complaint as “the five major players” in the market for over-the-counter collateralized debt obligations, or CDOs, used to repackage individual loans and resell them on a secondary market. Insuring such securities with AIG-issued credit default swaps was AIG’s “most ambitious fraudulent conduct,” according to the complaint.
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