According to media reports, a resolution has been reached to the shareholders lawsuit against American International Group Inc. (AIG), with a federal judge approving a $72 million settlement on Tuesday. As per the lawsuit General Re Corp., a wholly owned subsidiary of Berkshire Hathaway Inc. (BRK.A), the Nebraska based investment management company was involved in a sham transaction with AIG.
AIG investors, led by two Ohio public pension funds, sued in 2004 claiming that in 2000, Gen Re and American International had involved themselves in a fraudulent $500 million reinsurance transaction that helped AIG inflate its share price and loss reserves artificially. The sham transaction case was against four former Gen Re executives and one American International executive who were convicted in 2008. In Jun 2012 all five personnel admitted their deed as part of a deferred prosecution agreement.
Initially in 2010, the approval of the Gen Re settlement was declined by the federal judge but after the second U.S. Circuit Court of Appeals in New York in Aug 2012, she changed her decision. The lawsuit is registered in Re American International Group Inc. Securities Litigation, 10–4401, U.S. Circuit Court of Appeals for the second U.S. Circuit.
This settlement marks the end to an era of shareholder litigation on American International’s accounting practices that had prevailed since 2004. Including this $72 million, the aggregate settlement amount has added up to more than $1 billion over the past nine years. In this connection, the federal judge had previously approved two settlements – one of $115 million and another $725 million settlement.
Continuous overhang of litigation issues on American International might mar investor confidence on the stock. In 2010 American International paid $1.6 billion to resolve various accounting fraud claims by the U.S government. These settlement amounts taken together are expected to dampen company financials in the upcoming period.
American International currently carries a Zacks Rank #2 (Buy). Among other financial services companies, AXA Group (AXAHY) and Eastern Insurance Holdings Inc. (EIHI) carry a favorable Zacks Rank #1 (Strong Buy).