A public pension fund has sued the chief executive and board of American International Group Inc, accusing them of mismanagement and “grossly imprudent risk taking” that led to the insurer’s $85 billion government rescue this week.
The lawsuit was brought by the City of New Orleans Employees’ Retirement System, an AIG shareholder, in Delaware Chancery Court, where many shareholder disputes are filed.
The pension fund said it wants the individual defendants to return to AIG all compensation they have been paid, among other damages. AIG spokesman Joe Norton declined to comment Thursday on the case.
“While many financial institutions have suffered in connection with subprime and other housing related issues in recent months, AIG has watched its stock drop by close to 95 percent since June 2007, has wasted untold goodwill, and has watched its already dubious reputation suffer immense additional harm,” the lawsuit contends.
The plaintiffs said they blame the defendants for the company’s “exposure to and grossly imprudent risk taking in the subprime lending market and derivative instruments.”
The case was filed on Wednesday against AIG Chief Executive Robert Willumstad, lead director Stephen Bollenbach and other current and former officers and directors at the company.
Willumstad, a board member since 2006 who became CEO in June, will lose his job at the helm of AIG as a result of the government’s rescue of the insurer, a person briefed on the matter told Reuters on Wednesday.
AIG was once the world’s biggest insurer by market value, but it has sustained $18 billion in losses over three quarters caused by the deepening U.S. housing crisis.
The lawsuit is the latest litigation fight for the company, which is defending itself against a long-running lawsuit pending in U.S. District Court in Manhattan first brought in 2004 that deals with accusations the company engaged in bid-rigging and accounting wrongdoing.
The lead plaintiffs in that case are several Ohio public pension funds.
Other suits were filed this year, also in Manhattan federal court, stemming from the effects of the subprime mortgage market crisis on AIG.
In one complaint brought on behalf of the Ontario Teachers’ Pension Plan Board, the company was accused of misleading investors about its subprime exposure, particularly the extent of its losses on complex instruments known as credit default swaps. (Additional reporting by Lilla Zuill, editing by Dave Zimmerman)
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