View this article online: https://www.insurancejournal.com/news/southeast/2008/10/06/94333.htm
West Virginia is considering suing investment firms at the center of the national financial crisis to recoup millions of dollars in losses to its multibillion-dollar portfolio.
Gov. Joe Manchin asked his staff to research possible legal action following a briefing last month from the state’s the Investment Management Board. The board manages the portfolio, the bulk of which reflects public employee pension funds. Its returns also fund retiree health benefits, workers’ compensation, insurance for cities and counties and prepaid tuition programs.
“I want somebody to pay,” Manchin said.
At least one public pension fund already filed such a lawsuit. The City of New Orleans Employees’ Retirement System sued AIG directors and key executives on Sept. 17 in Delaware Chancery Court. The action came one day after the global insurance giant received an $85 billion loan from the U.S. government in exchange for a 79.9 percent equity stake.
That lawsuit seeks to recover for AIG’s shareholders “its staggering losses from its exposure to and grossly imprudent risk-taking in the subprime lending market.”
West Virginia’s investment holdings include stocks and bonds in big Wall Street players whose bankruptcies, forced sales or government takeovers punctuated the ongoing financial crisis: AIG, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch and Washington Mutual.
The board bought those securities over time for a total of $95.2 million, according to its latest figures. Those securities amount to a fraction of a percent of the portfolio’s $10.9 billion value. But their value dropped by nearly $23 million as of Aug. 31 from the time they were purchased.
Manchin said the firms should be held accountable if they breached their duties to shareholders. He said the state also may target executives from those financial firms who pocketed hefty exit packages, without singling out any particular company or individual.
“It’s outrageous. We should be looking at the people who walked away with the money,” Manchin said.
Manchin and other officials touted signs Tuesday that West Virginia can weather the financial crisis: a larger-than-average “rainy day” fund, healthy revenue collections and a sufficient pool of on-hand cash. But besides investment losses, his administration said the turmoil at least delayed the sale of bonds for upcoming highway and college campus construction projects.
Spokeswoman Lara Ramsburg said the governor is assessing whether the Oct. 4 $700 billion government bailout measure, passed by Congress and signed by President Bush, will help that market.
“We don’t expect an overnight fix but hopefully this will start things moving again,” Ramsburg said.