City Attorney, Co-Counsel Seek Recovery for Losses from Illegally Inflated Stock Price Scam
SAN FRANCISCO (May 16, 2005) — City Attorney Dennis Herrera today filed a class action lawsuit on behalf of San Francisco Employees’ Retirement System (“SFERS”) charging New York-based American International Group, Inc. with egregious business malfeasance and violations of federal securities laws under the Securities Exchange Act of 1934. The suit filed in the United States District Court for the Southern District of New York this morning seeks to recover losses suffered by SFERS on shares of AIG stock that were purchased during the class period, between October 1, 1999 and March 30, 2005. Herrera was joined by co-counsel in the complex litigation complaint by the law firms of Cotchett, Pitre, Simon & McCarthy and Meyers, Nave, Riback, Silver & Wilson.
“Stock fraud like that perpetrated by AIG and its executives isn’t just a harmless shell game for Wall Street high-rollers — it’s a despicable crime that preys on the financial security of retirees and working families,” Herrera said. “With our lawsuit on behalf of the San Francisco retirement system today, we intend to recover the funds our public employees were cheated out of; to punish scam artists who defraud their investors; and to send a clear message to anyone who would contemplate similar conduct in the future that we will move aggressively to protect our retirement system from similar injustices.”
“The San Francisco Employees’ Retirement System is dedicated to securing the pension trust,” said Joseph Driscoll, President of the San Francisco Retirement Board. “As fiduciaries of the trust we are obligated to seek to protect the funds invested on behalf of our members, the employees and retirees of the City and County.”
San Francisco’s complaint follows an initial investigation of AIG by the Office of the Attorney General of New York and the Securities and Exchange Commission earlier this year. Those investigations prompted AIG to admit that reports of high earnings were, in fact, artificially inflated by the company’s top executives. The investigation of the corporation unveiled pervasive accounting improprieties by AIG, including the use of offshore affiliates to manipulate financial statements; sham reinsurance deals set up solely to bolster reserves; bond transactions that allowed AIG to claim gains without actually selling bonds; and mis-classified losses. The complaint further alleges that following the initial investigations, lawsuit defendants destroyed evidence, resisted discovery and attempted to shield personal assets.
On May 1, 2005, AIG announced that it would issue restated financial statements from 2000 forward that would reduce AIG’s net worth by $2.7 billion. Since news of the accounting scandal at AIG broke, AIG’s share price has dropped nearly 30 percent. This dramatic decrease in company value has caused significant injury to investors like SFERS, which bought the stock at illegally inflated rates since 2000.
Added Herrera: “In the wake of corporate scandals such as those at Enron, Worldcom, Healthcare South and now this, it is clear that the federal government is failing to commit the necessary resources to keep corporate sector fraud and malfeasance from running rampant. Unless state and local government law enforcement officials step up to hold these companies and those who run them accountable, retired employees and other shareholders will be deprived of the value of their pensions and of the investments they have worked for decades to build.”
The named defendants in the lawsuit include AIG, a holding company that through its subsidiaries provides a range of insurance related services both nationwide and abroad, C.V. Starr & Co., Inc, a private insurance brokerage company and commercial casualty insurer, privately owned and operated by AIG executives that develops business and issues specialized policies for AIG, Starr International Inc. (“SICO”), a private, offshore holding company operating out of Bermuda and AIG’s largest shareholder, and other top executives including Maurice Greenberg, the former CEO and Chairman of the Board of AIG, Howard Smith, AIG’s former CFO and Chief Accounting Officer, Christian Milton, the former Vice President of AIG, in charge of reinsurance, and L. Michael Murphy, a former senior executive at AIG, corporate secretary for SICO and a reputed tax expert at AIG.
Also named in the suit was General Re Corp., a unit of Berkshire Hathaway, which allegedly helped AIG create a sham insurance transaction.