AIG forced to defend suit over subprime exposure

City A.M. Reporter
A JUDGE yesterday refused to dismiss a securities fraud lawsuit accusing American International Group (AIG)?of misleading investors about its exposure to subprime mortgages, which led to a liquidity crisis and $182.3bn of federal bailouts.

The ruling by US district judge Laura Taylor Swain allows the case to go forward and could pave the way for a trial over AIG’s near collapse. The government rescue led taxpayers to take a nearly 80 per cent stake in the New York-based insurer.

AIG spokesman Mark Herr declined to comment.

Investors led by the State of Michigan Retirement accused AIG, executives and directors
of failing to disclose the risks that AIG had taken on through its portfolio of credit default
swaps (CDS) and a securities lending program.

Swain wrote that the allegations in the class-action lawsuit were sufficient to suggest there was “a strong inference of fraudulent intent” in how AIG communicated publicly about the risks in the portfolio of credit default swaps. The lawsuit covers investors who owned AIG securities between 16 March 2006, and 16 September 2008.