Courtney Jorstad  |  April 24, 2015

Category: Labor & Employment

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National Union/AIG InsuranceAmerican International Group Inc. has agreed to a $40 million class action settlement to resolve allegations by its own employees for investing their pension plans in the company’s own stock, which had fallen significantly after the 2008 mortgage crisis.

The plaintiffs filed a motion in support of the preliminary approval of the settlement and certification of the settlement class in a New York federal court on Thursday.

“The settlement was reached after vigorous motion practice, comprehensive discovery, and extensive arm’s-length negotiations, including two in-person mediation sessions,” the plaintiffs explain. “The settlement will provide significant benefits to the settlement class, while removing the risks and delays associated with further litigation.”

The AIG class action settlement class includes “all persons who were participants in or beneficiaries of any of the plans at any time from Aug. 7, 2007 through May 1, 2009 and whose plan accounts included direct or indirect investments in AIG stock and/or the AIG Stock Fund.”

The charges brought against AIG will be dropped by the plaintiffs in exchange for the class action settlement.

The plaintiffs wanted $300 million to cover damages in their pension funds, arguing that the time period began in 2007 and ended in 2009. However, according to the plaintiffs’ motion, the period for damages probably began in February 2008. If that were the case, it would make the total losses about $205 million. The $40 million class action settlement accounts for 20 percent of those alleged damages.

“In plaintiffs’ view, this case presents a colossal failure by the plan’s fiduciaries to protect the participants from massive losses that occurred,” according to the motion. “Nonetheless, plaintiffs recognize that liability is not automatic.”

Several of the allegations against AIG were dismissed by U.S. District Judge Laura Taylor Swain in March 2011, keeping the majority of the claims. After filing a second amended complaint, AIG filed 15 motions to dismiss the class action lawsuit, which were denied without prejudice in June 2014. A third amended complaint was filed in December, after which the settlement negotiations began.

Several class action lawsuits were filed against AIG in 2008, which were later consolidated into a multidistrict litigation in 2009.

An AIG class action lawsuit filed by employees living in Puerto Rico was dismissed by Judge Swain in its entirety in 2011 because the plaintiffs in that class action were apparently neither participants nor beneficiaries in the relevant pension plan.

Any allegations of breach of duty of loyalty against some of the officials at AIG were dismissed because the New York federal judge said that it couldn’t be proven that they had any knowledge that the stock was overvalued.

The AIG class action lawsuits alleged that the insurer had breached its fiduciary duty because it had encouraged AIG employees to invest their pension plans in AIG stock, when the company was heavily invested in the subprime mortgages that almost brought the company down.

Even though there were concerns that the subprime mortgage market was on shaky ground, AIG allegedly still included the subprime mortgages in its business model in the designated class period, while telling investors that it would not cause any problems while the credit crisis was pending.

The plaintiffs are represented by Lee Squitieri of Squitieri & Fearon LLP, Robert I. Harwood and Tanya Korkhov of Harwood Feffer LLP, Marian P. Rosner and Andrew E. Lencyk of Wolf Popper LLP and Lynn Lincoln Sarko and Erin M. Riley of Keller Rohrback LLP, among others.

AIG is represented by Joseph S. Allerhand and Nicholas J. Pappas of Weil Gotshal & Manges LLP.

The AIG Pension Fund Class Action Lawsuit is In re: American International Group Inc., ERISA Litigation II, Case No. 1:08-cv-05722, in the U.S. District Court for the Southern District of New York.

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