NU Online News Service

A federal judge in New York has denied a request by AmericanInternational Group (AIG) to have a securities fraud class actionlawsuit against it dismissed.

U.S. District Judge Laura Taylor Swain, in the U.S. DistrictCourt for the Southern District of New York, denied motions fromAIG and current and former executives and directors to dismiss thecase on various grounds.

The allegations presented by the plaintiffs in the case "supportan inference that is 'at least as compelling as any opposinginference' that AIG and the defendants knew facts or had access toinformation suggesting that their public misstatements were notaccurate," wrote Judge Swain.

An investor group of plaintiffs led by the State of MichiganRetirement Systems has accused AIG and some of its executives anddirectors of "materially misstating the extent to which AIG hadaccumulated exposure to the subprime mortgage market through itssecurities lending program and its credit default swaps (CDS)portfolio," according to court documents.

"This decision is not a ruling on the merits, and simply allowsthe case to proceed to discovery," Mark Herr, spokesman for AIG,said in an e-mail. "We are confident that when all of the factscome out, as they did during the course of the [Department ofJustice] and [U.S. Securities and Exchange Commission's] jointtwo-year investigation, it will be clear that no fraud occurred andshareholders were not misled as to any of the risks."

In June the SEC ended its investigation of AIG and Joseph Cassano, former headof the company's Financial Products (AIGFP) unit that managed theCDS portfolio, without filing charges.

A month prior the DOJ ended its investigation of the company anddid not file charges.

Cassano is named as a defendant in the class action lawsuitalong with former chief executive Martin Sullivan and otherexecutives.

According to court documents, two confidential witnesses havesaid AIGFP could not economically hedge its CDS portfolio. However,executives like Andrew Forster, an executive vice president withAIGFP, told investors in May 2007 that AIGFP could handle "theworst recession I can imagine," and that "it's actually fairly easyfor us to hedge any of the risks that we perceive."

The group of plaintiffs is comprised of investors who purchasedsecurities issued by AIG between March 16, 2006 and Sept. 16,2008--the date the federal government agreed to an $85 billionbailout of the mammoth company.

The federal government has made $182.3 billion available to AIGvia the Troubled Asset Relief Program. AIG said it owed thegovernment $101.2 billion as of June 30.