Appeals Court Tosses Subprime Suit Against AIG D&Os

NU Online News Service, March 18, 3:11 p.m. EDT

A U.S. Appeals Court has thrown out a suit against American International Group directors and officers, stating that the plaintiffs failed to show that AIG officials were not acting in the best interest of the company as they faced the subprime market meltdown.

The U.S. Court of Appeals for the Second Circuit in New York City issued an opinion yesterday affirming a lower court ruling.

The court said that under Delaware incorporation law “directors are entitled to a presumption that they were faithful to their fiduciary duties” and that a shareholder bringing a derivative suit “bears the burden of ‘overcoming that presumption.’”

The court agreed with the lower court’s ruling that the plaintiff, Louisiana Municipal Police Retirement System, failed to do this and dismissed the shareholder derivative suit.

The defendants, including former AIG CEO Martin Sullivan, were accused of concealing misrepresentation of the company’s business prospects, enhancing their individual standing as members of AIG, selling more than $6 million of their own shares, and deceiving investors and shareholders of AIG as the stock plunged in 2007 on reports of the company’s losses.

According to AIG’s filing with the Securities and Exchange Commission, this ruling was part of a massive consolidation of shareholder derivative actions going back to 2007. There are five similar cases pending in state courts. Those actions were stayed pending the outcome of the consolidated federal suit, the company said in its filing.

Two of the cases are in New York State courts, two were filed in Delaware Court of Chancery, and one was filed in Los Angeles County Court in California.