A charity headed by the former chief executive of American International Group Inc. has filed a civil lawsuit against AIG, claiming that his replacement as head of the giant insurer committed misrepresentations and omissions in downplaying what would become multibillion losses in AIG’s portfolio of credit default swaps. The suit, filed on May 7th in New York Supreme Court in Manhattan by the Starr Foundation, chaired by Hank Greenberg, alleges that Martin Sullivan, who became chief executive when Greenberg was forced out of AIG in 2005, and Steven Bensinger, its then-chief financial officer, misled investors about the status of the portfolio dating back to the summer of 2007. The suit alleges that AIG and its two officers “fraudulently reassured” the investors in 2007 “that the risk of loss from its credit default swap portfolio was remote.”
Starr Foundation alleges that these assurances “caused the Foundation to retain stock in AIG, which it would have otherwise sold.” AIG now admits its credit default swap portfolio lost $11.5 billion in value during 2007, which is billions more than AIG has previously acknowledged. The Foundation, which owns 15.5 million shares of AIG stock, seeks damages of at least $300 million as a result of the alleged fraud. The suit was filed the day before AIG issued its earnings report for the first quarter of 2008, posting a $7.8 billion loss driven in part by a $9.1 billion charge against its credit derivatives portfolio. This appears to be another occasion where “big folks” who don’t believe “little folks” should have access to the courts, use the judicial system when it suits them.
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