PricewaterhouseCoopers LLP (PwC) will pay $10.5 million to settle claims in a consolidated securities class action filed against American International Group Inc. (AIG). It was alleged in the lawsuit that AIG had misinterpreted the value of credit default swaps, costing investors billions. This settlement came after AIG had paid out $960 million in litigation. The investors, led by the state of Michigan, and PwC accepted a mediator’s proposal to settle all claims, with PwC agreeing to pay the $10.5 million in settlement. The Plaintiffs’ claims against PwC were premised on false and misleading statements and omissions in AIG’s 2005 and 2006 financial statement and footnotes.
Following the $960 million settlement with insurer AIG, which was reached on July 15, the lead Plaintiff and PwC had agreed to mediation for the claims brought on behalf of the class before former district Judge Layn R. Phillips. The $10.5 million settlement resolves claims against PwC that were dismissed in an April 2013 order, but which could have been appealed by investors. The agreement with PwC, the professional services company, and the much larger settlement with AIG came after the Supreme Court’s landmark Halliburton decision.
The high court in that case refused to overturn the fraud-on-the-market presumption of reliance that is the backbone of securities litigation. On Aug. 4, the insurance giant disclosed it had reached a mediated settlement with Plaintiffs to end a series of class action claims over its false and misleading statements about its vast exposure to the subprime mortgage market through its CDS business. To end their claims, AIG said in a financial filing that it would pay $960 million in cash.
The settlement ends the 2008 consolidated litigation, but not nine individual suits filed between 2011 and 2013 that are still pending. Those lawsuits assert “substantially similar” claims to the 2008 consolidated litigation. The investors, led by a quartet of Michigan pension systems, alleged the company, over a period of two years, concealed the true value of its credit-default swaps — essentially an insurance policy against potential losses in an investment that itself became a securitized asset that could be bought and sold. The company’s stock plummeted in 2008 when the CDS’ value was revealed to be lower than anticipated.
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