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Federal judge refuses to dismiss AIG fraud suit

A judge for the US District Court for the Southern District of New York [official website] on Monday ruled that a securities fraud class-action lawsuit against American International Group (AIG) [corporate website] can move forward. Judge Taylor Swain refused to dismiss the suit [Reuters report], which is led by the State of Michigan Retirement Systems [official website] and accuses AIG of fraudulent intent to mislead the market and failing to disclose to its shareholders the risks the company was taking in issuing sub-prime mortgages. The group of plaintiffs includes investors who purchased securities issued by AIG between March 16, 2006, and September 16, 2008. The named defendants in the case are former AIG chief executive Martin Sullivan, former executive for AIG's Financial Products [corporate website] subsidiary Joseph Cassano and multiple other former chief and senior executives. The lawsuit is the first fraud-related case against AIG to advance to the discovery stage.

In May, the US Department of Justice (DOJ) [official website] decided not to file charges [JURIST report] against Cassano, ending a two-year criminal investigation of several executives from AIG's Financial Products subsidiary, which played a large role in constructing complex contracts known as credit-default swaps [TIME backgrounder] that insured bond losses tied to the US housing market. The US Securities and Exchange Commission (SEC) [official website] investigation was undertaken to determine whether AIG officials deceived investors and auditors in 2007 by misrepresenting the accounting value of a credit default swap portfolio, which nearly bankrupted the company. In 2009, former AIG executives agreed to settle [JURIST report] a suit [complaint, PDF] brought by the SEC alleging their involvement in inflating the company's reported financial records.

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