AIG Tries To Nip Its Litigation Troubles In The Bud

It has been a week of settlements by former Wall Street darlings; be it settlements with the government lawyers like that of Goldman Sachs’ $550 million yesterday, and now the American International Group (AIG) civil settlement with plaintiffs to the tune of $725 million. According to Bloomberg Business Week, there is a caveat with AIG’s settlement – it is dependent on whether the Insurance Giant can raise the funds by its regulatory filing to sell its common stock worth some $550 million. If the funds cannot be raised, AIG may terminate the agreement. Optique Capital Management analyst William Fitzpatrick believes that there are many funds that would covet AIG’s shares, but it depends on the terms of the new stock issue.

AIG is attempting to settle with its investors whose holdings plunged when AIG was caught in a scheme of bid rigging and faulty accounting. AIG, in its filing on November 6^th, shows that it still faces over dozen probes and litigation. This particular AIG settlement covers an agreement that was filed by plaintiffs, including public pension funds in Ohio, New Mexico, Mississippi and California. The actual claim was that AIG fraudulently inflated results, causing the share price to plummet when the deception was uncovered - the settlement agreement specified that AIG will pay $175 million within 10 days of preliminary court approval.

The prudential reason for getting all outstanding litigation taken care of… is so that AIG can concentrate on the business of Insurance and its other business endeavors. With this spate of litigation pending, it depresses the stock and causes potential investors not to buy AIG stock. Case in point, when news of Goldman Sachs settlement with the SEC reached the investment community, it added $3 billion to its market cap. It must be noted that because of the United States unpopular bailout of AIG at the tune of $182 billion, the American people now own some 80%.