Judge Blocks Dismissal of AIG Suit

U.S. District Judge Laura Taylor Swain refused this week to dismiss a securities fraud lawsuit accusing American International Group Inc. (AIG) of misleading investors about its exposure to subprime mortgages. Swain wrote that the allegations in the class-action lawsuit were sufficient to suggest there was "a strong inference of fraudulent intent'' in how AIG communicated publicly about the risks in the portfolio of credit default swaps.

Yesterday’s ruling allows the case to go forward, opening the door to a trial—and negative exposure—AIG has been avoiding.  

The class-action suit (American International Group Inc 2008 Securities Litigation, U.S. District Court, Southern District of New York, No. 08-05072) has its roots with investors led by the State of Michigan Retirement Systems, who are accusing AIG, executives and directors of failing to disclose the risks that AIG had taken on through its portfolio of credit default swaps (CDS) and a securities lending program. The lawsuit covers investors who owned AIG securities between March 16, 2006, and Sept. 16, 2008, when AIG received its first bailout from the federal government.

AIG spokesman Mark Herr declined to make an immediate comment, according to a Reuters report.