FL Pension Fund Sues AIG over Credit Market Investments

May 23, 2008 (PLANSPONSOR.com) - The Jacksonville Police and Fire Pension Fund has filed a lawsuit against American International Group Inc. and four top officials, including Chief Executive Martin Sullivan, for allegedly issuing false and misleading financial statements that inflated the prices of AIG securities.

Business Insurance reports that the suit, which seeks class action status, accuses New York-based AIG of repeatedly but falsely assuring investors that its risk management and diversification insulated it from the credit market crisis of 2007. AIG suffered a $7.8 billion first-quarter loss due to credit market problems, the news report said.

“In truth, AIG hid or recklessly ignored facts regarding the mounting losses on the company’s assets and insurance products tied to the residential mortgage market, even as its top management continued to claim that AIG’s actual exposure was ‘close to zero,'” the complaint said, according to Business Insurance. The investments at issue in the suit include AIG’s “super senior” credit default swap (CDS) portfolio.

In a similar matter in November, the Jacksonville Police and Fire Pension Fund trustees terminated their contract with Merrill Lynch Consulting Services in the wake of a federal regulator’s probe into Merrill’s consulting practices in the state (See FL Pension Board Axes Merrill Consulting Contract ). Merrill Lynch Consulting Services recently announced it is closing down its Florida pension advisory practice as a result of the controversy (See Merrill Closing FL Consulting Practice as Result of Controversy ).