LONDON, OntarioAmerican International Group Inc. and several current and former officers of the troubled insurance holding company are the first U.S. defendants sued under a 2005 provision of the Ontario Securities Act, according to the plaintiff's attorney.
The proposed class action litigation seeks $550 million in damages.
In addition to AIG, the lawsuit names subsidiary AIG Financial Products Corp., which wrote the risky financial guarantees for mortgage-backed securities that have threatened AIG's financial viability.
Among the 10 individuals named as defendants are former Chief Executive Officer Martin J. Sullivan and former Chairman Robert B. Willumstad, who replaced Mr. Sullivan as CEO in June. The Federal Reserve Board replaced Mr. Willumstad in September with former Allstate Corp. CEO Edward M. Liddy as part of the government's bailout of the company.
The lawsuit was filed on behalf of all Canadian AIG investors that acquired AIG securities from Nov. 10, 2006, through Sept. 16, 2008.
In the lawsuit, filed in the Ontario Superior Court of Justice in Kitchener, Ontario, an individual investor contends that AIG maintained in its Securities Exchange Commission filings and company officials verbally assured investors that the financial guarantees, known as credit default swaps, were safe instruments that could not produce losses under any "reasonable" scenario.
"Indeed, in September 2007a year before the market was made aware of the severity and scope of the problemAIG was told by its auditors that there were problems in how AIG was accounting for its derivative products. The defendants concealed this information," the lawsuit asserts.
A spokesman for AIG said the company does not comment on lawsuits.
Under Part XXIII.1 of the Ontario Securities Act, which was adopted in 2002 and went into effect in late 2005, Canadian investors can sue in Canadian courts in an effort to recover damages from companies that either are not Canadian or are not listed on the Toronto Stock Exchange. Previously, Canadian investors had to sue those defendants in their own jurisdictions.