GE Pension Sues AIG Over Losses Tied to Bailout

February 10, 2015 by Richard Clough

General Electric Co.’s pension trust is suing American International Group Inc. over losses related to the insurer’s 2008 government bailout.

AIG failed to disclose to investors the risk in its portfolio as the company increased its exposure to the subprime mortgage market in 2005 through credit-default swap contracts, the plaintiffs, including GE’s pension trust and other funds, said in a lawsuit filed Monday in Manhattan federal court.

AIG’s subsequent losses during the housing market collapse and the company’s costly rescue led to a plummeting share price and “substantial damage” to the GE funds, according to the complaint.

GE said it dropped out of an earlier class action lawsuit against the insurance company. AIG said in August that it agreed to pay $960 million to settle claims with shareholders who said they were misled by AIG prior to its bailout. The amount, determined by a mediator, is subject to court approval in a hearing scheduled in March.

Jon Diat, a spokesman for New York-based AIG, said Tuesday the insurer will “defend the case vigorously.”

“We regret that rather than participate in the fair and reasonable settlement negotiated in a pending class action proceeding involving the same issues, these plaintiffs have filed an individual copycat action in an effort to obtain a windfall recovery,” Diat said in an e-mail.

Dominic McMullan, a spokesman for Fairfield, Connecticut- based GE, declined to comment.

AIG, once the world’s largest insurer, accepted $85 billion from the U.S. government in September 2008 as the declining value of its mortgage-related investments led to a liquidity crisis. The company later repaid the bailout, which eventually swelled to $182.3 billion, and shrunk itself by about half amid asset sales and job cuts.

The case is General Electric Pension Trust v. American International Group Inc., 15-cv-00957, U.S. District Court, Southern District of New York (Manhattan).

–With assistance from Zachary Tracer in New York.