AIG Challenges PIMCO Lawsuit

WASHINGTON – The legal battling between AIG and the asset management company PIMCO took another turn.

AIG filed suit in New York seeking dismissal of a March 27 lawsuit filed against it by PIMCO. The PIMCO suit related to AIG’s huge bet on credit default swaps (CDS), a decision which forced AIG to seek a federal bailout in 2008.

AIG alleges in its lawsuit that PIMCO’s claims are time-barred and must be dismissed.

The AIG suit was filed in federal court in Manhattan, the same court which is nearing a decision to approve a settlement of the class-action lawsuit relating to the CDS claims.

PIMCO filed its suit in an Orange County, Calif., court.

“Rather than participate in the fair and reasonable class action settlement approved by the federal court in New York, PIMCO is seeking a windfall recovery in a California court by seeking a ruling contrary to controlling Second Circuit law that clearly bars its claims,” AIG said of PIMCO's action.

An AIG spokesman added that the AIG lawsuit “seeks to avoid PIMCO's forum shopping by seeking a ruling from the New York federal court that PIMCO's claims are time-barred and should be dismissed entirely.”

AIG argues that PIMCO took no action within the three-year period after AIG’s March 12, 2008, securities offering. That offering was the last one before AIG agreed to sell 79.9 percent of the company to the Federal Reserve in September 2008 in return for $185 billion in cash.

PIMCO filed suit after opting out in January from a proposed settlement of a lawsuit filed in 2008 against AIG dealing with the derivatives debacle.

PIMCO had until Jan. 5 to accept the terms of that settlement. Under the deal, AIG made a cash payment of $960 million in October 2014. A hearing was held to finalize the deal March 20.

AIG contends that the “controversy between PIMCO and AIG turns entirely on a question of federal law-application of the Securities Act's” statute of limitations on PIMCO’s claims.

AIG said the New York court “is already being asked to decide the exact same question with respect to Securities Act claims asserted in the other individual actions brought by investors who excluded themselves from the settlement class pending in the New York court.

PIMCO, a subsidiary of Allianz, filed suit on behalf of the 63 investment funds that it managed or advised.

In its complaint, PIMCO alleges that it filed the suit because of, “AIG’s failure to disclose, and misrepresentations to investors concerning, the company’s massive accumulated exposure to the U.S. housing and subprime mortgage markets.”

“AIG’s colossal bets on unregulated credit default swaps and residential mortgage-backed securities for which the company claimed its exposure was ‘remote, even in severe recessionary market scenarios’ lay at the heart of the financial crisis and carried AIG, once the world’s largest insurance company, to the brink of insolvency,” the complaint said.

The suit relates to the decision of AIG’s financial products unit to insure against losses on mortgage bonds purchased by institutional investors.

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].