AIG Alleged to Have Lied During Government Bailout Negotiations; False Claims Act Lawsuit Unsealed

American International Group, Inc., known as AIG, is facing a False Claims Act lawsuit alleging it failed to properly reveal certain licensing insufficiencies during 2008 bailout negotiations with the federal government. A whistleblower lawsuit, filed in 2009, was recently unsealed following the government’s decision not to intervene. The relator in the case, a former human resources executive for the company, is seeking unspecified damages and could receive up to 30 percent of the amount recovered in a settlement or judgment.

Allegations Against AIG

In 2008, AIG was facing certain financial meltdown in the wake of the economic downturn. Along with several other large financial institutions, AIG was able to successfully negotiate a bailout arrangement, thereby reducing the amount it owed to the Federal Reserve. In addition to a $60 billion bailout loan, AIG granted the Federal Reserve equity in two of its life insurance subsidiaries in exchange for a $25 billion reduction in the amount it owed.

These negotiations were reduced to Debt-Reduction Agreements which contained certain disclosures and recitals about the loans. According to the allegations, AIG defrauded the government by falsely certifying that its subsidiaries “have all material permits, licenses, franchises, authorizations, and approvals.” Allegedly, AIG was operating its life insurance subsidiaries and selling policies without the required licensure as mandated by New York law. The Federal Reserve did not know at the time of the arrangement that these assertions were false and closed the deal nonetheless. More specifically, the relator’s allegations state that “instead of seeking to obtain licenses to sell insurance or stopping the marketing and sale of insurance….management decided to conceal [sales personnel] in another AIG company and to continue the unlicensed secret insurance work.”

AIG’s Response to Fraud Claims

Expectedly, AIG has denied claims it engaged in fraud and insists the relator lacks a proper understanding of insurance sales and licensure laws. Specifically, AIG asserts the relator’s claims are without merit and “are contradicted by the fact that the government made a $22 billion profit from its investment in AIG.”

The insurer has concluded repaying the government its loan under the terms of this agreement as of 2012.

The unsealing of this lawsuit against AIG comes on the heels of a recent dismissal of a separate whistleblower action against the financial institution just last month. In that action, the relator alleged similar misconduct relating to the government’s bailout. However, the case was dismissed by a federal judge under the public disclosure bar as the information was already part of the public domain.

Financial Fraud Looms Everywhere! Contact a Whistleblower Attorney Today

A successful whistleblower lawsuit need not allege large-scale, billion-dollar financial dishonesty. Instead, any form of financial fraud against the government could give rise to a successful cause of action, regardless of the amount of money involved.

If you are aware of financial misconduct involving a government entity and would like to discuss your information with a reputable attorney, contact Berger Montague today.