US/CANADA - The Ontario Teachers Pension Plan (OTPP) has filed a lawsuit against American International Group (AIG) claiming it made false statements over the financial security of its credit default swaps (CDS).
Gerald H Silk, partner, Bernstein Litowitz Berger & Grossmann LLP, the law firm representing the two pension funds, said the case against AIG was large with funds claiming they had lost tens of millions of dollars.
Silk added a number of pension funds were vying to take lead plaintiff status in the case brought by OTPP, but it could be years before either lawsuit came to trial.
OTTP alleged AIG had assured investors a certain CDS portfolio was secure and its valuation method was proper; but by February 2008 the company disclosed its external auditor had cited a 'material weakness in its internal control' and new assessments were carried out.
Under these new measures, losses on the CDS portfolio appeared significantly greater and, coupled with an investigation by the Securities Exchange Commission (SEC), helped wipe out more than 50% of AIG's share value between December 2006 and June 2008.
As reported in the New York Law Journal , also part of Global Pensions' parent company Incisive Media, the Jacksonville fund fought off moves by three Ohio pension funds, the lead plaintiffs of another case against AIG filed in 2004, to combine the two cases and add claims based on AIG's alleged writedowns this year to their own.
The Southern District of New York judge John E Sprizzo denied the Ohio funds' motion, saying bringing in unrelated claims to the first case would create an uncertifiable class while placing additional burdens on the defendant.
Sprizzo said: "These claims concern ... different time periods, different divisions of the company, different management, different alleged objectives, different disclosures, and different shareholders.
"This court ... finds the additional burdens placed on defendants would result in undue prejudice."
In launching its claim, OTPP said it would oppose efforts to include its allegations in an existing case.
OTPP and AIG declined to comment.
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