The CEO and directors of American International Group Inc. were sued in Delaware Chancery Court by the City of New Orleans Employees’ Retirement System, which blamed mismanagement and risk-taking for the shareholder losses.
The lawsuit, believed to be one of the first filed against the insurance giant since it was bailed out by the government earlier in the week for $85 billion, was brought by the retirement system as an investor. It seeks the return to AIG of all compensation paid to the CEO and directors, among other damages, according to Reuters.
The plaintiffs reportedly asserted that the defendants — including AIG Chief Executive Robert Willumstad, lead director Stephen Bollenbach, and other current and former officers and directors at the company — were to blame for the company’s “exposure to and grossly imprudent risk taking in the subprime lending market and derivative instruments.”
As part of the federal bailout this week, former Allstate CEO and veteran finance chief Edward Liddy was named to replace Willumstad. Bollenbach is the retired CEO of Hilton Hotels Corp. and long-time CFO of Walt Disney Co.
The suit also claims that AIG officials “utterly failed” to monitor operations, Bloomberg News reported. The plaintiffs asserts that directors allowed AIG to market and extend subprime loans and insure subprime-related assets without considering borrowers’ ability to pay and with unreasonably high risk of default, the wire service noted.
“Defendants were ill-prepared to monitor AIG’s submersion into the subprime market and unduly heavy investments in credit derivatives, a business strategy that blew up in their faces,” the complaint said. “While many financial institutions have suffered in connection with subprime and other housing related issues in recent months, AIG has watched its stock drop by close to 95 percent since June 2007, has wasted untold goodwill, and has watched its already dubious reputation suffer immense additional harm.”