American International Group Inc sued two money management firms Thursday in a fight to recoup billions of dollars the bailed-out insurer said it lost due to fraud.
The insurer, 92 percent owned by the U.S. government, sued ICP Asset Management and Moore Capital in New York State Supreme Court, contending it suffered huge losses by insuring mortgage securities that one of the financial firms created.
ICP could not be immediately reached for comment. A Moore spokesman said in a statement:
"We haven't seen the complaint, and therefore can't comment on it."
AIG, which received $182 billion in bailout money, said the suit represents the start of a campaign to recover some of the losses it suffered as a result of others' misconduct.
The campaign will likely take aim at Bank of America Corp , Goldman Sachs Group Inc and other Wall Street banks, according to a person familiar with AIG's strategy. The banks sold AIG mortgage bonds with top-notch ratings that have since plummeted in value.
Bond insurers and investors have already sued the banks on similar grounds, seeking to recover billions of dollars of losses they say were caused by the banks misrepresenting the quality of the home loans that were packaged into bonds.
PART OF LARGER REVIEW
"At last year's annual meeting, AIG CEO Bob Benmosche said we would review our dealings with all of the counterparties with which we did business before and during the financial crisis to see if they harmed us by their conduct. This suit is the first result of that review," the company said.
The suit was brought by AIG's Financial Products unit.
"AIG-FP brings this action as part of American International Group's overall efforts to recoup potentially billions of dollars from the fraudulent conduct of these defendants and other parties," the complaint said.
The U.S. government rescued AIG at the height of the 2008 financial panic, pumping billions into the company, after it and other giant financial firms suffered huge losses from securities tied to the U.S. housing market crash.
A big profit from the AIG rescue and the government's eventual disentanglement ahead of U.S. elections in 2012 would be a boost for the Obama administration, coming on the heels of similar successes at Citigroup Inc and General Motors Co .
$350 MILLION DAMAGES ALLEGED
The lawsuit said the defendants breached obligations to AIG related to the creation of complex collateralized debt obligations, or CDOs.
AIG said it has suffered more than $350 million in damages from the alleged misconduct, which included using inflated values on the mortgage bonds that were packaged into the CDOs. By inflating the values, ICP created windfall profits for itself and swelled its management fees.
The lawsuit draws on allegations against ICP made by the U.S. Securities and Exchange Commission, which last year accused ICP of securities fraud.
Last year, the SEC sued ICP in Manhattan federal court, accusing the investment advisory firm of repeatedly violating federal securities laws.
That case is currently pending before Southern District Judge Lewis Kaplan. Moore Capital is not a named defendant in the SEC action.
George Canellos, the director of the SEC's regional office in New York, declined comment on the AIG suit, citing the pending litigation.
During a conference call with reporters last year, Canellos characterized the commission's lawsuit as part of a broad sweep of examinations targeting about 50 financial services firms related to CDOs and other investment vehicles frequently blamed for the collapse of the subprime mortgage market.
The AIG case is AIG Financial Products v ICP Asset Management LLC et al, Supreme Court of New York, New York County, No. 651117/2011
(Additional reporting by Martha Graybow, Noeleen Walder and Joseph Ax; Editing by Howard Goller and Gerald E. McCormick)