Shares of American International Group Inc. AIG declined in the last trading session after the U.S. District court passed a judgment against the company. The court ordered American International to pay a total of $970.5 million to settle a lawsuit filed against it by its shareholders.
The company will have to shell out $960 million for the settlement, while the accounting firm PricewaterhouseCoopers LLC will pay the remaining $10.5 million. The lawyers representing the investors have termed it as one of the largest securities class action recoveries stemming from the 2008 financial crisis. According to court filings, lawyers for the lead plaintiffs also won approval of almost $116.5 million in legal fees and other litigation expenses.
Per the lawsuit filed by investors, American International was accused of misstating its exposure to the subprime mortgage market through its securities lending program and its credit-default swap portfolio. The incorrect information led to the purchase of stock and debt by the shareholders which they would otherwise not have bought. This in turn resulted in losses of billions of dollars as well as a liquidity crisis impelled the company to take the bailout loan worth $182.3 billion in 2008.
The settlement is meant for shareholders who purchased American International securities between Mar 16, 2006 and Sep 16, 2008.
The U.S. District Judge has set May 5 as the deadline for investors to submit claims under the agreement. The claims administrator in the case has already received more than 40,000 investment claims.
American International has been slapped with several lawsuits in the past. The latest settlement charges further add to the company’s expenses, thereby adversely affecting margins. Lawsuits and related settlement charges not only affect the company financials, but also hamper its goodwill, thereby weighing on investor sentiments.
Currently, American International carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better-ranked stocks in the multiline insurance sector include Cigna Corp. CI, FBL Financial Group Inc. FFG and James River Group Holdings Ltd. JRVR. All of these hold a Zacks Rank #2 (Buy).
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