AIG to pay $725million on securities lawsuit…

By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) — American International Group said Friday that it agreed to pay $725 million to settle a securities class-action lawsuit filed in the wake of a 2004 scandal.

AIG (AIG 35.64, -1.74, -4.65%) must pay $175 million within 10 days after a judge issues preliminary approval of the settlement, the company said in a regulatory filing Friday.

AIG’s obligation to pay the $550 million balance depends partly on whether it can raise the money by selling new common stock before final approval, the insurer added.

The suit, led by three Ohio public pension funds, stems from late 2004, when AIG was embroiled in an accounting scandal over alleged artificial inflation of claims reserves.

“This historic settlement is an excellent result for all shareholders harmed by AIG’s misconduct,” said Ohio Attorney General Richard Cordray, who represented the pension funds. “Ohio is determined to send a strong message to the marketplace that companies who don’t play by the rules will pay a steep price.”

Recoveries from the case are expected to total more than $1 billion, making it the tenth-largest securities class action settlement in U.S. history, he added.

If AIG doesn’t come up with the $550 million before court approval of the settlement, the plaintiffs can terminate the agreement, elect to acquire freely transferable shares of AIG common stock with a market value of $550 million provided AIG is able to obtain necessary approvals, or extend the period for AIG to complete a stock offering to fund the rest of the settlement, Cordray said in a statement.

AIG shares fell 4.7% to close at $35.64 on Friday.

Alistair Barr is a reporter for MarketWatch in San Francisco.

http://www.marketwatch.com/story/aig-to-pay-725-mln-in-class-action-settlement-2010-07-16