MANHATTAN (CN) - American International Group defrauded the United States by failing to disclose that it was selling insurance without a license during negotiations over the bailout it received during the global financial crisis, a former executive claims in a federal lawsuit.
Alex Grabcheski, the former worldwide director of human resources at an AIG subsidiary, originally filed his lawsuit under seal in May 2010.
On Tuesday, May 13, U.S. District Judge George B. Daniels unsealed the case, granting
Grabcheski leave to file an amended complaint, after the United States declined to join the action.
Grabcheski claims the insurance giant defrauded the United States in 2009 by failing to disclose the unlicensed status of two of its life insurance units when it negotiated a $25 billion reduction it owed the Federal Reserve Bank of New York as part of the bailout.
Grabcheski based his allegations on the "inside view" his position gave him to senior management of AIG's Global Life companies and the firm as a whole, and that he was on hand when AIG "suffered a spectacular liquidity crisis" in September 2008, he says in the lawsuit.
In June 2009, AIG and the Federal Reserve Bank entered into agreements under which the balance due under the loan - then $60 billion - would be rescued by $25 billion in exchange for the bank's receiving preferred equity interests in newly formed limited liability companies that would directly or indirectly hold 100 percent of the common stock of two AIG subsidiaries: American International Assurance Ltd. and American Life Insurance Co. Inc.
Among the conditions of the deal were assurances by AIG that the subsidiaries had all necessary licenses and permits, no liabilities or obligations, and that they complied in all respects with applicable law.
"However ... as AIG (but not the FRBNY) knew at the time, each of the foregoing warranties and representations was materially false. As a result, the conditions for requiring the FRBNY to close on the debt-reduction transactions were not satisfied," Grabcheski says in the complaint.
In all, AIG received $182.3 billion in taxpayer funding, according to Bloomberg News. The insurer repaid the United States in 2012.
AIG spokesman Jon Diat said in a statement that Grabcheski's claims are "contradicted by the fact that the government made a $22 billion profit from its investment in AIG."
Grabcheski seeks treble damages on behalf of the U.S. government, and a percentage of any recovery, under the False Claims Act.
He is represented by Regina Alter with Butzel Long, of Manhattan.