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AIG settles Ohio class action for $725mn

American International Group (AIG) has agreed to pay $725mn to settle a class action suit brought by state pension funds that alleged the group engaged in accounting frauds and misled its investors between 1999 and 2004.

The suit was brought in the Southern District of New York Court in October 2004, with the Ohio Public Employees Retirement System as lead plaintiff.

To settle the case the insurance giant will pay over $175mn immediately and has the right to raise the remaining $550mn through share offerings.

The pension funds claimed that AIG used "income smoothing" products and other fraudulent accounting techniques to inflate its earnings, according to a Securities and Exchange Commission (SEC) filing from the insurer.

In addition, they alleged that AIG misled its investors about the scope of government investigations into irregularities.

Further, it was claimed that AIG had engaged in anti-competitive behaviour by paying contingent commissions and participating in bid-rigging activities.

The lead plaintiff also alleged that then-CEO Hank Greenberg manipulated AIG's share price.

Other plaintiffs included the State Teachers Retirement System of Ohio and the Ohio Police and Fire Pension Fund.

Richard Cordray, the firebrand attorney general of Ohio, spearheaded the case, which was the latest example of his populist attacks on Wall Street entities.

In October 2009 the Ohio pension scheme reported that it had reached a settlement with Greenberg and other AIG executives including Howard Amith and Christian Milton.

As long ago as February 2006 AIG agreed to pay $1.15bn to settle a series of investigations by government agencies into similar allegations.

In exchange for the settlement, the agencies - including the Department of Justice, the SEC and the New York Attorney General's Office - brought their investigations of financial reporting and broker remuneration to a close.

The settlement was announced days after AIG lost its chairman Harvey Golub, following the deterioration of his relationship with CEO Robert Benmosche.

In his resignation letter Golub told the board that his working relationship with the CEO was "ineffective and unsustainable".

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