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Judge Says Pimco Can Sue AIG Over Subprime Crisis

April 19, 2016, 11:58 AM UTC
Logo of troubled insurer American Intern
Logo of troubled insurer American International Group Inc. September 17, 2008 on a window at their office in the lower Manhattan area of New York.The US Federal Reserve pumped 85 billion dollars into AIG to stop the US insurance giant joining the Wall Street scrap heap, but stock markets were on edge on persistent fears over financial groups. The rescue, which gives the US government a 79.9 percent stake in American International Group, pushed Asian and European stock markets higher, but European markets then switched back into weak and volatile mood. AFP PHOTO/Stan HONDA (Photo credit should read STAN HONDA/AFP/Getty Images)
Photograph by Stan Honda — AFP/Getty Images

A federal judge on Monday cleared the way for Pacific Investment Management Co to pursue a California lawsuit accusing American International Group Inc of causing big losses by lying about its subprime mortgage exposure before its 2008 bailout.

U.S. District Judge Paul Crotty in Manhattan said it made sense for a California state court to handle Pimco’s case, rather than have him decide, as AIG wanted, whether the unit of German insurer Allianz SE waited too long to sue.

Jon Diat, an AIG spokesman, said the Manhattan-based insurer disagreed with Crotty’s decision but looks forward to defending against Pimco in California.

Timothy DeLange, a lawyer for Pimco, declined to comment.

AIG had in March 2015 won court approval of a $970.5 million class action settlement over its exposure to subprime mortgages and credit default swaps, culminating in $182.3 billion of federal bailouts.

Pimco, which oversees $1.5 trillion of assets, chose to opt out of that settlement, which some plaintiffs do when they hope to recover more by suing on their own.

The Newport Beach, California-based firm sued AIG a week later in an Orange County state court, on behalf of more than 60 funds including the flagship Pimco Total Return, over securities it bought between 2006 and 2008.

AIG then sued Pimco a month later, seeking a declaratory judgment that Pimco’s federal securities law claim was stale.

Crotty, however, said letting the California court decide the case was better than “piecemeal” litigation.

He also said he could not “countenance” AIG’s effort to seek a declaratory judgment, which he called an effort to benefit from “more favorable” legal precedents.

“After extensive litigation, it is clear that Pimco’s chosen forum (where it is headquartered) is suitable for the resolution of the dispute,” Crotty wrote.

No trial date has been set.

The case is American International Group Inc v. Pacific Investment Management Co et al, U.S. District Court, Southern District of New York, No. 15-03339. The California case is Pacific Investment Management Co et al v. American International Group Inc, California Superior Court, Orange County, No. 30-2015-00779738-CU-SL-CXC.