SEC Announces Start Of Distribution Process In AIG Settlement

by Mike Godfrey, for LawAndTax-News.com, Washington

06 May 2008

The US Securities and Exchange Commission (SEC) on Monday announced the start of the process that will return more than USD800mn in fair funds to harmed investors in American International Group, Inc., which settled SEC charges of financial fraud and improper financial reporting and disclosure over a four-year period.

The US District Court for the Southern District of New York approved a distribution plan on 14th April, 2008, from the Fair Fund created by the financial penalties and disgorgement of ill-gotten gains that AIG paid in its 2006 settlement with the SEC.

The court-appointed Distribution Agent, Kenneth R. Feinberg, will administer the distribution of the fair fund to eligible current and former shareholders of AIG.

"The court's approval of the AIG Distribution Plan is a significant advancement of the Commission's goal to return to eligible investors more than USD800mn currently in the Fair Fund," explained Linda Chatman Thomsen, Director of the SEC's Division of Enforcement.

The AIG distribution is expected to be completed by the beginning of 2009.

The funds are on deposit in the court's registry earning interest. Potentially eligible claimants include:

• Any person or entity that purchased AIG common stock during the period 8th February, 2001, through and including 31st March 31, who (1) sold at a loss on or after 14th February, 2005, and/or (2) held after 31st March, 2005.
• Any person or entity who purchased certain AIG-affiliated fixed-income securities during the period 8th February, 2001, through and including 31st March, 2005 who (1) sold on or after 24th March, 2005, and/or (2) held after 31st March, 2005.

The Sarbanes-Oxley Act of 2002 provided the SEC with the authority to increase the amount of money returned to injured investors by allowing civil penalties to be included in fair fund distributions.

Prior to SOX, only disgorgement could be returned to investors. Since 2002, SEC enforcement actions have resulted in the return of more than USD3.7bn to investors.

On 9th February, 2006, the Commission filed a complaint alleging that from at least 2000 until 2005, AIG materially falsified its financial statements through a variety of sham transactions and entities, and that AIG reported materially false and misleading information about its financial condition.

On 17th February, 2006, the court entered a final judgment against AIG, to which AIG consented without admitting or denying the allegations in the Complaint. Pursuant to the final judgment, AIG paid a total of USD800mn on 3rd March, 2006 (USD700mn in disgorgement, and USD100mn in penalties).

On 14th June, 2007, the court entered an order authorizing the Commission to establish a fair fund, to include all of the funds paid by AIG.

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