rN l{) ' ` IY ~~'?~'r+~r J jlif'~•"C "'I r - ." } r` .iP 1 I~{!t.~~ -p lti. ~~r .l M1 Fi t ~a~llt {' ' .tillil~~,91,1~'~1 I~I'~~i'•~• ~k'''I,v ! . r • • , I[•1• f M1I ,~3_'I•i~ ,wi ,~I~ Ilf~ Itl ~ G • ~tR' F ' I' I I 1 f'•~ .,il ~l'~i^ 51 . ■,~! ~~~y~y[ J ~ I~ : ' • QED STATES DIS TA.+ T COJP T :~ SOUTHERN DISTRICT OF NEW YORK Gi6. SAN FRANCISCO LOYEES -.47 2 ° ly' t!, t' . REITREMENT SYSTEM, individually and on . ! •'I ' i I . I ;iit'1j'Pi'M~' i . j~I' I I'1~ F Mil behalf of all other similarly situatcd, s T_O i. 1}~}IIr /~1 ,I ~, I I lilll r .'•'IM1'' ~'i'I~ir ~!If i , '•~'I . I 1 ~ I i. h 4 I•I y t~Sf ~11r$f4 • C011FLP ~OItY~(~~ bF i'~ ;,='' . .,i,~ . ~ ,,~~ ~>I 1 : .• .' `I" I i i ` ; 11~,1! ; $ ! ` 'I : ! '" ail ;~•i~ j/S EDERAT! SECURITIES l ;' I ;~ f . I : 1 • : i I i1 it i ; I y~•;• i ~ I, .'I''~ . i f i'! ~ t ~. 6.'~~r,'~~~r[ y~~t hlr~ : } ! " I • . i• f l ' ~• ; , :I I ~ , 'I~I~a1 ;1~1'• I` ~' .1: ,~I '{~ it ;11'! ~4' i ;i;~•' 1 i ,~ -,+ ~',` tCAN RNATIONAL QROUP, INC ' DAL 'rr FOR: _u .Yr ,•'~.: :• ~~',{ '~.,~ . j,~ I, , ATY6blt r INC ,, QENER. .L R STJRAN'C!CORPORATION, MAURICE • , s ;~ r~, j; G N REj~BER6,11QWARD SMT HT, CHRISTIAN • ! i~fiNa'si a1 , llvfl~~'ON, aad It.M CfLABL MURPHY, All ' .+It6!(~~'~s r~ } k,Ifs, ~,~I~• ''' .. ~ f~4'~i .• ''.II' i~~~~ ' . ' i ` ~'` De~]dants. •~r~`~ 0~5 .i~°lT~tl}dlla 31 i II" r t• ' t 4' I .Y 1'» lI . f ^ '' ~ ~ I ' ;I,I~•Lf~ ~'lliEdl4~~F .~~'{~~':II' V'r!~[,yi ''I A .It 1111':Yt •rI 4«I ~ .r•. I• ~,~ . ; ~,_~ ~` ~. • ' ,' ' ' ' : I'~ '`II II f4Fl }1.. ,~51 }i ~~''r_~tr~,l}I~f ~' •}LIF }~,`F 'IS~. , ' i :~h~11 ;lIII~ y ;~ I~~ '~~i#I,~ ~~, 11~ I!. 1}, ~~ ;5 I ,: il'7~, ,III ', - ' I ''~I ~ 'j '• X11' ; III' !~ 3' ;~11x~~ r• y ;',• . ;'. r~i, ,~'"~i~sll4~~ ',^' :" I ',t4'ti` i I .~~~~'"Si[ ff~l~ill F' f •~ . .1 '~r. I, l~~'~4' . it • ~ ~ i .i I 1 ~ 1; III ~ .W ,~~ fll I~+ a. ~ I ~ ; ~, :I 1'ti l it I P - ,.. : : ~ • .t 1, f ~ • .C I• 4.' . i I jki •+~ t . 3 . r 4t TABLE OF CONTENTS Page I. INTRODUCTION . 1 II. JURISDICTION AND VENUE 3 III. THE PARTIES . 4 A. Plaintiff . 4 B. Defendants . 5 1 . Aiding and Abetting/Conspiracy . 8 2. Unnamed Participants . 8 . IV. CLASS ALLEGATIONS . 9 V. FACTUAL ALLEGATIONS . 1 0 A. The Corporate Culture At AIG . 1 0 B. AIG's Arrangements With Starr Entities . 12 C. The Pervasive Accounting Improprieties . 1 5 1 . Use Of Offshore, AIG Affiliates To Manipulate Financial Statements . 1 5 2. AIG's Sham Reinsurance Deal With General Re . 1 7 3. Covered Calls On Bonds . 1 9 4. Misstated Accounting Items . 20 D. Defendants Conceal Accounting Improprieties And Misstate AIG's Financia l Condition In Public Reports, Filings And Statements . 2 1 E. Securities Regulators Subpoena AIG's Records . 32 F. The Accounting Fraud Is Finally Revealed To The Market . 3 4 G. Violations of Accounting Rules . 3 8 VI. SCIENTER ALLEGATIONS . 4 1 VII. CAUSES OF ACTION . 42 JURY TRIAL DEMAND . 48 -1- Plaintiff San Francisco Employees' Retirement System ("Plaintiff' or "SFERS") , individually and on behalf of all those similarly situated, allege the following based upon th e investigation of plaintiffs and their counsel, including a review of regulatory investigations , regulatory filings, reports, press releases and media reports . 1. INTRODUCTION 1 . This is a class action on behalf of persons who purchased securities of America n International Group, Inc . ("AIG") between October 1, 1999 and March 30, 2005 (the "Clas s Period") arising out of defendants' dissemination of false and misleading statements concerning the Company's financial condition and accounting practices relating to, among other items, non- traditional insurance products, assumed reinsurance transactions, and use of affiliated entities fo r executive compensation . 2. What once began as a government investigation by the Office of the Attorney General for the State of New York ("NYAG") and the Securities and Exchange Commission ("SEC") into two reinsurance transactions by which defendants tried to hide liabilities from investors has now mushroomed into AIG's recent admission of pervasive accounting irregularities and conflicts of interest infecting its business . 3 . On March 30, 2005, AIG issued a press release and admitted that it had improperly entered into "transactions which appear to have been structured for the sole or primary purpose of accomplishing a desired accounting result " The transactions included a sham reinsurance deal set up with defendant General Reinsurance Corporation solely to bolster reserves; transactions with supposedly independent companies that were in fact controlled b y AIG; bond transactions that allowed AIG to claim gains without actually selling the bonds; mis- classified losses; and questionable estimates on deferred acquisition costs . AIG conceded that its net worth would have to be reduced by $1.7 Billion . 4. In response to this news , AIG's stock value plunged. Between February 14, 2005 , when AIG first disclosed that it had received subpoenas from the SEC and NYAG, and April 1 , 2005, after AIG startling admissions , AIG's share value fell approximately 30%. The damages of plaintiffs and other Class members exceeded $50 billion . 5. Remarkably, rather than cooperate with regulatory investigations to ensure that al l material information was finally revealed to the public markets, defendants have resisted discovery, destroyed evidence, and engaged in blatant efforts to shield personal assets . This includes the efforts of defendant Maurice "Hank" Greenberg, the former CEO and Chairman of AIG, whopersonally negotiated some of the very deals now acknowledged to be a sham . 6. On March 25, 2004, the same day that the SEC issued subpoenas for AI G documents, lawyers representing Greenberg and his controlled companies, defendants Star r International Inc. and C.V. Starr & Co., reportedly removed 87 boxes of documents from AIG's Bermuda offices that also are occupied by Starr officials . The Starr companies were used b y Greenberg to provide millions of dollars in compensation to AIG executives, and were known to be under government scrutiny. Responding to the removal of documents, federal authoritie s were forced to take the unusual step of securing a court order securing the documents o f Greenberg, AIG and C .V. Starr and barring their destruction during the probe . 7. On Sunday, April 10, 2005, Attorney General Eliot Spitzer, who had subpoenae d AIG records, appeared on a national news program on ABC and said that Greenberg had misled the public about AIG's dealings, "That company was a black box run with an iron fist by a CE O who did not tell the truth. That is the problem. We have powerful evidence, and will proceed 2 with it. The evidence is overwhelming that these were transactions created for the purpose o f deceiving the market. We call that fraud. It is deceptive. It is wrong. It is illegal." 8 . Two days later, on April 12, 2005, Greenberg appeared to be interviewed b y government investigators but refused to answer questions and invoked the 5 " Amendment to avoid self-incrimination, following the lead of defendants Howard Smith, Christian Milton an d Michael Murphy . That same day, Greenberg filed a Form 4 with the SEC revealing that he ha d gifted his wife 41 .4 million shares of AIG, representing 95% of his personal stake . The gift was valued at $2 .68 billion on the day of the transaction. 9. On May 1, 2005, AIG announced that it needed to restate its financial statements for the years ended December 31, 2003, 2002, 2001 and 2000, the quarters ended March 31, Jun e 30, and September 30, 2004 and 2003, and the quarter ended December 31, 2003, and that its prior financial statements for those periods should no longer be relied upon. AIG also announced that its consolidated shareholders' equity would be reduced by approximately $2 . 7 billion -- or $ 1 billion more than previously announced - due to accounting errors and internal contro l deficiencies . 10 . By this action, plaintiff seeks to recover lost funds for the victims of these improper accounting schemes . II. JURISDICTION AND VENUE 11 . Plaintiff asserts claims under Sections 10(b) and 20(a) of the Securities Exchang e Act of 1934 ("1934 Act"), 15 U .S .C. §§78j(b) and 78t(a), and Rule lOb-5 . This Court has jurisdiction of this action pursuant to Section 27 of the 1934 Act, 15 U.S.C. §78aa. Venue of this action is proper in this Court pursuant to Section 27 of the 1934 Act . The subject acts and transactions occurred in this district . 3 12. Defendants, directly and/or indirectly, used the means and instrumentalities o f interstate commerce, the United States mails, and the facilities or the national securities market s in connection with the acts, conduct, and other wrongs complained of herein. III. THE PARTIE S A. Plaintiff 13 . Plaintiff San Francisco Employees' Retirement System ("SFERS" or "Plaintiff') is an agency of the City and County of San Francisco . SFERS is a defined benefit retirement plan. SFERS provides or will provide retirement benefits to over 50,000 active and retire d employees of the City and County of San Francisco, the San Francisco Unified School District, and other local agencies. Including all purchases, sales and stock splits, on a net basis SFERS acquired 336,326 total shares of AIG common stock between October 1, 1999 and March 30 , 2005.