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July 2016: Complete Victory in Dismissal of False Claims Act Case

July 2016

The firm recently obtained a complete dismissal, with prejudice, of a federal False Claims Act lawsuit against American International Group, Inc. (“AIG”) pending in the Southern District of New York. The suit alleged a multi-billion dollar fraud on the U.S. Treasury and Federal Reserve in connection with the bailout during the financial crisis of 2008. The district court adopted every one of our arguments, dismissed the complaint, and denied leave for the plaintiff to try to rescue the complaint through further amendments and supplements. With this victory, AIG is one giant step closer to ending a years-long saga involving federal and state regulatory investigations and multiple lawsuits.

The essential allegation in all these cases is that former AIG foreign insurance subsidiaries ALICO and AIA had, for decades, practiced unlicensed insurance business by holding meetings with potential clients in New York and then concealed the conduct from regulators. These companies turned out to be key to AIG’s survival during the financial crisis because they served as collateral for the tens of billions of dollars in aid AIG received from the federal government. AIG transferred its ownership of these companies to the Federal Reserve in exchange for a $25 billion reduction in the debt AIG accumulated during the financial crisis.

The litigation began when ALICO’s former head of human resources brought a sealed case under the federal False Claims Act alleging that AIG had deliberately lied to the Federal Reserve and Treasury and concealed the allegedly illegal insurance business at ALICO and AIA during negotiations over debt reduction, meaning that the federal government may have overpaid by potentially billions of dollars. He also informed prosecutors at the U.S. Attorney’s Office in the Southern District of New York, the New York Department of Financial Services, the Manhattan District Attorney’s Office, and the New York Attorney General.

After the Justice Department began investigating, we convinced prosecutors that the case was meritless and that the Justice Department should decline to intervene in the suit. But the relator forged ahead on his own, focusing his allegations on admissions made by MetLife—which purchased ALICO subsequent to AIG’s debt-reduction transactions—when it settled with New York insurance regulators and admitted guilt for the same underlying conduct. Although the plaintiff attempted to marshal the admissions contained in MetLife’s public settlements against AIG, we focused the court on the fact the plaintiff had zero basis to establish that anyone at AIG knowingly made any false statements to the U.S. government during the negotiations over ALICO and AIA. Because it was AIG that received the debt relief, the plaintiff needed to prove that someone at AIG knew that ALICO and AIA had been conducting insurance business without a license for decades.

The district court agreed entirely, but it did not stop there. It also concluded that the plaintiff could not sufficiently plead any false statement in the first place, because he could not identify a single instance of actual unlicensed insurance conduct, even though he had had several chances to do so in amended complaints. Moreover, the court concluded that even if AIG knowingly concealed the illegal insurance activity and lied about it (it had not), it was not material in the context of a $25 billion transaction that, after all, was designed to help AIG reduce its debt and the save company, not to mention the global financial system. The result was a complete dismissal, with prejudice, of a long-running, high-stakes False Claims Act case and a public rejection of the source of myriad investigations into AIG by federal and state authorities.