The class action against AIG

The usual drill in a class-action securities fraud lawsuit is to create a "class period," defined by two dates. Date A is that day on which the company should have disclosed some specific important piece of information. Date B is that day on which the public became aware of it anyway.

The class, then, consists of all persons who bought the defendant company stock between A and B. It is worth noting that just holding stock during that period doesn't make one a member of the class so defined. Nor does selling stock then have any relevance. The class consists of buyers within the class period.

The reason? only a buyer can claim to have been over-charged. The buyers are complaining that between A and B, the market price was higher than it would have been had the market in general been aware of the realities.

The filing against AIG last year fit this pattern. The class period begins in October 1999, on the basuis of a press release put out that month that described consolidated assets as $259 billion and shareholders' equity as $32.3 billion. The class period continues until October 2004, when the CBS MarketWatch issued an article headlined "Spitzer attacks insurance industry," which disclosed to the public (as the plaintiffs see it) that the kind of claims re: assets and equity the company had been claiming for fivce years were based on the manipulation of the financial statements.

The law firm that represents AIG is Paul Weiss Rifkand. It has argued that the plaintiff doesn't have a case for "scienter," or in layfolk term that they were knowingly committing fraud. They can't be held responsible for the fact that a New York State A-G would eventually get a bee in his bonnet about certain practices, after all. Did they understand that the accounting procedures and re-insurance deals at issue would result in pumping up the price of their stock?

That's enough work for me on a Christmas Day. Enjoy the holiday, all.