AIG Sues Over Right to Seek Damages for Sold Bonds

American International Group Inc. (AIG) sued to preserve its right to seek damages from the originators of devalued residential mortgage-backed securities it had to sell to the Federal Reserve Bank of New York in 2008.

AIG said in a complaint filed yesterday in New York state court in Manhattan that Maiden Lane II, an entity created by the bank to buy $21 billion of the bonds to shore up the insurer’s liquidity, alleges it owns the litigation claims for the bonds, including claims brought by AIG against Bank of America Corp. over Countrywide Financial Corp.’s mortgage-backed securities.

New York-based AIG on Jan. 9 declined to join its former chief executive officer, Maurice “Hank” Greenberg, in a lawsuit against the U.S. after lawmakers had said the case was an insult to taxpayer who bailed out the insurer during the 2008 financial crisis.

The “filing relates to AIG’s ongoing litigation against Bank of America in which AIG is asserting that Bank of America defrauded AIG in connection with the sale of certain residential mortgage-backed securities,” James Ankner, an AIG spokesman, said in a statement.

“Specifically, AIG narrowly seeks a declaration from the court that a 2008 contract between AIG and ML II did not transfer to ML II AIG’s right to sue Bank of America and other financial institutions for the billions of dollars of damages they caused,” Ankner said, referring to Maiden Lane II.

Jack Gutt, a spokesman for the Federal Reserve Bank of New York, declined to comment on the lawsuit.

‘Long Abandoned’

AIG sued Bank of America’s Countrywide unit in 2011, alleging it was misled into believing that loans underlying its investment were issued according to certain underwriting guidelines that in fact had been “long abandoned.” AIG seeks $10 billion in damages from Countrywide, including $7 billion from bonds it sold in the 2008 transaction.

Maiden Lane II was created by the New York Fed amid the 2008 financial crisis to buy about $39 billion in securities linked to home loans from AIG. The bank purchased the securities from AIG at less than their full par value. The vehicle was part of the taxpayer rescue that swelled to $182.3 billion and helped save the insurer from collapse. AIG finished repaying the bailout in December.

In yesterday’s complaint, AIG said the New York Fed provided Bank of America last month with declarations from two of its executives who stated that AIG had transferred all litigation claims to Maiden Lane II as part of the 2008 sale.

AIG also said that Bank of America in August 2011 received a draft complaint on behalf of Maiden Lane II, as part of settlement negotiations with the New York Fed over claims arising from some of the securities AIG had sold, which Bank of America argues shows that the New York Fed thought it had the right to sue for damages from the securities.

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment on AIG’s claims.

The case is American International Group v. Maiden Lane, 650115/2013, New York State Supreme Court, County of New York (Manhattan).

To contact the reporters on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Dan Kraut at dkraut2@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.