AIG Defrauded U.S., Former Executive Claims in Lawsuit

American International Group Inc. (AIG) defrauded the U.S. by failing to disclose it was selling insurance without a license during negotiations with the government over a bailout in the financial crisis, a former executive claimed in a lawsuit.

Alex Grabcheski, a former human resources executive at an AIG unit, filed the suit in Manhattan federal court in 2010. Grabcheski’s claims under the federal False Claims Act became public today after the U.S. government declined to join his suit, according to court records.

Grabcheski claims the New York-based insurer defrauded the U.S. in 2009 by failing to disclose the unlicensed status of two life insurance units when it negotiated a $25 billion reduction in the amount it owed the Federal Reserve Bank of New York as part of the bailout. Grabcheski is seeking unspecified damages on behalf of the U.S. If he’s successful, he’ll be awarded a percentage of the recovery.

Benjamin Lawsky, New York’s top financial regulator, and Manhattan District Attorney Cyrus Vance Jr. have investigated AIG’s alleged marketing of insurance without a license. The company sued Lawsky’s office in April to try to block it from fining AIG.

Grabcheski’s claims are without merit, AIG spokesman Jon Diat said in an e-mailed statement today. “They are contradicted by the fact that the government made a $22 billion profit from its investment in AIG,” he said.

The claims are also based on a misunderstanding of how New York insurance laws are applied to the sale of policies outside the state, Diat said.

AIG was rescued by taxpayers in a bailout that began in 2008 and swelled to $182.3 billion. The insurer finished repaying the U.S. in 2012.

The case is U.S. ex rel. Grabcheski v. American International Group Inc., 10-cv-03902, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net

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

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