AIG FP, which had engaged in credit protection through credit default swaps, became a “central figure” in the 2008 financial crisis, according to AIG filings. With the insurer on the verge of collapse, the Federal Reserve provided AIG with an $85 billion loan to help with its liquidity difficulties.
The company has faced legal action from senior former employees who allege that AIG FP borrowed $194 million from them during the crisis and never repaid it. A case in London was appealed by AIG in 2020, while the Connecticut case, which AIG FP says it will continue to “aggressively defend”, is set to go to trial next July.
According to a disclosure document by AIG FP, the company appointed a special committee in January 2022 to consider how to prudently address “the overall problems of its capital structure” in the face of legal costs and liabilities, their conclusions leading to Bankruptcy filing on Dec. 14.
Former AIG employees claim they are owed millions
In an initial statement on Dec. 15, legal representatives for 46 employees claimed that the “real motive” for filing for bankruptcy protection was to avoid repayments to former senior employees. Claims by former employees could range from $550 million to $640 million, it said.
AIG FP was ordered to file certain documents in a Connecticut state court on Dec. 14, the same day it filed for Chapter 11 bankruptcy, according to statements filed by employee plaintiffs.
“Importantly, in the Connecticut action, AIG FP was ordered by December 14th, the date of the Chapter 11 petition, to produce documents it sought to preserve as a privilege relating to its processing of alleged AIG loans and circumstances or failed to pay its employees,” the employee filing said.
“Instead of complying with that order, AIG FP blatantly attempted to divert an essentially bipartisan dispute to this forum, masquerading it as an actual restructuring, and thereby begin this case.”
During the 2008 financial crisis, AIG FP allegedly “borrowed hundreds of millions of dollars” from employees and never paid them back.
“By 2013, with the help of employee plaintiffs, AIG repaid the federal interest and returned to profitability,” the employee’s filing said.
“While AIG FP was in a good position to reimburse its employees at this time, it never did.”
Leaving Staff Dispute Loan Status and Restructuring “Purpose”
The employee-plaintiffs further claimed that Chapter 11 “simply cannot be used for restructuring purposes” and that the loans allegedly owed to AIG were actually “equity in disguise.”
AIG FP claimed in its Dec. 14 disclosure that the loan has “senior” status to employee claims and that the total funds available to ex-employees under its scheme was only $1 million.
“Against this backdrop, employee plaintiffs will quickly dismiss the Chapter 11 case because it was filed in bad faith and without valid restructuring purposes,” the employee filing said.
“Alternatively, if the case is still in court and not dismissed in bad faith, the employee-plaintiff submits that the independent trustee—after conversion to Chapter 7 or upon appointment of a Chapter 11 trustee—be responsible for the investigation, unless Among other things, the apparent substantial transfer and dissipation of AIG FP assets prior to the Chapter 11 filing and, where appropriate, claims against AIG and other insiders for their role in the scheme.”
The AIG division had been in the process of closing for more than 14 years and had assets worth $315 million as of the filing date, according to a Dec. 14 disclosure statement. This includes $216 million in intracompany and intercompany receivables and subsidiary investments, as well as credit-linked notes and $10 million in cash on hand.
AIG was contacted for comment.