SACRAMENTO, CA — Leaders of the nation’s largest public retirement systems will ask their boards to approve suing troubled insurance giant American International Group, Inc. to recover $400 million in losses suffered since the company’s problems surfaced in February.
Treasurer Phil Angeles, a board member of the $182.9 billion California Public Employees Retirement System and $125 billion California State Teachers Retirement System, said Tuesday that “allegations of scandal and misconduct” at AIG have caused “grievous damage” to holdings of more than 2 million California retirees and employees.
“The losses are beyond the realm of excessive,” said CalPERS President Rob Feckner, who said he will ask the full CalPERS board on April 20 to begin legal action against AIG, its executives and auditors. CalSTRS will consider the request at its May 4-5 meeting.
California’s funds hold more than $1 billion worth of AIG stock – 20.9 million shares. The company’s stock has dropped by more than $19 a share since the start of federal and state investigations into its finances. Shares of AIG rose 85 cents, or 1.6 percent, to $52.95 in afternoon trading Tuesday on the New York Stock Exchange, near the low end of a 52-week range of $50.15 to $77.36.
AIG spokesman Joe Norton said Tuesday the company had no comment.
Feckner and Angelides said they will ask their boards to demand that AIG shareholders be allowed to nominate their own board members, a key corporate governance reform pushed by public pension funds since stock losses from earlier corporate scandals. The idea has languished nationally for 1 1/2 years after being proposed as a U.S. Securities and Exchange Commission rule change.
They also pledged to recruit other public pension funds nationally to pressure AIG. A coalition of public funds from New York, Connecticut, North Carolina, Illinois, Iowa, Oregon and elsewhere have previously aligned on the shareholder vote issue and others ranging from executive compensation to Wall Street trading practices.
California’s newest losses – $240 million at CalPERS and $160 million at CalSTRS – come three years after the two funds lost $1 billion from the 2001 collapse of energy giant Enron Corp. and telecommunications giant Worldcom Inc. in 2002.
“Four hundred million in losses means a direct hit to the taxpayers of California,” said Angelides, a Democrat who is running for governor next year. “That’s money that’s not in our pension fund to meet retirement obligations of teachers, police officers and firefighters.”
Last year, CalPERS and CalSTRS voted against electing AIG‘s audit committee and ratifying PricewaterhouseCoopers as AIG‘s independent auditor, saying AIG was also providing the firm non-audit consulting work.
“In the end we have been proven to be right,” Angelides said.
Federal authorities are probing reinsurance transactions booked by AIG, the world’s largest insurer. Investigators say the company bought reinsurance from General Reinsurance Corp. in the fourth quarter of 2000 and first quarter of 2001, but allege AIG used the deal to pump up its reserves when markets were uneasy about the company’s outstanding liabilities. The probe forced the resignation last month of chief executive officer Maurce “Hank” Greenberg.
Tuesday, he invoked his Fifth Amendment rights against self-incrimination and declined to answer questions from government investigators.
The pension funds newest losses come amid a major debate in California over taxpayers’ growing contributions to public employee retirements following $20 billion in CalPERS losses in 2001-2002. Last week, Gov. Arnold Schwarzenegger abandoned a plan to make new employees after 2007 bear financial responsibility for their own retirements using individual investment accounts. In making the proposal, Schwarzenegger cited figures showing that a $160 million taxpayer bill for retirements in 2000 jumped this year to $2.6 billion to offset the earlier investment losses.
But critics of the governor cited $122,000 in AIG campaign contributions and $53,000 from the company’s auditing firm.
“What becomes clear on a day like this is that the (pension) problem is with the corporations who have donated to him rather than the benefits we have provided to our public servants,” said Doug Heller, an advocate with the Santa Monica-based Foundation for Taxpayer and Consumer Rights.
Angelides said the newest lawsuits, if approved by the funds’ full boards in coming weeks, will join their other legal actions seeking to recover more than $2 billion in losses from Worldcom, Enron, Qwest, AOL-Time Warner, Home Store and the New York Stock Exchange.
New York State Comptroller Alan Hevesi recently announced a $2 billion settlement with J.P. Morgan Securities and affiliates, which underwrote WorldCom offerings in May 2000 and 2001.
On the Net:
California Public Employees Retirement System: http://www.calpers.ca.gov
California State Teachers Retirement System: http://www.calstrs.com