Financial Services Firms Accused of Duping the Government out of $137 Billion


A California federal court has unsealed a whistleblower suit accusing AIG, Goldman Sachs, Merrill Lynch, Deutsche Bank, and Societe Generale of perpetrating a fraudulent scheme to dupe the Federal Reserve Bank of New York and the U.S. Department of the Treasury into issuing AIG more than $137 billion in bailout loans during the 2008 financial crisis, according to a Law 360 article by Derek Hawkins entitled “Whistleblower Accuses AIG, Banks of $137B Bailout Fraud,” referencing an amended complaint that had been under seal since September 2010.

The plaintiffs, a California couple, allege that AIG and the banks violated the False Claims Act by essentially lying about AIG’s financial condition, its ability to pay credit default swaps and the quality of collateralized debt obligations, according to the article.

“AIG and the co-defendants engaged in the unlawful conduct with the intent of loading up the balance sheets of their respective companies with fraudulently inflated assets, while draining their companies of cash in the form of dividend payouts, bonuses and salaries,” the complaint reportedly stated.

The banks ? whose CDOs were insured by AIG ? allegedly lied about how they used the proceeds from the loans. They allegedly knew the CDOs were high-risk and defective, but fraudulently marketed them as safe. AIG allegedly used reckless underwriting standards to offer them protection.

The plaintiffs are seeking treble damages and a jury trial.

The case is Casady et al. v. American International Group Inc. et al., case number 3:10-cv-00431, in the U.S. District Court for the Southern District of California.

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