AIG in lawsuit with govt. over millions in tax payments Rachel Oswald

Published: Friday March 20, 2009





Print This Email This Update at bottom: AIG and Countrywide sue each other Lost for the most part in the public furor over the AIG bonuses was the news that the insurance giant is already involved in a lawsuit with the federal government over hundreds of millions in tax payments, many of which were collected from offshore tax havens.



Though news of the lawsuit over $306 million in taxes AIG wants back was first reported on at the beginning of the month, the story didn't get much traction beyond the financial press and bloggers. But then the tsunami of outrage surrounding the executive bonuses hit and the story looks like it may now be getting more attention as can be seen with this Friday report by The New York Times.



AIG filed suit against the government in February in an attempt to get back tax payments, collected in large part, reports The Times, "from its use of aggressive tax deals, some involving entities controlled by the companys financial products unit in the Cayman Islands, Ireland, the Dutch Antilles and other offshore havens."



As the federal government has an 80 percent stake in the company, AIG is effectively suing its majority owner, notes The Times.



"The company is in effect asking for even more money, in the form of tax refunds," reported The Times. "The suit also suggests that A.I.G. is spending taxpayer money to pursue its case, something it is legally entitled to do. Its initial claim was denied by the Internal Revenue Service last year."



When AIG first filed suit, it was just one of many financial giants that had taken a handout from the federal government. But since the news last weekend that company executives in the same financial products division responsible for nearly taking the country to the brink of collapse last year would be receiving $165 million in retention bonuses, populist rage, fueled by harsh rhetoric from pundits and congressmen, has crested to new heights against AIG. Whether the company decides to continue its lawsuit in the face of that public anger remains to be seen.



Fear of lawsuits from AIG and other financial companies was what lead Treasury Secretary Tim Geithner to urge Sen. Chris Dodd (D-CN) to insert a loophole into legislation that limited executive compensation in companies receiving bailout funding from the federal government. That loophole exempted contractually obligated bonuses agreed to before Feb. 11 from the new restrictions.



On Thursday, the House of Representatives did away with that restriction, by overwhelmingly passing a bill that would tax 90 percent of any bonuses received this year of employees with incomes greater than $250,000 who work for companies getting $5 billion or more in money from the government's Troubled Asset Relief Program.

AIG accuses Countrywide of breach of contract A unit of AIG filed suit in federal court in California on Thursday against Countrywide Financial Corp., charging that the company had misrepresented the health of loans that AIG insured, resulting in massive losses.



United Guaranty Mortgage Indemnity Co., a unit of AIG, has accused Countrywide of breach of contract, fraud, negligence, and unfair competition and business practices, according to a report from Businessweek.



The suit claims that Countrywide "abandoned its own underwriting guidelines to boost its market share and then misrepresented the quality of its loans so that United Guaranty would provide insurance coverage for them."



AIG, no doubt, is reacting to the lawsuit filed against them on Wednesday by Countrywide, which alleges that the insurer failed to cover more than $43 million in losses from failed real estate loans, many of which were bundled and sold as securities. Countrywide is claiming that it more than $342 million in premiums to insure the loans.



AIG is seeking unspecified punitive damages and wants the insurance policies on the loans and its payments on the policies to be canceled, reported Businessweek.



Until Bank of America bought the company in July 2008 for roughly $2.5 billion, Countrywide was the nation's largest mortgage lender.



"This is a lawsuit between two of the most vilified companies in America," said Kurt Eggert, a Chapman Law School professor, in an interview with The Los Angeles Times. "Here Countrywide displays a huge amount of chutzpah because it's suing because its loans went bad, and it claims United Guaranty should have done better underwriting, when it's the failing of underwriting by loan originators that got us into this stuff."





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