Today AIG will file suit against Moore Capital and ICP Asset Management over a CDO that ICP created called Triaxx, which the insurer says cost it millions, the New York Times reports.ICP was sued over the deal already last year, by the SEC.
This suit is reportedly “the first of what could be a series of lawsuits against Wall Street firms, contending [AIG] was the victim of fraud.”
Importantly: Louis Bacon’s hedge fund, Moore Capital, is not accused of fraud. The firm has been sued because it made some nice cash from the actions of ICP.
AIG thinks that because it lost out on a deal structured to benefit Moore, the firm should give up those profits.
The Damages And The Deal
The insurer wants $350 million in damages from ICP, plus what “windfall” was made by Moore on the securities.
ICP created Triaxx in 2006 and then “partnered with A.I.G. to insure the performance of the deal.”
According to the New York Times, AIG’s main problems with ICP are that:
ICP managed lots of funds and other deals. A.I.G. says in its suit that those deals presented conflicts.
ICP was supposed to ask A.I.G. for permission before it put new bonds inside Triaxx… But as the mortgage market worsened… ICP failed to do so on several occasions.
In addition, A.I.G. says that ICP used Triaxx to help another one of its funds meet a demand for cash.
Furthermore, ICP earned money from Triaxx longer than it should have because it overcharged Triaxx for certain assets, A.I.G. says.
AIG is certain that other investors and firms profited handsomely from similar deals, and “plans to sue them as well, once it learns their identities,” the NYT said.
Why AIG Can Sue ICP Over Mortgage Securities, But Not The Banks
Even though, in taking the federal bailout, AIG forfeited the right to sue banks over mortgage securities it insured, the company is still allowed “to sue the managers of those deals — like ICP.”
And in fact, AIG can sue the banks over $40 billion worth of mortgage bonds it bought from the firms “outright.”
That means firms like Goldman (concerning the Abacus product) and BofA will probably be next on AIG’s target list, since they were responsible for creating $40 billion in mortgage bonds and the insurer thinks they “issued misleading statements about the quality of the mortgages within those bonds.”
Morgan Stanley and JP Morgan (because of Bear Stearns) may also have legal action taken against them by the insurance giant.