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Whistle-Blower Lawsuit Alleges Fraud in AIG Bailout

By Robin Enos on May 12, 2011 | Last updated on March 21, 2019

You've heard noise in the press about the lack of indictments against corporations and individuals after the AIG bailout, and the subsequent government intervention in equity markets in late 2008.

In view of a civil case just unsealed in San Diego, in-house counsel should consider their client entities' exposure to suits from individuals under the False Claims Act, 31 U.S.C. sec. 3729. This is especially true of counsel to any entity that received money or loan guarantees as part of the TARP program.

Plaintiffs have enjoyed the right to sue on behalf of the U.S. government in qui tam lawsuits since the 1860s. Since enactment, this "whistleblower" statute has had its terms broadened and narrowed by the courts and Congress. But the right of an individual to file a lawsuit "as much for the state as for himself" has remained intact in federal law.

Now Derek and Nancy Casady, two San Diego activists have alleged that AIG, Goldman Sachs, Deutsche Bank, Societe Generale and Merrill Lynch defrauded the federal government of some $84 billion.

Plaintiffs in U.S. Government ex rel. Casady v. AIG et al., Case No. 10-cv-0431 (JAH) now pending in the U.S. District Court for the Southern District of California, allege the defendant corporations, either in concert or individually, made false statements to FHA during 2008, resulting in the federal government making loans and issuing guarantees to AIG to cover losses totaling $84 billion, reports Bloomberg News.

If the Casadys can prove the bank defendants made deliberate false statements when bundling mortgage loans sold to FHA, and that AIG played along, the plaintiffs will stand in line for anywhere from 15% to 25% of any recovery the court might award.

If the Casadys' case begets copycat lawsuits, the uproar from the AIG bailout might soon be on the increase.

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