(CN) - The Kuwait Investment Office claims in a class action that after the mortgage crisis began in 2007, AIG falsely assured investors that it would not be affected by collateralized debt obligations, but "lurking behind AIG's success were the hundreds of billions of dollars of exposure to the U.S. residential mortgage market, including tens of billions of dollars of exposure to subprime debt that would bring the company down."
     The exposure to risks was "continually downplayed" by company executives, according to the complaint, and the firm was actually on the path toward a liquidity crisis that would have "forced AIG into bankruptcy proceedings were it not for the $85 billion government bailout AIG announced before the opening of the market on Sept. 17, 2008."
     Defendants allegedly stated at an investor meeting in December 2007 that the possibility of sustaining a loss because of credit default swaps was "close to zero," and had more than enough capital to withstand the crisis. The firm was also having problems with lax internal controls of reporting and oversight regarding CDOs and credit default swaps, the complaint states. On Dec. 31, 2007 the company released a statement announcing the firm's "valuation loss of the CDS portfolio had mushroomed to $11.5 billion."
     Things continued to go south and by September 2008 the company needed more than $80 billion to "stay afloat," while it was "clear that private investors were not going to come to AIG's rescue, as many questions still loomed over the true value of the company's assets available for collateral and cash." Meanwhile, the firm's credit rating was suddenly downgraded by up to "three notches." AIG accepted a massive government bailout a few days later.
     The insurance firm's was "brought down" by "recklessness and greed," the complaint states. Share prices of AIG common stock were artificially bloated slipping to a paltry $2.05 pr share by September 2008.
      Plaintiffs are represented by Jonathan D. Schiller, Damien J. Marshall and Vincent Y. Liu from New York and William A. Isaacson from Washington, all from Boies, Schiller & Flexner LLP.