AIG, former execs settle breach of contract suit: Defendents allowed to keep fund-raising for their inaugural fund

American International Group Inc. (NYSE: AIG) last week reached an out-of-court settlement with five former partners whom it had sued earlier this month for breach of contract, breach of fiduciary duty and computer fraud (See PE Week, Feb. 6, 2006, issue).

Terms of the agreement are mostly confidential, but the former investors will be able to continue building their new firm called Cartesian Capital Group.

“Cartesian Capital Group… [has] reached a universal settlement with American International Group regarding all outstanding contractual and statutory claims raised by both parties,” says Peter Yu, managing partner of Cartesian and former head of AIG Capital Partners. “We are pleased to have resolved all of the matters with AIG and look forward to continuing to grow Cartesian’s investment practice.”

Cartesian, which will focus on private equity opportunities in the emerging markets, is believed to have an initial target cap of $750 million for its inaugural fund and has received a substantial number of verbal commitments, with a first close scheduled for late February.

In its suit, AIG claimed that its ex-employees were violating non-compete clauses by forming Cartesian, and provided evidence in the form of contract agreements for Yu and fellow defendant Bill Jarosz, a former AIG managing director.

Cartesian responded by providing amended contractual language indicating that Yu and Jarosz’s non-competes were only applicable if they resigned or were terminated for cause. This distinction was important, as AIG has acknowledged that the two were fired expressly without cause. No contractual information was provided for any of the other three defendants – each of whom voluntarily resigned after Yu and Jarosz were fired.

AIG also alleged that the defendants had engaged in computer fraud, based on post-termination AIG emails provided by Yu and Jarosz to the U.S. Department of Labor.

The defendants responded that they had never accessed the AIG computer network, and that any post-termination emails in their possession resulted from an auto forward rule put on the email address of former senior advisor (and defendant) Thomas Armstrong. AIG continued sending emails to Armstrong’s personal email address after his resignation, which the defendants argued was AIG’s fault, not theirs.

AIG did not respond to requests for comment.