Greenberg sues U.S. over AIG takeover - The Deal Pipeline (SAMPLE CONTENT: NEED AN ID?)
Subscriber Content Preview | Request a free trialSearch  
  Go

Restructuring

Print  |  Share  |  Reprint

Greenberg sues U.S. over AIG takeover

by Lisa Allen  |  Published November 22, 2011 at 7:00 AM
aig_227x128.jpgFormer American International Group Inc. CEO Maurice "Hank" Greenberg sued the federal government, the Federal Reserve Bank of New York and AIG on Monday, Nov. 21, contending the government's 2008 takeover of AIG was unconstitutional and done unfairly, "without just compensation."

A class action filed in the U.S. Court of Federal Claims by Greenberg's Starr International Co. asks $25 billion in compensation to shareholders, contending the government forced its stockholders to accept far harsher terms than other financially troubled firms in the middle of the financial crisis.

A second suit filed in U.S. District Court in Manhattan accuses the Federal Reserve Bank of New York and AIG of breaching their fiduciary duties to shareholders and also cites illegal taking of property.

Even as the government loaned billions of dollars to other institutions and "guaranteed hundreds of billions of dollars in loans ... to Citigroup Inc.," the government "singled out for differential -- and for far more punitive treatment," AIG, with the result that shareholders lost 80% of their equity, one of the suits said.

Greenberg's lawyer on the case is David Boies of Boies, Schiller & Flexner LLP.

Both suits charge that the government's action violated the Fifth Amendment's rights against seizure of "personal property without due process of law."

"The government is not empowered to trample shareholder and property rights, even in the midst of a financial emergency," the suits said. "Financial emergencies do not eviscerate this constitutional protection.

"The government's actions were ostensibly designed to protect the United States economy and rescue the financial system. Although this may be a laudable goal, as a matter of basic law, the ends could not and did not justify the unlawful means."

Both suits surround the actions taken in September 2008 -- during the Bush administration -- when AIG faced major liquidity hurdles. The Federal Reserve Bank of New York's stepped in to prop up the company by offering $85 billion in credit in return for a 79.9% stake in the company. At the time officials were worried that a default of AIG, a company with a massive portfolio of reinsurance products, could have massive repercussions on the economy. Eventually the U.S. government provided $182 billion, making the AIG bailout the largest during the 2008 market meltdown.

In a statement Monday, Tim Massad, Treasury's assistant secretary for financial stability, noted the significance of the help the government provided to keep AIG alive.

"It is important to remember that the government provided assistance to AIG -- and stopped it from collapsing -- in order to prevent a meltdown of the entire global financial system," he said. "Our actions were necessary, legal and constitutional. We are reviewing the lawsuit and expect to defend our actions vigorously."

Share:
Tags: AIG | Federal Reserve Bank | Hank Greenberg | law and regulation

Meet the journalists

Lisa Allen

Senior Reporter: Out-of-Court Restructuring



Movers & Shakers

Launch Movers and shakers slideshow

Did redemptions force "Bond King" Bill Gross, who has many fans, to go from leading Pimco, with about $2 trillion AUM, to a competitor with $178 billion AUM? For other updates launch today's Movers & shakers slideshow.

Video

Softbank targets Dreamworks Animation

And, action! Over the weekend reports leaked out that the Japanese telecommunications and internet titan is looking to acquire the studio, in a deal that could top $3 billion dollars. More video

Sectors