26 October 2016
The court's decision amounts to a pyrrhic victory for former AIG chief executive Maurice "Hank" Greenberg. Photo: Bloomberg
The court's decision amounts to a pyrrhic victory for former AIG chief executive Maurice "Hank" Greenberg. Photo: Bloomberg

Greenberg wins 2008 bailout fight but no damages awarded

A US judge has awarded no damages to American International Group Inc. shareholders led by former chief executive Maurice “Hank” Greenberg in their lawsuit against the US government, despite finding that the US Federal Reserve exceeded its authority in the insurer’s 2008 bailout.

While Judge Thomas Wheeler of the Federal Court of Claims in Washington, D.C., sided with Greenberg on a key legal claim, the decision amounts to a pyrrhic victory that could help shield regulators from legal challenges to their responses in future financial crises, Reuters said.

In his opinion, Wheeler said the government showed “unduly harsh treatment” of AIG compared to other institutions it bailed out, but that shareholders ultimately benefited from the rescue.

“In the end, the Achilles’ heel of Starr’s case is that, if not for the government’s intervention, AIG would have filed for bankruptcy,” wrote Wheeler, who was appointed by former US president George W. Bush.

Greenberg, through his company Starr International Co., sued the US government in 2011. He argued federal officials acted illegally in the initial US$85 billion loan package to the stricken company, which included an interest rate of 14 percent and a nearly 80 percent stake.

Starr International was AIG’s largest shareholder at the time of the bailout, with a 12 percent stake.

Greenberg, 90, had sought as much as US$50 billion in damages on behalf of Starr and about 270,000 other shareholders.

The Federal Reserve said in a statement that it believes its actions during the bailout were “legal, proper and effective”.

The Justice Department is reviewing the court’s decision, said spokeswoman Nicole Navas. She declined to comment further. A spokesman for Greenberg did not immediately respond to requests for comment.

The decision is a blow to Greenberg, whose claims gathered momentum as his star lawyer, David Boies, hammered away at the likes of former Federal Reserve chairman Ben Bernanke and former Treasury secretaries Henry “Hank” Paulson and Tim Geithner, during a six-week trial last fall.

The New York-based insurance giant was rescued by the US government in September 2008 to stave off bankruptcy after the company ran up billions of dollars in losses stemming from insurance it wrote on shoddy mortgage securities.

Justice Department lawyers argued the bailout, which ultimately rose to US$182.3 billion, raised the value of AIG shares.

AIG finished repaying the bailout in 2012, leaving US taxpayers with a nearly US$23 billion profit.

Greenberg, who was ousted from AIG in 2005 after almost four decades at the helm, is due shortly to face trial in a separate lawsuit brought against him by the New York state, which accuses him and Howard Smith, a former AIG financial officer, of accounting fraud at AIG from 2000 to 2005.

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