By Leslie Scism
A federal judge's ruling Monday that the government overstepped
its authority in demanding an equity stake in bailing out American
International Group Inc. scored a moral victory for the company's
former longtime chief executive, Maurice R. "Hank" Greenberg.
But the 90-year-old isn't celebrating. Mr. Greenberg said he
would appeal the decision not to award shareholders any of the $40
billion in damages they were seeking, according to a statement
issued Tuesday by the firm Mr. Greenberg now heads, Starr
International Co. Starr was AIG's largest shareholder in 2008.
"We respectfully disagree with the trial court's legal
conclusion that, under applicable appellate cases, there is no
remedy for the government's illegal conduct," the statement
said.
In the Monday ruling, Judge Thomas C. Wheeler of the U.S. Court
of Federal Claims concluded that federal law didn't permit the
government to take a 79.9% equity stake in exchange for providing
an $85 billion emergency loan to AIG in September 2008, during the
darkest days of the financial crisis. That was a central element of
Mr. Greenberg's lawsuit.
But Judge Wheeler said "zero damages" were being awarded because
he had to take into consideration that AIG's alternative to the
government's harsh deal terms was to file for bankruptcy, an
outcome that likely would have left shareholders with nothing.
Representatives of the Justice Department couldn't be
immediately reached for comment.
"We are, of course, pleased that the trial court found that the
Federal Reserve acted illegally, discriminatorily, and for improper
political purposes in requiring AIG, and AIG alone, to surrender
80% of their equity as compensation for a Federal Reserve loan,"
the statement said.
But the appeal is being pursued because "requiring AIG
shareholders to surrender 80% of their equity improperly cost the
shareholders, and improperly enriched the government by more than
$23 billion," the statement said.
Mr. Greenberg's lawsuit accused the government of cheating
existing shareholders in grabbing the stake without fair
compensation to them. Mr. Greenberg built AIG into a world-wide
financial-services conglomerate over nearly four decades before
departing in 2005.
Over the years, Mr. Greenberg, a World War II and Korean War
veteran, has repeatedly said in interviews that he brought the
lawsuit to hold the U.S. government accountable. He has said he
won't allow the government to simply take what it wants, and has
likened his lawsuit to a war.
In the Monday ruling, Judge Wheeler noted that "the end point
for this case is that, however harshly or improperly the government
acted in nationalizing AIG, it saved AIG from bankruptcy."
In his ruling, Judge Wheeler concluded that "there is nothing in
the Federal Reserve Act or in any other federal statute that would
permit a Federal Reserve Bank to take over a private corporation
and run its business as if the government were the owner." He cited
the government's replacement of AIG's then chief executive with a
manager specified by the government, and the installation of
monitors and consultants.
Judge Wheeler said "a troubling feature" of the case "is that
the government is able to avoid any damages notwithstanding its
plain violations of the Federal Reserve Act." He called it "the
Achilles' heel of Starr's case...that, if not for the government's
intervention, AIG would have filed for bankruptcy. In a bankruptcy
proceeding, AIG's shareholder would most likely have lost 100% of
their stock value."
The judge quoted testimony from one of AIG's financial advisers
about his advice to AIG's board as the loan agreement was being
crafted that "20% of something [is] better than 100% of
nothing."
Write to Leslie Scism at leslie.scism@wsj.com
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