Greenberg Loses Key AIG Ruling -- WSJ
May 10 2017 - 3:03AM
Dow Jones News
Appeals court voids judgment that U.S. erred in taking stake in
return for bailout
By Leslie Scism
A federal appeals court on Tuesday vacated a lower court's
ruling that the 2008 federal bailout of American International
Group Inc. was unlawful, taking a moral victory away from former
Chief Executive Maurice R. "Hank" Greenberg.
Mr. Greenberg, who had built AIG into a financial-services
powerhouse, had initially sued the government in 2011. He argued
that the Federal Reserve overstepped its legal authority when it
demanded a 79.9% equity stake in AIG in exchange for an $85 billion
emergency loan to avert bankruptcy. In Tuesday's ruling, an
appellate panel ruled in favor of the U.S. government.
At the heart of the case was a dispute about the breadth of the
Fed's powers and the limits on the central bank's discretion during
the financial crisis. The matter isn't over yet. Mr. Greenberg's
legal team said it would appeal to the Supreme Court.
Mr. Greenberg, now 92 years old, filed the litigation through
Starr International Co., which was AIG's largest overall
shareholder in 2008. Mr. Greenberg is building a new insurance and
investments conglomerate, Starr Cos.
In 2015, following more than a month of trial, a U.S. Court of
Federal Claims judge ruled that the government violated the law
when it took the controlling stake in AIG. Judge Thomas C. Wheeler
concluded that the government's acquisition of the stake
constituted "an illegal exaction."
Still, Judge Wheeler accepted the government's arguments that
without the Fed's $85 billion loan to AIG, the company would have
filed for bankruptcy and shareholders likely would have been left
with nothing. So he didn't award Mr. Greenberg and the many
shareholders represented by Starr any of the $40 billion in damages
they had sought.
In the new appellate ruling, the panel concluded that Starr
International and the other AIG shareholders lacked standing to
pursue the claims directly. The appellate court said "those claims
belong exclusively to AIG," which had declined to participate in
the lawsuit.
The appellate court said it was vacating "the Claims Court's
judgment that the Government committed an illegal exaction and
remand with instructions to dismiss the equity-acquisition claims
that seek direct relief."
In a statement Tuesday afternoon, Mr. Greenberg's lead lawyer,
David Boies, said: "The trial court found that the Government had
improperly and unconstitutionally confiscated 80% of the AIG
shareholders' equity. ... The court of appeals, without disagreeing
with that finding, holds that the shareholders have no remedy....
We respectfully disagree and will ask the Supreme Court for
review."
AIG, which potentially could have been on the hook to reimburse
the government for damages, declined to comment.
Judge Wheeler's opinion had cast a shadow over the government's
role in any future financial crisis, lawyers and other legal
observers said at the time. That is because of its potential to
make officials think twice in dire circumstances about taking bold
action that isn't specifically detailed in their regulations.
The bench trial featured a parade of high-profile witnesses,
including former Fed Chairman Ben Bernanke and former Federal
Reserve Bank of New York President and Treasury Secretary Timothy
Geithner.
Early in the case, many legal observers anticipated an easy win
for the government. But in the trial, Mr. Boies used internal
emails, memos and other documents to show uncertainty and debate
within the Fed and New York Fed as to whether the government was on
solid legal footing in acquiring the AIG equity stake.
AIG fully repaid the bailout, which ultimately swelled to nearly
$185 billion, by late 2012.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
May 10, 2017 02:48 ET (06:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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