By Leslie Scism
Maurice R. "Hank" Greenberg built American International Group
Inc. into a global financial-services powerhouse during nearly 40
years at its helm. But as the firm in 2008 neared collapse, three
years after his departure, he couldn't get calls, emails or faxes
returned as he tried to offer his help, people familiar with the
matter said.
Now, the 89-year-old Mr. Greenberg is getting his chance at
revenge--and, as he sees it, justice--by challenging the
government's historic bailout of AIG.
Mr. Greenberg's lawyer, David Boies, is expected starting Monday
to ask a federal judge in Washington to rule that the government
coerced AIG's board into harsh terms, allegedly cheating
shareholders including Mr. Greenberg in the process.
At the time of the rescue, Starr International Co., an
investment and charitable firm long headed by the businessman, was
AIG's largest single shareholder, with roughly an 11% stake. Mr.
Greenberg has been adamant over the years that the government ran
roughshod over him and others by taking their property without the
just compensation he maintains they were owed under the
Constitution.
At the center of the dispute is a 79.9% equity stake that the
government acquired in September 2008, in exchange for an emergency
loan of $85 billion. The since-repaid assistance ultimately
expanded to $184.6 billion, and the government stake peaked at
92%.
The government's position is that AIG sought out the rescue and
its board accepted it voluntarily as an alternative to bankruptcy.
Nothing in the Constitution or the law "required American taxpayers
to rescue AIG and cushion the fall of its shareholders, much less
to do so on terms even more favorable to Starr," it says in a court
filing.
The emergency loan by the Federal Reserve Bank of New York was
extended "to protect and stabilize the United States economy," it
also says. The New York Fed, "and therefore ultimately taxpayers,"
took on significant risk given the size of the loan, the Fed's
"prior unfamiliarity with AIG" and uncertainty about AIG's
financial condition and the general economy, a filing states.
AIG, primarily an insurance company regulated by state insurance
departments, largely got in trouble from sales of an unregulated
type of insurance by a financial-products unit to banks and others
to mitigate their risk on debt exposures.
While some of the original claims against the government have
been dismissed, the surviving ones could cost U.S. taxpayers more
than $40 billion if Starr wins. However, the government says
shareholders don't deserve any financial award as their alternative
was a possibly worse outcome in bankruptcy court.
The debate is expected to unfold over six weeks in the U.S.
Court of Federal Claims. The suit was certified as a class action
last year, and about 300,000 stockholders of AIG in 2008 and
2009--from big mutual-fund firms to AIG employees and
retirees--would share any award with Starr.
Messrs. Greenberg and Boies have maintained over the years that,
had officials listened to Mr. Greenberg at the time, his expertise
could have helped the company avoid the punishing terms it
ultimately got.
"He knows more, he has more contacts, he can raise money in all
sorts of places," Mr. Boies said in an interview with The Wall
Street Journal last year. Messrs. Boies and Greenberg declined to
be interviewed for this article, citing the pending trial.
Robert Willumstad, AIG's then-CEO, declined to comment, as did
government officials.
Much of the lawsuit's focus is on what the government did and
didn't do to foster a private-sector solution for AIG. These
contentions include assertions that the government excluded Mr.
Greenberg from important meetings, though he knew the company
well.
Starr contends the government coerced AIG's board into accepting
the rescue, partly by discouraging deals with sovereign-wealth
funds or other private sources. Mr. Greenberg might have helped
arrange a deal, so that AIG would have had options other than
bankruptcy and the rescue package that was adopted, Starr says.
The government denies those assertions and maintains it sought
to assist a private-sector solution but nothing panned out. One
person familiar with the matter said that under nearly chaotic
conditions in the financial markets, the Federal Reserve had worked
with appropriate AIG representatives: its management, board and
counsel.
Mr. Greenberg was a controversial figure as he offered to help.
He left AIG in 2005 as then-New York Attorney General Eliot Spitzer
was probing the company for alleged improper accounting to bolster
results. Mr. Greenberg, a World War II and Korean War veteran,
wanted to fight Mr. Spitzer's assertions. But the board opted to
settle the allegations against AIG itself, while Mr. Greenberg
resisted claims specific to him; those remain pending in a civil
fraud suit in New York and could go to trial in early 2015.
After AIG secured government aid, Mr. Greenberg lobbied the
company and government to revise the terms, and he unsuccessfully
tried to find other ways for AIG to eliminate or shrink the
government presence. He also was building his own insurance
business, Starr Cos.
In the interview last year, Mr. Boies said Mr. Greenberg had
received "letter after letter, email after email, from [AIG]
employees, some he had known, some he had never known, talking
about how their retirement savings had been destroyed."
Mr. Greenberg sued as the statute of limitations on some claims
approached.
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