A federal judge ruled that the U.S. government exceeded its
authority in its 2008 rescue of American International Group Inc.,
handing former AIG Chief Maurice R. "Hank" Greenberg a moral
victory in a case that once seemed unwinnable.
But the judge didn't award Mr. Greenberg and other members of a
class of about 287,000 shareholders any money, accepting the
government's arguments that the company's alternative to the
government bailout had been a bankruptcy filing that likely would
have left shareholders with nothing.
"The government's unduly harsh treatment of AIG in comparison to
other institutions seemingly was misguided and had no legitimate
purpose," judge Thomas C. Wheeler of the U.S. Court of Federal
Claims wrote in his 75-page opinion.
At the center of the case is a dispute about the breadth of the
Federal Reserve's powers, and the limits on its discretion, during
the financial crisis.
The government demanded a 79.9% equity stake in the
then-teetering financial-services conglomerate in exchange for
providing an $85 billion loan at an initial 14.5% interest rate. At
the time, U.S. officials said the government acted because AIG was
so entangled with other firms around the world that they feared its
collapse would be catastrophic to the global financial system.
To award damages "would be to force the government to pay on a
propped-up stock price that it helped create with an $85 billion
loan," Judge Wheeler wrote.
Mr. Greenberg's class-action lawsuit maintained that a
decades-old law governing such emergency loans by the Federal
Reserve restricted the nation's central bank from taking the equity
stake.
AIG by the end of 2012 had fully repaid the massive
bailout—-which reached nearly $185 billion at its peak—by divesting
many units and returning to profitability in its core
property-casualty and life-insurance businesses. The government
earned a return of about $20 billion.
Write to Leslie Scism at leslie.scism@wsj.com
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