AIG may join bailout law­suit against US govt

The Pak Banker - - 6BUSINESS -

Amer­i­can In­ter­na­tional Group Inc, the in­surer res­cued by the U.S. gov­ern­ment in 2008, said it is con­sid­er­ing join­ing a law­suit that claims the bailout terms were un­fair, draw­ing angry con­dem­na­tion from law­mak­ers. A lead­ing con­gres­sional Demo­crat called crit­i­cism of the deal's terms "ut­terly ridicu­lous," and for­mer New York At­tor­ney Gen­eral Eliot Spitzer - who probed AIG when he was in of­fice - called the prospect of a law­suit "in­sult­ing to the pub­lic."

The White House de­clined to com­ment on the po­ten­tial for a law­suit but de­fended the $182 bil­lion bailout. Newly elected Se­na­tor El­iz­a­beth War­ren, feared by Wall Street as a po­ten­tial thorn in its side on the Se­nate Bank­ing Com­mit­tee, called the law-

Psuit talk "out­ra­geous" and said the company should not "bite the hand that fed them for help­ing them out in a cri­sis." In a state­ment, AIG said it had no choice but to con­sider the de­mand from its for­mer chief ex­ec­u­tive, Hank Green­berg, and his hold­ing company Starr In­ter­na­tional that AIG join his law­suit. Green­berg has sued for da­m­ages over the bailout and wants AIG to join him in chal­leng­ing the "ex­or­bi­tant" terms of the gov­ern­ment res­cue.

Le­gal ac­tion by AIG would be shock­ing, given that the company has just launched a high-pro­file tele­vi­sion ad cam­paign called "Thank you, Amer­ica," in which it of­fers the pub­lic its grat­i­tude for the bailout. AIG pro­moted the ads on Twit­ter, even as it came un­der fire over a pos­si­ble law­suit. "AIG has paid back its debt to Amer­ica with a profit, and we mean it when we say thank you to the Amer­i­can peo­ple," CEO Bob Ben­mosche said in a state­ment.

"At the same time, the Board of Direc­tors has fidu­ciary and le­gal obli­ga­tions to the Company and its share­hold­ers to con­sider the de­mand served on us and re­spond in a fair, ap­pro­pri­ate, and timely man­ner," he said.

AIG said its board would meet to dis­cuss join­ing the law­suit, with three op­tions on its plate: take over and pur­sue the claims made by Starr; refuse Green­berg's de­mand and block Starr from pur­su­ing its claims; or let Starr pur­sue the claims on AIG's be­half. It ex­pects to make a decision "in the next sev­eral weeks," Ben­mosche said.

Green­berg, whose Starr In­ter­na­tional owned 12 per­cent of AIG be­fore its nearcol­lapse, has ac­cused the New York Fed of us­ing the res­cue to bail out Wall Street banks at the ex­pense of AIG share­hold­ers. He has also called the NY Fed a "loan shark" for charg­ing the "ex­or­bi­tant" in­ter­est of 14.5 per­cent on its ini­tial loan to AIG.

"If AIG en­ters this suit it would be the equiv­a­lent of a pa­tient su­ing their doc­tor for sav­ing their life," said Mark Wil­liams, a for­mer Fed­eral Re­serve bank ex­am­iner who teaches in the fi­nance depart­ment at Bos­ton Univer­sity.

A fed­eral judge in Man­hat­tan al­ready dis­missed one of Green­berg's law­suits in Novem­ber; it is be­ing ap­pealed. In his rul­ing dated Novem­ber 19, Judge Paul En­gel­mayer said AIG had no­ti­fied the court it would hold a board meet­ing Jan­uary 9 to dis­cuss join­ing one of the law­suits, with a decision ex­pected by the end of the month.

A sep­a­rate law­suit un­der dif­fer­ent le­gal the­o­ries is still pend­ing in the U.S. Court of Fed­eral Claims in Wash­ing­ton. One ex­pert in se­cu­ri­ties law said he doubted AIG would ul­ti­mately de­cide to join the case.

"All the fidu­ciary stan­dards that guide board be­hav­ior would warn against join­ing the suit," said James Cox, a pro­fes­sor of cor­po­rate and se­cu­ri­ties law at Duke Univer­sity School of Law in Durham, North Carolina. "I see noth­ing to be gained by AIG pil­ing on, and I see a lot of down­side risk."

The de­lib­er­a­tions were first re­ported by the New York Times. The New York Fed said there was no merit to any alle- gations that the bank harmed AIG. "AIG's board of direc­tors had an al­ter­na­tive choice to bor­row­ing from the Fed­eral Re­serve and that choice was bank­ruptcy. Bank­ruptcy would have left all AIG share­hold­ers with worth­less stock," a rep­re­sen­ta­tive of the bank said. Eli­jah Cum­mings, the rank­ing Demo­crat on the House Com­mit­tee on Over­sight and Gov­ern­ment Re­form, ac­knowl­edged that AIG's board has a fidu­ciary duty to con­sider the law­suit. But he also said the company had a choice in 2008 and picked what it con­sid­ered the bet­ter op­tion. "The idea that AIG might sue the gov­ern­ment is an un­be­liev­able in­sult to our na­tion's tax­pay­ers, who cleaned up the mess this firm cre­ated," he said in a state­ment.

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