New York Post

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Greenberg beats US but gets no AIG damages

- By KEVINDUGAN kdugan@nypost.com

Maurice “Hank” Greenberg won’t be getting his $ 40 billion pot of gold.

Afederal judge on Monday ruled that while the Federal Reserve oversteppe­d its bounds in 2008 by grabbing an equity stake in AIG in exchange for an $ 85 billion bailout, Greenberg, the former CEO of the giant insurer, was not entitled to any damages.

Greenberg, who holds a significan­t stake in AIG through his closely held Starr Internatio­nal, had sued Uncle Sam claiming the move by then Fed Chair Ben Bernanke to take a 79.9 percent stake in AIG robbed shareholde­rs of $ 40 billion of value.

Judge Thomas C. Wheeler disagreed — ruling in a 75page opinion that if the Fed didn’t step in, AIG would have gone bankrupt and shareholde­rs would be holding worthless stock.

“In the end, the Achilles’ heel of Starr’s case is that, if not for the Government’s interventi­on AIG would have filed for bankruptcy,” Wheeler wrote in his opinion. “In a bankruptcy proceeding, AIG’s shareholde­rs would most likely have lost 100 percent of their stock value.”

The ruling, a hollow victory for Greenberg, is a mere slap on the wrist for the Fed.

Greenberg, 90, claimed in the 2011 suit that the terms of the Fed’s loans — about 14.5 percent interest— were “extortiona­te” since other financial companies weren’t charged as much.

Judge Wheeler ruled that the Fed could charge whatever interest rate it wanted.

An appeal by both sides is possible.

The ruling resolves one of the last cases to come out of the financial crisis. The sixweek trial at the US Court of Claims in Washington served as a brightly lit stage for David Boies, Greenberg’s lawyer, who grilled some of the most important government officials from the time, including Bernanke, then Treasury Secretary Henry Paulson and then New York Fed President Timothy Geithner.

Some of the evidence unearthed by Boies— including an admission by the government in an email that the equity grab put the Fed “on thin ice” — proved embarrassi­ng for Uncle Sam.

“The problem is not with the authority of the Fed, but how it uses the authority,” said Anat Admati, finance professor at Stanford University Graduate School of Business and coauthor of “The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It” with Martin Hellwig.

While the government has broad authority to bail out a failing company, the law “does not authorize the taking of equity,” Wheeler said.

Wheeler, who during the trial was seen as agreeing with Boies on many counts, acknowledg­ed that the outcome of this case basically leaves the status quo untouched, and in effect preserves the Fed’s power to ignore limits in a section of the law and illegally extract anything it wants from a company in order to secure a loan.

“This is a very bad day for David Boies, Hank Greenberg and AIG shareholde­rs,” Dennis Kelleher, CEO of advocacy group Better Markets, told The Post, “but a very good day for US taxpayers.”

AIG shares rose 1.1 percent, to $ 62.58. A spokeswoma­n declined comment.

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