Former American International Group Inc Chief Executive Maurice "Hank" Greenberg may pursue a $25 billion lawsuit accusing the U.S. government of engineering an unconstitutional bailout of the insurer, a federal judge ruled.
Judge Thomas Wheeler of the U.S. Court of Federal Claims allowed most of the case brought on behalf of Greenberg's company Starr International Co, which once held a 12 percent AIG stake, to proceed, while dismissing some claims.
Starr sued the government last November, saying its taking of a 79.9 percent AIG stake and extending an $85 billion credit line with an onerous initial 14.5 percent interest rate deprived shareholders of their due process and equal protection rights.
Once the world's largest insurer by market value, AIG received the bailout on Sept. 16, 2008 at the height of the global financial crisis, as losses were skyrocketing from risky bets on mortgage debt through credit default swaps.
Starr claimed the government improperly seized control as a means to provide a "backdoor bailout" to Goldman Sachs Group Inc and other trading partners. Some partners were ultimately paid 100 cents on the dollar.
In a 49-page, single-spaced decision on Monday, Wheeler said "whether AIG or the government caused or contributed to the dire financial situation of AIG," and whether AIG was the ultimate intended beneficiary of the bailout, remain open issues.
"Given the existing factual disputes on these issues, the court denies the government's request to dismiss Starr's takings claim on the basis that the loan agreement was a rescue of AIG from the consequences of its own business risks," he wrote.
FAILURE OF OWN MAKING?
Wheeler added that Starr had "alleged sufficiently that the government coerced AIG's board" into accepting a bailout.
The government had countered that AIG had "asked and agreed to be rescued by the Federal Reserve Bank of New York, electing to save itself from a failure of its own making."
The Court of Federal Claims sits in Washington, D.C., and handles lawsuits seeking money from the government. Starr sued there on behalf of itself and other AIG shareholders.
Charles Miller, a spokesman for the U.S. Department of Justice, declined to comment. A lawyer for Greenberg declined immediate comment. AIG declined to comment.
NEW YORK LAWSUIT
The estimated damages reflected what Starr called the value of the government's stake on Jan. 14, 2011, when it swapped AIG preferred stock for 562.9 million common shares in exchange for $500,000 -- "virtually nothing," according to the complaint.
Starr is pursuing a separate lawsuit over the bailout against the New York Fed, whose president in 2008 was Timothy Geithner, now the U.S. Treasury Secretary.
The New York Fed on Monday filed court papers to dismiss that lawsuit, saying the bailout "avoided potentially catastrophic consequences to the national and global economies."
Greenberg, 87, had led AIG for nearly four decades prior to his 2005 ouster amid questions by regulators over the insurer's accounting.
His lawyers include David Boies, who represented Vice President Al Gore in the disputed 2000 presidential election.
AIG's bailout eventually totaled $182.3 billion. The government's stake has fallen to 61 percent.
The cases are Starr International Co v. U.S., U.S. Court of Federal Claims, No. 11-00779; and Starr International Co v. Federal Reserve Bank of New York, U.S. District Court, Southern District of New York, No. 11-08422.
(Reporting By Jonathan Stempel in New York; Additional reporting by Ben Berkowitz in Boston; Editing by Gerald E. McCormick and Tim Dobbyn)
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