American International Group Inc. (AIG:US) said it’s taking another step to distance itself from a 2008 bailout and the public outrage that followed by rejecting a former chief executive officer’s lawsuit over the rescue.
“What’s important for this board and for the employees of the company is to close the door on the past and focus on the future and continue to work with our customers,” Robert Benmosche, CEO of the New York-based insurer, said yesterday in a phone interview.
Former CEO Maurice “Hank” Greenberg, 87, had pressed AIG to join a 2011 lawsuit saying the U.S. violated shareholder rights by taking over the company to stabilize the economy. AIG’s deliberations over the suit revived public anger, after Benmosche, 68, had worked to restore the insurer’s reputation, running ads to thank taxpayers for the rescue. AIG repaid the government last year.
“It’s been tough on our employees and everybody to read what was written about us,” Benmosche said. “Without the support, we would have been in much worse shape today.”
David Boies, an attorney at Boies, Schiller & Flexner LLP who represents Greenberg’s Starr International Co., said that AIG’s decision not to let Starr sue on its behalf is contrary to shareholders’ interests. Starr will still pursue compensation from the government, he said in an e-mailed statement.
AIG’s board voted unanimously to reject Greenberg’s case after hearing arguments from Starr, the Treasury Department, and the Federal Reserve Bank of New York at a meeting yesterday, Benmosche said. The insurer said it plans to file a statement with the court explaining the decision.
Board members reviewed briefs in December, last week and again for about three hours on Jan. 8, Benmosche said. The CEO said he personally told Greenberg of the decision.
Joining the suit “just didn’t make sense, considering what the probabilities of success would be, and the facts around the case,” Benmosche said. “We just don’t think this should continue and AIG should not join it. And nor should it be done in AIG’s name.”
Lawmakers including Senators Elizabeth Warren and Robert Menendez and Representative Elijah Cummings had said AIG should avoid the suit, a position also taken by editorials in the New York Times and USA Today.
“I’m pleased to hear that after receiving the largest bailout by the government to a private company in United States history, AIG has decided not to sue the taxpayers who provided it,” Cummings, a Maryland Democrat, said yesterday.
Timothy Massad, assistant secretary for financial stability at the Treasury Department, said in an e-mailed statement that the decision is “consistent with AIG’s determination to rebuild the company, repay taxpayers, and move forward.”
AIG received a bailout in the 2008 financial crisis that swelled to $182.3 billion after it fell short of money to pay clients who bought protection against losses on securities linked to home loans. The U.S. recouped bailout costs in part by selling a 92 percent stake acquired in the rescue. AIG faced criticism during the financial crisis for paying bonuses after accepting taxpayer funds.
AIG’s decision may prompt a clash with Greenberg, who led the firm for almost four decades before he was forced out in 2005. Greenberg’s suit says the U.S. takeover of AIG was a violation of the constitutional rights of shareholders to due process and equal protection of the law.
“Whether or not the AIG board will be successful in blocking Starr’s efforts to recover damages for their shareholders” will be decided by the court, Boies said.
Greenberg and AIG agreed in November 2009 to settle suits stemming from his departure. AIG said it would reimburse him as much as $150 million in legal fees and return a Persian rug, photographs and other personal belongings.
Earlier that year, Edward Liddy, who was then AIG’s CEO, said Greenberg was partly responsible for the insurer’s struggles. Greenberg had said Liddy wasn’t fit to run the company, and that sales of AIG units to repay the bailout were a “tragedy.” He told Congress that risk controls he put in place were weakened or eliminated after he left.
Greenberg was forced from AIG in 2005 amid a fraud probe by then-New York Attorney General Eliot Spitzer. AIG agreed in 2006 to pay $1.64 billion to settle a fraud probe by regulators including Spitzer, who accused the company of rigging bids, duping shareholders and underfunding workers’ compensation pools. Spitzer subsequently dropped portions of the case against Greenberg, who denies wrongdoing.
AIG gained 11 cents to $35.76 yesterday in New York trading. It surged 52 percent last year.
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