Bloomberg News

AIG Decision on U.S. Claims Case Challenged by Greenberg

March 12, 2013

Former American International Group Inc. (AIG:US) Chief Executive Officer Maurice “Hank” Greenberg asked a judge to reject the company’s decision not to join his lawsuit against the U.S. over its bailout of the insurer, saying the board was coerced by government threats.

Greenberg’s Starr International Co., in an amended complaint filed in the U.S. Court of Federal Claims, also said the board failed to conduct a full and independent review of the lawsuit Starr brought on behalf of AIG shareholders before its Jan. 9 vote. Starr asked U.S. Claims Judge Thomas Wheeler to find the board wrongfully decided to stay out of the case.

“The United States indicated it would wage a negative public relations campaign against AIG and its directors, terminate any cooperative relationship with AIG, and heavily scrutinize AIG’s SEC, tax and other filings from the 2008 to 2010 period when defendant controlled AIG,” wrote Starr’s lawyer, David Boies of Boies, Schiller & Flexner LLP.

The U.S. initially took a stake of 80 percent in the company, and the holding climbed to 92 percent as the aid package swelled to $182.3 billion. The New York-based insurer repaid the assistance last year.

Unanimous Vote

AIG’s board unanimously agreed not to join the suit, saying it was unlikely to succeed and risked harming the insurer’s reputation after the bailout.

The case “threatened to destroy much of the good work that AIG and its employees had done rebuilding AIG and its name,” the board said in a Jan. 23 court filing. “This concern was consistent with the media coverage and statements made by elected officials highly critical of AIG for even considering the demand.”

Starr, a closely held investment company, sued the government in 2011 for $25 billion, calling the public assumption of almost 80 percent of AIG stock in September 2008 a seizure of property in violation of the U.S. Constitution’s Fifth Amendment right to just compensation.

AIG will move to dismiss the derivative claims asserted by Starr in AIG’s name, the company said today in an e-mailed statement.

“The AIG board of directors’ decision has not changed since it refused in January the Starr demand in its entirety, and AIG will neither pursue these claims itself nor permit Starr to pursue them in AIG’s name,” according to the statement.

Charles Miller, a Justice Department spokesman, declined to comment on the filing.

‘No Merit Whatsoever’

“Two months ago, the AIG Board of Directors carefully reviewed Starr’s allegations and decided that they were not worth pursuing,” according to a Treasury Department statement. “We continue to believe that the claims have no merit whatsoever, and we will continue to defend the case vigorously.”

Yesterday, Wheeler granted a request by Starr to certify two classes of AIG investors in the suit.

Starr, in the amended complaint filed late yesterday in Washington, says AIG’s board was elected to act in the best interests of the Treasury Department. The directors who decided to stay out of Greenberg’s suit were involved in the 2008 takeover, according to the complaint.

“The personal and reputational interest of such individuals could not allow them to vote in favor of the lawsuit,” according to the complaint.

Damages Evidence

The board didn’t properly take into account Wheeler’s ruling allowing the case to proceed and ignored evidence as to damages, according to the complaint. AIG’s own $23 billion valuation of equity interest taken in September 2008 was rejected in favor of an economist who said the value was far below what Starr claimed, according to the complaint.

As part of a campaign to intimidate AIG board members, government officials “condemned the AIG Board for even considering, much less accepting, the demand,” Starr said.

Wheeler has said he anticipates a trial in the fall of 2014.

The case is Starr International Co. v. U.S., 1:11-cv-00779, U.S. Court of Federal Claims (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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