Greenberg Sues U.S. Over A.I.G. Takeover


Maurice R. Greenberg, the former chief executive of the American International Group, sued the United States Treasury and the Federal Reserve Bank of New York on Monday, contending that their takeover of the insurer in the fall of 2008 was improper and that the Fed breached its duty to A.I.G. shareholders when it unwound the company’s disastrous bets on mortgage securities.

The two lawsuits were filed on behalf of Starr International, Mr. Greenberg’s company and a large A.I.G. shareholder. The suit against the Treasury was filed in the United States Court of Federal Claims in Washington. The case against the New York Fed, a private corporation, was brought in Federal District Court for the Southern District of New York.

“What these lawsuits say is that in our country, not even the government is above the law,” said David Boies, the lawyer at Boies, Schiller & Flexner, who represents Mr. Greenberg and Starr. “When the government takes action, although it has enormous power, there are legal limits to what they can do. One of those limits is that they cannot take private property even for a good purpose if they do it in violation of legal protection or don’t give just compensation.”

The lawsuit against the Treasury contends that the takeover of A.I.G. discriminated against the company and its shareholders by charging onerous interest rates on loans extended by the government — 14.5 percent initially — and by taking an 80 percent interest in the company over the objections of shareholders.

The terms of the government’s assistance to Citigroup, which was aided about the same time, provide a contrast, the lawsuit contends. Indicating the punitive nature of the A.I.G. rescue, the suit pointed out that Citigroup received loans at a fraction of the interest rate charged to A.I.G. and that the government took on only a modest stake in the bank.

“The government is not empowered to trample shareholder and property rights even in the midst of a financial emergency,” the lawsuit said.

At the time of the A.I.G. bailout, Henry M. Paulson Jr. was head of the Treasury and Timothy F. Geithner was president of the New York Fed. Mr. Geithner is now Treasury secretary.

A spokeswoman for the Treasury provided a statement from Tim Massad, assistant secretary for financial stability. “It is important to remember that the government provided assistance to A.I.G. — and stopped it from collapsing — in order to prevent a meltdown of the entire global financial system,” he said. “Our actions were necessary, legal and constitutional. We are reviewing the lawsuit and expect to defend our actions vigorously.”

Jack Gutt, a spokesman for the New York Fed, called the suit meritless and said that A.I.G.’s alternative to the government bailout was bankruptcy and a worthless stock. “The Federal Reserve’s actions with regard to A.I.G. helped to restore financial stability in the United States during a period of intense volatility and vulnerability in the U.S. economy,” Mr. Gutt said.

Together, the Starr lawsuits seek at least $25 billion in damages, which is the value of A.I.G. shares held by Starr before the government bailed out the insurer. But as they progress, Starr International’s lawyers will request information about the decisions to rescue A.I.G., including documents and e-mail traffic between the Treasury, the New York Fed, A.I.G. and its trading partners.

The court actions may fill in some of the details surrounding the takeover that remain shrouded in secrecy, especially the decision by the Fed to unwind the credit insurance the company had written on souring mortgage securities and pay A.I.G.’s trading partners in full. Mr. Greenberg declined to comment.

A.I.G.’s credit insurance positions were closed out in November 2008. It later emerged that New York Fed officials chose to pay the insurer’s trading partners 100 cents on the dollar, even though some institutions were willing to accept a discount. The New York Fed also tried to keep A.I.G. from identifying the institutions that received the payouts, even though the insurer argued that such disclosures were called for under securities laws.

Critics have called the Fed’s decision a backdoor bailout for prosperous institutions that had dealings with A.I.G. Only later were these institutions identified; they included Goldman Sachs, the French bank Société Générale and Deutsche Bank.

The lawsuit against the New York Fed also says that the Fed breached its duty to A.I.G. shareholders by requiring that the company release these trading partners from any possible legal actions related to the mortgage securities it had agreed to insure.

A report on the A.I.G. takeover published last month by the Government Accountability Office found inconsistencies and contradictions in New York Fed officials’ explanations for why it paid A.I.G.’s trading partners in full. The report also noted that the New York Fed’s decision to make these institutions whole on the credit insurance written by A.I.G. disregarded the expectations of Fed officials in Washington.


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