A federal court in Washington has cleared the way for Maurice Greenberg, former head of American International Group, to further pursue his claim that the U.S. government illegally took control of AIG in 2008.
Greenberg is chairman and managing director of Starr International, which once held a 12 percent stake in AIG. Greenberg himself resigned his position at AIG in 2005 under pressure from New York attorney general Eliot Spitzer’s multiple allegations of fraudulent business practices at AIG.
Judge Thomas Wheeler of the U.S. Court of Federal Claims said that Greenberg, on behalf of all shareholders of AIG at the time, had met the minimum standard to further pursue his claims.
“A plaintiff need only “state a claim to relief that is plausible on its face,” Wheeler said in his decision.
“The Court must accept as true all well-pleaded allegations in the complaint and draw all reasonable inferences in favor of the plaintiff,” he added.
Greenberg is seeking $25 billion from the government, alleging that the government “coerced” AIG’s board to turn over control of AIG to the federal government in September 2008. He argues that because AIG’s assets exceeded its liabilities, that the government should have provided it with enough liquidity to meet the demands of creditors—as it did for other troubled financial companies in 2007 and 2009—and not demanded control of 79.9 percent of its stock as the price for aid.
In a 49-page decision issued Monday, Wheeler said that 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,” Wheeler said.
The government initially provided $85 billion in cash to AIG to meet calls for additional cash on credit default swaps AIG issued to insure mortgage-backed securities other firms and individuals had bought.
Greenberg alleged that the federal government took control of AIG in order to bail out other financial institutions. He also cited the original 14.5 percent interest rate on the loans as onerous and depriving AIG shareholders of their due process and equal protection rights.
The federal government had asked a federal court to dismiss the lawsuit, alleging that AIG had asked and agreed to be rescued, “electing to save itself from a failure of its own making.”