A federal district court judge in New York today dismissed as “not plausible” a lawsuit alleging that the Federal Reserve Board acted against the interests of American International Group and its shareholders when it bailed out the company starting in September 2008.
In doing so, it dismissed the claims of Starr International and its head, Maurice “Hank” Greenberg, that amongst other allegations, that AIG was forced by the NY Fed in September 2008 to pay excessive amounts to its counterparties to satisfy its obligations under the CDS contracts. Starr claimed in the suit that that transaction served as a ‘backdoor bailout’ by the NY Fed of these counterparties.
“We are pleased with the Court’s decision to dismiss this case, which we have always believed to be without merit,” a spokesman for the NY Fed said.
A spokesman for Starr International referred all calls to Starr and Greenberg’s lawyers at Boies, Schiller and Flexner LLP, but did not respond to requests for comment.
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The amended suit was filed November 2011. It alleged among other allegations, that the NY Fed controlled AIG, either as a majority shareholder or by the exercise of actual control, and therefore was AIG’s fiduciary.
Still remaining is a $25 billion lawsuit accusing the U.S. government of engineering an unconstitutional bailout of the insurer in the federal Court of Claims in Washington. In a preliminary ruling, a federal judge has allowed that suit to proceed.
Greenberg is a major shareholder, and Starr is the original company from which AIG was created. Greenberg then and now maintained an independent interest in Starr and now controls it as a result of litigation which supported Greenberg’s request that it be divested by AIG. Starr International held a 12 percent stake in AIG before a court settlement allowed it to again become independent.
“Federal Reserve Bank of New York’s motion to dismiss the amended complaint is granted in its entirety,” said Judge Paul A. Engelmayer in a decision filed today in the Federal Court for the Southern District of New York.
“All of Starr’s claims are dismissed with prejudice, with the exception of Starr’s takings claim, which was withdrawn, and which is therefore dismissed without prejudice. The Clerk of Court is directed to terminate the motion at docket number 21, and to close this case,” Engelmayer ordered.
At the same time, the judge characterized the suit in colorful terms.
“Starr’s amended complaint paints a portrait of government treachery worthy of an Oliver Stone movie,” Engelmayer said.
“Starr claims that, as the global financial system teetered on the brink of collapse, the NY Fed seized control of AIG,” the judge said.
“Then, Starr claims, the NY Fed, in an act of Napoleonic plunder, stole AIG’s assets, re-distributing some to shore up other flagging financial institutions while keeping much of the residue for itself,” the judge said.