NEW YORK – American International Group, the insurer that’s weighing whether to join a shareholder lawsuit alleging its 2008 bailout was unconstitutional, would face tough odds in court, a former government watchdog said.
AIG’s board is scheduled to meet today to review whether it should join a case brought in 2011 by former Chief Executive Officer Maurice “Hank” Greenberg. The ex-CEO said that the rescue cheated shareholders by diluting their stake in the company. The insurer needed help after it was unable to raise money in equity and bond markets to pay clients who had bought protection against losses on mortgage-related securities.
“The idea that AIG would have been better off by going bankrupt, for the shareholders is a very, very hard thing to sell, I think, to a judge,” Neil Barofsky, the former inspector general of the U.S. Troubled Asset Relief Program said Tuesday on Bloomberg Television. Greenberg has “one of the best lawyers on the planet,” he said, “but I just don’t see how you get past the fact the board voted” to accept U.S. aid.
The lawsuit presents both legal and public-relations challenges for a company that repaid the remainder of a $182.3 billion bailout last year. The New York-based insurer last week began an advertising campaign to thank taxpayers for their support and highlight that the U.S. made a profit on the rescue.
AIG said in court papers in August that Greenberg’s Starr International may file a complaint against the company if it doesn’t join the case. The New York Times reported on the board meeting Monday, saying that directors may have an obligation to shareholders to consider the possibility of recovering money through a lawsuit.
AIG’s review will include presentations by the U.S. Treasury Department, Federal Reserve Bank of New York and Starr, according to the court filing from August. While the board has a responsibility to hear the arguments, joining the case would invite outrage from the public, said Barofsky.
Barofsky said he doesn’t expect AIG to “turn around and give the American taxpayer the equivalent of a giant middle finger of suing them for saving them,” Barofsky said.
Greenberg won a federal judge’s approval to proceed with the case against the U.S. in July. In the complaint, Starr said the government paid $500,000 for a stake in the company that was worth $25 billion, violating the constitutional rights of shareholders to due process and equal protection of the law. A parallel case against the New York Fed was dismissed in November.
“If AIG enters this suit, it would be the equivalent of a patient suing their doctor for saving their life,” said Mark Williams, a former Federal Reserve bank examiner who teaches finance at Boston University.
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