Ex-AIG CEO Sues Government For $25B Over 2008 Takeover of Insurance Giant

Maurice R. “Hank” Greenberg, the former CEO of American International Group Inc., is suing the federal government for taking over the insurance giant in 2008. Greenberg is seeking $25 billion.

Greenberg’s Star International, which was AIG’s largest stakeholder when the government rescue took place, filed his lawsuit in the U.S. Court of Federal Claims. He contends that the government bailout and takeover of AIG was unconstitutional. The amount of damages he is seeking was arrived at from the value of the 80% AIG stake that the government got for its $182 billion bailout.

The money let AIG pay off Goldman Sachs and other counterparties, as well as compensate its executives with $182 million in bonuses. The public, however, was outraged when AIG executives were still awarded excessive compensation packages—especially considering that AIG lost $61.7 during the fourth quarter of 2008 alone. The insurer had to sell off some assets to repay the government, and Greenberg’s stake in the company suffered as a result.

Now, he is claiming that the federal government used AIG to get money to the insurance company’s trading partners. He contends that by obtaining an almost 80% stake in the insurer for bailing it out, the government took valuable property from AIG shareholders and that this violates the Fifth Amendment, which prevents the taking of private property for public use without appropriate compensation.

Greenberg’s opposition to the government bailout comes as no surprise. Earlier this year, he wrote in the Wall Street Journal that the government overstepped when it took preferred stock with the option to change these into common stock. Such transactions were performed without the approval of shareholders, which he believes violates Delaware law. AIG was incorporated there.

Last year, the Treasury Department upped its stake in AIG to 92.1% when it turned preferred shares into common shares. However, it sold some of its shares to investors in May so its ownership percentage in AIG is now at 77%. It is still trying to recover over $41 billion from the sale of the rest of its stake.

AIG Bailout
The government seized control of AIG not long after it became clear that Lehman Brothers Inc. was going to have to shut down. Per the terms of the agreement, the Fed said it would lend AIG $85 billion, and the government was given the substantial equity stake. The takeover came on the heels of the government also seized Freddie Mac and Freddie Mae as they stood on the brink of collapse. Merrill Lynch & Co, which was also in trouble, agreed to let Bank of America Corp. buy it.

U.S. to Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash as Credit Dries Up, The Wall Street Journal, September 16, 2008

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