Former American International Group CEO Maurice R. "Hank" Greenberg is seeking $25 billion in damages from the federal government for the manner in which it bailed out the insurance giant in 2008.
According to the Wall Street Journal, Greenberg’s current firm, Starr International Co., filed the lawsuit today in the U.S. Court of Federal Claims in Washington, D.C. The suit alleges $182 billion bailout, which gave the government an 80% stake in company, diluted the value of shares held by the company’s existing shareholders, of whom Starr was the largest at the time of the bailout.
Greenberg has publicly blasted the terms of the bailout in the past. In a January column in the Journal, he outlined his opposition. “The $85 billion loan extended to AIG carried an enormously high interest rate of 14.5%,” he wrote. “I believed all along that the government severely overstepped its role by taking preferred stock with an option to convert into AIG common stock as additional consideration for the loan it gave to AIG. All of these transactions and the stock issuance were done without shareholder approval, a clear violation of Delaware law, the state in which AIG was incorporated.”
While AIG has moved this year to lessen the government’s stake, the lawsuit contends that the initial bailout contravenes the Fifth Amendment which forbids that private property be “taken for public use, without just compensation.”
Tim Massad, Assistant Secretary for Financial Stability at the U.S. Department of the Treasury defended the department’s actions and said it was reviewing the lawsuit. “It is important to remember that the government provided assistance to AIG – and stopped it from collapsing – in order to prevent a meltdown of the entire global financial system,” Massad said in a statement. “Our actions were necessary, legal, and constitutional.”
-- This article first appeared on Insurance Networking News.