A federal judge granted a group of American International Group (AIG) shareholders class-action status on Monday in a case that is starting to resemble a television drama. At the center of the lawsuit is former AIG Chief Executive Maurice "Hank" Greenberg, now CEO of Starr International Co, which was once AIG’s largest shareholder, who is suing the U.S. government for $55 billion over decisions made as a part of the 2008 bailout of the insurance giant.
Greenberg’s lawsuit alleges that the federal government “violated the statutory, contractual, and Constitutional rights” of AIG shareholders when it took a 79.9% stake and then conducted a reverse stock split without allowing existing shareholders to vote on the decision. Greenberg argues that the government demanded an excessively punitive interest rate and has treated AIG more harshly than similarly rescued institutions.
AIG itself briefly considered joining Greenberg’s lawsuit, a move which resulted in significant public backlash. Several lawmakers warned AIG not to “rub salt in the wounds” of taxpayers still furious with the need to bail out the corporation in the first place. When the board of directors declined to join the lawsuit, and moved to dismiss the claims, Greenberg accused the government of strong-arming AIG into staying on the sidelines.
Greenberg himself has a complicated past with AIG. He was investigated for fraud in 2005 by then-New York Attorney General Elliot Spitzer over his actions as CEO, and although criminal charges were dropped, Greenberg was removed as Chief Executive. He later settled several civil complaints to the tune of $15 million.
Little analysis has been offered as to the legal merits of Greenberg’s case thus far; although this is not the first time he has taken legal action on the subject. A previous case against the New York Federal Reserve was dismissed last year. "While driving a hard bargain with the counterparties might have saved AIG and its shareholders money, (the NYFR) could reasonably conclude that its statutory mission of stabilizing the economy made speed and closure a top priority,” wrote U.S. District Judge Paul Engelmayer.
In the court of public opinion, however, the backlash against AIG for even considering the lawsuit may offer a hint of what is to come. Senator Elizabeth Warren (D-Mass.), a noted critic of the banking industry, offered a scathing rebuke: “Taxpayers across this country saved A.I.G. from ruin, and it would be outrageous for this company to turn around and sue the federal government because they think the deal wasn’t generous enough.”
Thus far, such outrage has been primarily focused at AIG itself. “On the one hand, from a corporate governance perspective, it appears they’re being extra cautious and careful,” said Frank Partnoy, professor of law and finance at the University of San Diego and a former banker.
“On the other hand, it’s a slap in the face to the taxpayer and the government.” But should Greenberg find himself in the public eye, perhaps as the result of a legal victory, it’s likely that taxpayers would not take kindly to his actions.