http://www.nakedcapitalism.com/2013/01/schadenfreude-alert-with-or-without-aigs-help-hank-greenberg-plans-to-torture-treasury-and-geithner.html
and...
http://dealbook.nytimes.com/2013/01/08/lawmakers-warn-a-i-g-not-to-join-lawsuit-against-u-s/
* * *
http://www.zerohedge.com/news/2013-01-08/aig-considers-suing-us-over-us-bailout-aig
( AIG prepares to formally jump the shark.... )
Submitted by Tyler Durden on 01/08/2013 08:29 -0500
Mark Lennihan/Associated PressAn American International Groupoffice building in New York in 2008.
Schadenfreude Alert: With or Without AIG’s Help, Hank Greenberg Plans to Torture Treasury and Geithner
Never underestimate the greed of a billionaire. But I have to say separately that I will thoroughly enjoy the pigfight between former AIG chief Hank Greenberg’s C.V. Starr (now the biggest shareholder in AIG) versus the Federal government over the rescue of AIG. Any cost and embarrassment that the Administration suffers will be the direct result of the Bush-Obama policies of being concerned only about savingfinancial
players rather than meting out any punishments, and for being incompetent negotiators.
The media and even some Congressmen exploded over the notion that AIG might join Greenberg in a suit against its rescuer, the US government, meaning ultimately the American taxpayer. For instance, Elijah Cummings, ranking member of the House Committee on Oversight and Government Reform, wrote:
The flip side is the AIG directors and its CEO Benmosche have been consistently intransigent in their dealings with the government (see here and here, for instance); this is one of the few boards that might be loopy enough to sign up for Greenberg’s scheme.
But all this uproar misses what I consider more interesting, and had gone under the radar until now: that the judge in the case against the government is letting the case proceed (procedurally, the cases needed to be filed in different courts). Discovery has already begun; the New York Times reports that Starr has demanded 16 million pages of documents and the DoJ has not only tasked a dozen attorneys to this case but has also been forced to hire experts.
While a few observers argue Greenberg’s suit has merit, it’s really hard to see that, at least if the detailed account of the AIG rescue in Andrew Ross Sorkin’s Too Big to Fail is remotely accurate. The Starr lawsuit tries to claim that the government discouraged sovereign wealth funds and other investors from taking a stake in AIG, meaning effectively that the government somehow preferred that AIG get in trouble and then took advantage of it. Huh? The Bush Administration wanted no part of bailouts; they clearly hoped to leave the whole credit mess in Obama’s lap but events conspired against them. In fact, as with Lehman, the Administration was trying to get a private sector rescue in place up to the last possible minute. But as the mortgage backed securities market kept collapsing, the losses in AIG’s securities lending portfolio ballooned to $20 billion (on top of a then-estimated $50 billion hole in the credit default swaps portfolio). They couldn’t raise enough money in the post Lehman panic (quelle surprise!).
The suit apparently makes the related claim that the terms imposed on AIG were punitive. First, that is what they are supposed to be, the Bagehot rule is “lend freely, at a penalty rate.” Second, punitive does not mean exploitative. Sorkin has said the terms on which the government lent were the same that the insurer was offering to private investors. Now get that: management and/or the board had to have approved those terms. If they were soliciting funding on those terms, voluntarily, from private parties, how can Starr claim the deal was extortionate? And even if the Sorkin account somehow missed key points that would complicate the picture, the board accepted the government deal because the alternative was bankruptcy, which would have wiped out the shareholders, including Starr.
The other part the fulminating misses is how many times the deal was redone, each time to make the terms more generous to AIG.
As we summarized in 2009:
So why did the NY Fed suddenly decide to fund all on its own? Why didn’t the Fed just lend along side the other firms on the same terms? I’d much rather have a bunch of Wall Street SOBs overseeing AIG than the half-hearted minders at the Fed.
Sorkin apparently corrected the second edition of his book; the claim is that what he called bonds in the first version of his book were the stock certificates of all the AIG subs. Even if true, that’s astonishingly irregular. But the point here is that Starr’s claims are barmy. The suit apparently asserts the interest rate was 14% (I’d like to see how they come up with that) and that AIG was disadvantaged by the loss of private investors. But they were going to come in on exactly the same terms that the government funded the deal at. So no financial harm was done. The only reason I can fathom for the NY Fed taking up the entire loan is that it thought it would take too long to close the deal. But the flip side is this was an $85 billion lending facility; AIG was still free to close a deal with private investors if it wanted to and use it to partially pay down the Fed loan.
Moreover, as indicated above, the original loan was only for two years. The whole idea was to have a high interest rate to force AIG to sell assets and pay the loan back. The belief was that AIG was a hugely valuable company that was suffering a holding company insolvency. If it sold its subsidiaries, surely it would have more than enough to repay the loan.
That’s not how it played out. AIG was shortly back to the well, for another $37.8 billion. It needed to have the maturity of the loan extended, since it couldn’t sell enough units (in part due to the fact that some were garbage barges; I’m told by a former state insurance examiner that Treasury was having monthly conference calls with the state insurance regulators in the 19 states in which AIG has insurance subs pressuring them not to pull the plug on them).
And remember, AIG was coddled during this process. As we wrote earlier:
How Starr can claim to have been victimized by a sugar daddy that kept shoveling more and more money at it? It got stealth bailouts too, such as Treasury going through hoops to preserve the value of $26.2 billion in net operating losses plus $9 billion of “unrealized loss on investments” that Sorkin called “a tax benefit, er, gift, from the United States government”
players rather than meting out any punishments, and for being incompetent negotiators.The media and even some Congressmen exploded over the notion that AIG might join Greenberg in a suit against its rescuer, the US government, meaning ultimately the American taxpayer. For instance, Elijah Cummings, ranking member of the House Committee on Oversight and Government Reform, wrote:
The idea that AIG might sue the government is an unbelievable insult to our nation’s taxpayers, who cleaned up the mess this firm created. I understand that AIG’s board has a fiduciary duty to consider this action, but the simple fact is that AIG did not have to accept these terms — it could have entered bankruptcy. This is like suing the paramedic who just gave you CPR because he didn’t give you a pillow. The American taxpayers were a lifeline to this firm, and for certain shareholders to now criticize the terms of the rescue is utterly ridiculous.The fact that AIG has launched a PR salvo thanking America for its rescue no doubt heightened the negative response; AIG has tried to feign gratitude to reverse the stigma of the bailout. Its board would have to be smoking something strong to join Greenberg in this lawsuit. It would suffer considerable reputational damage to chase a low-odds payoff. MarketWatch, hardly a bastion of radicalism, suggested, “How about charging AIG with treason?” As for the possible upsides, a Federal judge in the Southern District of New York already dismissed the parallel case against the New York Fed with prejudice and issued a blistering ruling; Starr is appealing.
The flip side is the AIG directors and its CEO Benmosche have been consistently intransigent in their dealings with the government (see here and here, for instance); this is one of the few boards that might be loopy enough to sign up for Greenberg’s scheme.
But all this uproar misses what I consider more interesting, and had gone under the radar until now: that the judge in the case against the government is letting the case proceed (procedurally, the cases needed to be filed in different courts). Discovery has already begun; the New York Times reports that Starr has demanded 16 million pages of documents and the DoJ has not only tasked a dozen attorneys to this case but has also been forced to hire experts.
While a few observers argue Greenberg’s suit has merit, it’s really hard to see that, at least if the detailed account of the AIG rescue in Andrew Ross Sorkin’s Too Big to Fail is remotely accurate. The Starr lawsuit tries to claim that the government discouraged sovereign wealth funds and other investors from taking a stake in AIG, meaning effectively that the government somehow preferred that AIG get in trouble and then took advantage of it. Huh? The Bush Administration wanted no part of bailouts; they clearly hoped to leave the whole credit mess in Obama’s lap but events conspired against them. In fact, as with Lehman, the Administration was trying to get a private sector rescue in place up to the last possible minute. But as the mortgage backed securities market kept collapsing, the losses in AIG’s securities lending portfolio ballooned to $20 billion (on top of a then-estimated $50 billion hole in the credit default swaps portfolio). They couldn’t raise enough money in the post Lehman panic (quelle surprise!).
The suit apparently makes the related claim that the terms imposed on AIG were punitive. First, that is what they are supposed to be, the Bagehot rule is “lend freely, at a penalty rate.” Second, punitive does not mean exploitative. Sorkin has said the terms on which the government lent were the same that the insurer was offering to private investors. Now get that: management and/or the board had to have approved those terms. If they were soliciting funding on those terms, voluntarily, from private parties, how can Starr claim the deal was extortionate? And even if the Sorkin account somehow missed key points that would complicate the picture, the board accepted the government deal because the alternative was bankruptcy, which would have wiped out the shareholders, including Starr.
The other part the fulminating misses is how many times the deal was redone, each time to make the terms more generous to AIG.
As we summarized in 2009:
he original financing was $85 billion, secured by all of AIG’s assets, with a interest rate of 8.5% over Libor, which translated into 11.5%, From the Fed’s press release:
The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.Now as readers of Andrew Ross Sorkin’s Too Big Too Fail may have noticed, there was a stunner in how this came about. Wall Street (namely, the god of syndicated lending, Jimmy Lee) has determined he could raise $50 billion on the terms outlined above, which fell short of what AIG needed. (There is another amazing vignette, when AIG needs a $14 billion overnight loan from the Fed, and Geithner demands collateral. CEO Wilmustad wonders how they will come up with that “in the next few minutes” and someone remembers “the unofficial vaults.” In the same office, AIG had “tens of billions” of physical bonds, apparently not recorded on the balance sheet. WTF? What kind of organization is about to run completely out of money, and then remembers it has “tens of billions” sitting around? Obviously someone DID know, and chose to keep that little fact secret.)
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
So why did the NY Fed suddenly decide to fund all on its own? Why didn’t the Fed just lend along side the other firms on the same terms? I’d much rather have a bunch of Wall Street SOBs overseeing AIG than the half-hearted minders at the Fed.
Sorkin apparently corrected the second edition of his book; the claim is that what he called bonds in the first version of his book were the stock certificates of all the AIG subs. Even if true, that’s astonishingly irregular. But the point here is that Starr’s claims are barmy. The suit apparently asserts the interest rate was 14% (I’d like to see how they come up with that) and that AIG was disadvantaged by the loss of private investors. But they were going to come in on exactly the same terms that the government funded the deal at. So no financial harm was done. The only reason I can fathom for the NY Fed taking up the entire loan is that it thought it would take too long to close the deal. But the flip side is this was an $85 billion lending facility; AIG was still free to close a deal with private investors if it wanted to and use it to partially pay down the Fed loan.
Moreover, as indicated above, the original loan was only for two years. The whole idea was to have a high interest rate to force AIG to sell assets and pay the loan back. The belief was that AIG was a hugely valuable company that was suffering a holding company insolvency. If it sold its subsidiaries, surely it would have more than enough to repay the loan.
That’s not how it played out. AIG was shortly back to the well, for another $37.8 billion. It needed to have the maturity of the loan extended, since it couldn’t sell enough units (in part due to the fact that some were garbage barges; I’m told by a former state insurance examiner that Treasury was having monthly conference calls with the state insurance regulators in the 19 states in which AIG has insurance subs pressuring them not to pull the plug on them).
And remember, AIG was coddled during this process. As we wrote earlier:
Look at the list of terms above. The government has the right to seize absolutely everything of value AIG has until it pays off the loansBut what did the Feds do? They kept making the terms easier, and got nothing back, not even symbolic items like formally putting the company through bankruptcy to allow management contracts to be voided, firing the board, or at least demanding their resignation letters, along with those of C level managers, so the Feds could throw them out with no hassle if deemed necessary, or even indemnification, a no-brainer whose omission is what is allowing AIG to contemplate suing Uncle Sam. A basic rule is you never give a free concession in negotiations. You get something back, and the fact that AIG kept coming back to the well (three additional times) gave the Feds plenty of time to ponder if there was anything they had missed in their earlier dealmaking. But their priority was not to protect the interest of the public, it was just to salvage AIG with as little effort on their behalf as possible.
Now given AIG’s liquidity needs, and the object of this exercise (not to have AIG go under) the second loan was presumably necessary, but the efforts to dress it up as as a loan against collateral is an amusing fiction (all this second loan does is degrade the collateral against the original loan. There are no free lunches here, except, of course, for AIG). Again, if we go back to the felon metaphor, the state had budgeted X for his care, but it turns out he has a really nasty disease that really has to be treated or it will infect the entire prison population and the guards too, so the cost of his incarceration has gone from X to X + Y.
But now we get to the heinous part. AIG should have no rights at this point. Zero. Zip. Nada. The government already on the hook for an open-ended liability. Yet the Fed is treating AIG as a party that has rights and is negotiating with them, as opposed to dictating terms. This is staggering.
How Starr can claim to have been victimized by a sugar daddy that kept shoveling more and more money at it? It got stealth bailouts too, such as Treasury going through hoops to preserve the value of $26.2 billion in net operating losses plus $9 billion of “unrealized loss on investments” that Sorkin called “a tax benefit, er, gift, from the United States government”
These aren’t the only claims that Starr makes, but they all flow from the idea that AIG was somehow snookered and abused in doing the initial bailout or that the government exercised undue control when it did one of its later restructurings in a manner that disadvantaged shareholders. Given that all these retrades amounted to corporate welfare, this is remarkably strained.
So why am I nevertheless looking forward to seeing this ridiculous lawsuit play out? Greenberg may be deluded enough to think he has a case, but he’s seasoned and legally sophisticated, so he may be operating on a different theory. I’ve mentioned before that there are two ways to prevail in litigation: by having a winnable case or by having one that can get past summary judgment in which you can inflict a ton of pain on the other side in discovery and the trial process. And remember also, Starr’s counsel David Boies cut his teeth on the IBM antitrust suit, which lasted the better part of a decade. He’s been through extremely protracted, complex litigation before.
So what might Greenberg and Boies be planning? Well if I were in their shoes, I’d try to make this case o embarrassing to the government that they are willing to pay to make it go away. Merely making it costly (like 16 million page document requests) probably is not sufficient in and of itself. If Starr can persuade the judge to keep the records unsealed, and gets embarrassing material about how the government handled the rescues into the public domain, this could be great theater, and would also let us see how much of what has been fed to folks like Sorkin was accurate. That means keeping it in the spotlight during Obama’s term, since his successor wouldn’t suffer from any revelations.
And just imagine, if this goes to court, Boies will almost certainly seek to put Paulson, Geithner and Bernanke on the stand. I don’t see how Geithner, as a private citizen, could refuse; if Bernanke is reappointed, he might escape (judges tend to show some deference in calling top executives and officials to testify if less senior people have enough knowledge to appear in their place).
Put it another way: if you thought Geithner squirmed when Elizabeth Warren grilled him, you haven’t seen anything till Boies has a go at him. That alone is reason to look on this suit with more sympathy than it otherwise deserves: it will lead any successor bailouter in chief to be a lot more careful and demanding when he shovels out cash to wards of the state.
So why am I nevertheless looking forward to seeing this ridiculous lawsuit play out? Greenberg may be deluded enough to think he has a case, but he’s seasoned and legally sophisticated, so he may be operating on a different theory. I’ve mentioned before that there are two ways to prevail in litigation: by having a winnable case or by having one that can get past summary judgment in which you can inflict a ton of pain on the other side in discovery and the trial process. And remember also, Starr’s counsel David Boies cut his teeth on the IBM antitrust suit, which lasted the better part of a decade. He’s been through extremely protracted, complex litigation before.
So what might Greenberg and Boies be planning? Well if I were in their shoes, I’d try to make this case o embarrassing to the government that they are willing to pay to make it go away. Merely making it costly (like 16 million page document requests) probably is not sufficient in and of itself. If Starr can persuade the judge to keep the records unsealed, and gets embarrassing material about how the government handled the rescues into the public domain, this could be great theater, and would also let us see how much of what has been fed to folks like Sorkin was accurate. That means keeping it in the spotlight during Obama’s term, since his successor wouldn’t suffer from any revelations.
And just imagine, if this goes to court, Boies will almost certainly seek to put Paulson, Geithner and Bernanke on the stand. I don’t see how Geithner, as a private citizen, could refuse; if Bernanke is reappointed, he might escape (judges tend to show some deference in calling top executives and officials to testify if less senior people have enough knowledge to appear in their place).
Put it another way: if you thought Geithner squirmed when Elizabeth Warren grilled him, you haven’t seen anything till Boies has a go at him. That alone is reason to look on this suit with more sympathy than it otherwise deserves: it will lead any successor bailouter in chief to be a lot more careful and demanding when he shovels out cash to wards of the state.
and...
http://dealbook.nytimes.com/2013/01/08/lawmakers-warn-a-i-g-not-to-join-lawsuit-against-u-s/
Lawmakers Warn A.I.G. Not to Join Lawsuit Against U.S.
BY MICHAEL J. DE LA MERCED
8:11 p.m. | Updated
As the board of the American International Group weighs whether to join a shareholder
lawsuit against the United States government, several lawmakers have a simple message for
the bailed-out insurer.
Don’t do it. Don’t even think about it.
With A.I.G. having fully repaid its $182 billion bailout only weeks ago, the prospect of the
company trying to claw back some of the $22 billion in profit that its rescue generated for
shareholders doesn’t sit right with several members of Congress.
At issue is the possibility that insurer may join a lawsuit filed by its former chief
executive,Maurice R. Greenberg, claiming that the 2008 bailout shortchanged investors
and violated their Fifth Amendment rights. The board is scheduled to meet on Wednesday
to hear presentations from Mr. Greenberg and representatives from the Treasury
Departmentand the Federal Reserve Bank of New York, the architects of the bailout.
In a letter to A.I.G.’s chairman, Robert S. Miller, three Democratic lawmakers sternly urged
the company to avoid “rubbing salt in the wounds” of taxpayers still furious about needing
to bail out a public company.
“A.I.G. became the poster company for Wall Street greed, fiscal mismanagement, and
executive bonuses – the taxpayer and economy be damned,” Representatives Peter Welch of
Vermont, Michael Capuano of Massachusetts and Luis V. Gutierrez of Illinois wrote in the
letter. “Now, A.I.G. apparently seeks to become the poster company for corporate
ingratitude and chutzpah.”
Senator Elizabeth Warren, the new Democratic senator from Massachusetts, added in her
own statement:
“A.I.G.’s reckless bets nearly crashed our entire economy. Taxpayers across this
country saved A.I.G. from ruin, and it would be outrageous for this company to tur
around and sue the federal government because they think the deal wasn’t generous
enough. Even today, the government provides an ongoing, stealth bailout, propping up
A.I.G. with special tax breaks — tax breaks that Congress should stop. A.I.G. should
thank American taxpayers for their help, not bite the hand that fed them for helping
them out in a crisis.“
Representative Maxine Waters of California, the ranking member of the House Financial
Services Committee, also weighed in, saying: “I would urge the board to drop its
consideration of the lawsuit, thank the American public for the $182 billion rescue package
that prevented the company’s collapse and support the reforms in the Dodd–Frank Wall
Street Reform and Consumer Protection Act that ensure that systemically important
financial institutions can no longer hold our economy hostage.”
And Representative Jan Schakowsky, Democrat of Illinois, sent a letter to A.I.G. chief
executive Robert H. Benmosche urging him not to join in. She and other co-signers wrote:
“The federal government, and more importantly, American taxpayers, are solely responsible
for your company’s existence today. We believe that the terms of the loan were not onerous
and were designed to protect the public interest.”
For his part, Mr. Benmosche said in a statement that Wednesday’s meeting is about
listening to all of the involved parties, with a decision to come in the next several weeks.
“A.I.G. has paid back its debt to America with a profit, and we mean it when we say thank
you to the American people,” he said. “At the same time, the board of directors has
fiduciary and legal obligations to the company and its shareholders to consider the demand
served on us and respond in a fair, appropriate, and timely manner.”
http://www.zerohedge.com/news/2013-01-08/aig-considers-suing-us-over-us-bailout-aig
( AIG prepares to formally jump the shark.... )
AIG Considers Suing US Over US Bailout Of AIG
Sometimes you just have to laugh - or you will cry. In what could well have been Tuesday Humor if it wasn't so real, the AIG board (fulfilling its shareholder fiduciary duty) is considering joining Hank Greenberg's suit against the government over the cruel-and-unusual bailout that saved the company. The $25bn lawsuit, as NY Times reports, based not on the basis that help was needed but that the onerous nature "taking what became a 92% stake in the company with high interest rates and funneling billions to the insurer's Wall Street clients" deprived shareholders of tens of billions of dollars and violated the Fifth Amendment(prohibiting the taking of private property for "public use, without just compensation"). The'audacious display of ingratitude' comes weeks after the firm has repaid the $182 billion bailout funneled to it and its clients by an overly generous Treasury. The firm has asked for 16 million pages of government documentation, this "slap in the face of the government" portends a question of whether the government will sue The Fed for enabling the recovery that strengthened Greenberg's case that the bailout was so harsh. Happy retirement Tim Geithner.
And from Dealbook......
Rescued by a Bailout, A.I.G. May Sue Its Savior
BY BEN PROTESS AND MICHAEL J. DE LA MERCEDMark Lennihan/Associated PressAn American International Groupoffice building in New York in 2008.
Fresh from paying back a $182 billion bailout, theAmerican International Group Inc. has been running a nationwide advertising campaign with the tagline “Thank you America.”
Behind the scenes, the restored insurance company is weighing whether to tell the government agencies that rescued it during the financial crisis: thanks, but you cheated our shareholders.
The board of A.I.G. will meet on Wednesday to consider joining a $25 billion shareholder lawsuit against the government, court records show. The lawsuit does not argue that government help was not needed. It contends that the onerous nature of the rescue — the taking of what became a 92 percent stake in the company, the deal’s high interest rates and the funneling of billions to the insurer’s Wall Street clients — deprived shareholders of tens of billions of dollars and violated the Fifth Amendment, which prohibits the taking of private property for “public use, without just compensation.”
Maurice R. Greenberg, A.I.G.’s former chief executive, who remains a major investor in the company, filed the lawsuit in 2011 on behalf of fellow shareholders. He has since urged A.I.G. to join the case, a move that could nudge the government into settlement talks.
The choice is not a simple one for the insurer. Its board members, most of whom joined after the bailout, owe a duty to shareholders to consider the lawsuit. If the board does not give careful consideration to the case, Mr. Greenberg could challenge its decision to abstain.
Should Mr. Greenberg snare a major settlement without A.I.G., the company could face additional lawsuits from other shareholders. Suing the government would not only placate the 87-year-old former chief, but would put A.I.G. in line for a potential payout.
Yet such a move would almost certainly be widely seen as an audacious display of ingratitude. The action would also threaten to inflame tensions in Washington, where the company has become a byword for excessive risk-taking on Wall Street.
Some government officials are already upset with the company for even seriously entertaining the lawsuit, people briefed on the matter said. The people, who spoke on the condition of anonymity, noted that without the bailout, A.I.G. shareholders would have fared far worse in bankruptcy.
“On the one hand, from a corporate governance perspective, it appears they’re being extra cautious and careful,” said Frank Partnoy, a former banker who is now a professor of law and finance at the University of San Diego School of Law. “On the other hand, it’s a slap in the face to the taxpayer and the government.”
For its part, A.I.G. has seized on the significance and complexity of the case, which is filed in both New York and Washington. A federal judge in New York dismissed the case, while the Washington court allowed it to proceed.
“The A.I.G. board of directors takes its fiduciary duties and business judgment responsibilities seriously,” said a spokesman, Jon Diat.
On Wednesday, the case will command the spotlight for several hours at A.I.G.’s Lower Manhattan headquarters.
Mr. Greenberg’s company, Starr International, will begin with a 45-minute presentation to the board, according to people briefed on the matter. Mr. Greenberg is expected to attend, they added.
It will be an unusual homecoming of sorts for Mr. Greenberg, who ran A.I.G. for nearly four decades until resigning amid investigations into an accounting scandal in 2005. For some years after his abrupt departure, there was bitterness and litigation between the company and its former chief.
After the Starr briefing on Wednesday, lawyers for the Treasury Department and the Federal Reserve Bank of New York — the architects of the bailout and defendants in the cases — will make their presentations. Each side will have a few minutes to rebut.
While the discussions are part of an already scheduled board meeting, securities lawyers say it is rare for an entire board to meet on a single piece of litigation.
“It makes eminent good sense in this case, but I’ve never heard of this kind of situation,” said Henry Hu, a former regulator who is now a professor at theUniversity of Texas School of Law in Austin.
It is unclear whether the directors are leaning toward joining the case. The board said in a court filing that it would probably decide by the end of January.
Until now, the insurance giant has sat on the sidelines. But its delay in making a decision, some officials say, has drawn out the case, forcing the government to pay significant legal costs.
The presentations on Wednesday come on top of hundreds of pages of submissions that the government prepared last year, a time-consuming and costly process. The Justice Department, which assigned about a dozen lawyers to the case and hired outside experts, told a judge handling the matter that Starr was seeking 16 million pages in documents from the government.
“How many?” the startled judge, Thomas C. Wheeler, asked, according to a transcript.
Struck just days after the collapse of Lehman Brothers in September 2008, the bailout of A.I.G. proved to be among the biggest and thorniest of the financial crisis rescues. The company was on the brink of collapse because of deteriorating mortgage securities that it had insured through credit-default swaps.
Starting in 2010, the insurer embarked on a series of moves aimed at repaying its taxpayer-financed bailout, including selling major divisions. It also held a number of stock offerings for the government to reduce its stake, which eventually generated a roughly $22 billion profit.
Overseeing that comeback was a new chief executive, Robert H. Benmosche, a tough-talking longtime insurance executive. Mr. Benmosche has won plaudits, including from government officials, for his managing of A.I.G.’s public relations even as he helped nurse the company back to financial health.
But he and the rest of A.I.G.’s board must now confront an equally pugnacious predecessor in Mr. Greenberg.
In the case against the government, Mr. Greenberg, through his lead lawyer, David Boies, contends that the bailout plan extracted a “punitive” interest rate of more than 14 percent. The government’s huge stake in the company also diluted the holdings of existing shareholders like Starr, which at the time was A.I.G.’s largest investor.
“The government has been saying, ‘We’re your friend, we owned and controlled you and we let you go.’ But A.I.G. doesn’t owe loyalty to the government,” a person close to Mr. Greenberg said. “It owes loyalty to its shareholders.”
The government, Starr argues, used billions of dollars from A.I.G. to settle credit-default swaps the insurer had with banks like Goldman Sachs. The deal, according to the lawsuit, empowered the government to carry out a “backdoor bailout” of Wall Street.
Starr argued that the actions violated the Fifth Amendment. “The government is not empowered to trample shareholder and property rights even in the midst of a financial emergency,” the Starr complaint says.
The Treasury Department declined to comment. A spokesman for the Federal Reserve Bank of New York, Jack Gutt, said, “There is no merit to these allegations.” He noted that “A.I.G.’s board of directors had an alternative choice to borrowing from the Federal Reserve, and that choice was bankruptcy.”
A federal judge in Manhattan agreed, dismissing the case in November. In an 89-page opinion, Judge Paul A. Engelmayer wrote that while Starr’s complaint “paints a portrait of government treachery worthy of an Oliver Stone movie,” the company “voluntarily accepted the hard terms offered by the one and only rescuer that stood between it and imminent bankruptcy.”
The United States Court of Appeals for the Second Circuit recently agreed to review the case on an expedited timeline. The judge in the United States Court of Federal Claims in Washington, meanwhile, has declined to dismiss the case and continues to await A.I.G.’s decision.
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