NU Online News Service, Nov. 21, 2:06 p.m. EST

Starr International Co., run by former American International Group Inc. CEO Maurice “Hank” Greenberg, has filed a lawsuit against the United States, claiming the government violated the Constitution when it took majority ownership of AIG without compensating the company’s shareholders.

The suit, filed Nov. 21 in the U.S. Court of Federal Claims, claims the federal government violated the Fifth Amendment when it assumed an 80 percent stake in AIG while making $182.3 billion in bailout funds available to the insurer to avoid its collapse.

Starr seeks $25 billion from the lawsuit for it and a class of AIG shareholders. The amount is based on the value of the government’s stake in AIG as of Jan. 14, according to Starr.

Jan. 14 is when AIG finalized a recapitalization plan with the federal government. The government now holds a 77 percent stake in AIG.

AIG, named as a nominal defendant, declined to comment.

“The government is not empowered to trample shareholder and property rights even in the midst of a financial emergency,” the lawsuit says.

Starr says the government infringed upon constitutional provisions, stating that the federal government cannot deprive any person of property without due process of law, and cannot appropriate private property for public use without compensation—which Starr alleges happened when the government funneled billions of dollars to foreign entities, using AIG as a vehicle.

Though AIG’s rescue to preserve the country’s financial system may have been a “laudable goal,” the “ends could not and did not justify the unlawful means employed by the government to achieve that goal.”

In 2008 AIG faced liquidity issues related to its exposure to debt from credit default swaps. Starr says the government could have ended its AIG involvement with liquidity support it provided to other institutions, but instead it took majority control of AIG.

After numerous steps it took restructure debt, AIG says it is independent of government support.

AIG posted a $2.5 billion net loss during 2011's third quarter. The third-quarter loss was the company’s worst since 2009.

Special Reports /

Greenberg&rsquo;s Starr Sues U.S. for $25B Over AIG Bailout

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