Starr International and its Chairman and Managing Director Maurice “Hank” Greenberg have amended a lawsuit against the federal government to claim that the terms of federal aid to AIG starting in 2008 “amounted to an attempt to 'steal the business.'”

The amended lawsuit was filed Jan. 31 in the U.S. Court of Claims, based in Washington. The government has until March 1 to file a motion seeking dismissal of the case.

The suit, originally filed Nov. 21, seeks $25 billion from the federal government for Starr, Greenberg “and on behalf of all others similarly situated and, derivatively, on behalf of AIG.”

On the same date, Starr also sued the Federal Reserve Bank of New York, which provided the initial $85 billion in aid to AIG in September 2008. That suit is pending in Federal District Court for the Southern District of New York in Manhattan.

That suit argues that other troubled banks were offered better terms than AIG in a “backdoor bailout.”

It charged that the Fed's government aid, starting Sept. 16, 2008 in return for 79.9 percent of AIG's stock, is an unconstitutional “taking” of property.

The amended complaint filed by Starr on behalf of Greenberg and others says that during the financial crisis, the government in a number of cases provided guarantees and access to federal funds.

The complaint says that “AIG was a particularly good candidate for such liquidity support because its assets substantially exceeded its liabilities; its problem was not one of solvency but of temporary liquidity.”

In addition, the complaint says, “a bankruptcy filing by AIG would have severely worsened the finances of many other financial institutions.”

The complaint also alleges that “rather than providing AIG with the liquidity support offered to comparable firms,” the government in September 2008 “took control of AIG away from its shareholders by becoming a controlling lender and a controlling shareholder.”

The revised complaint adds, “This was the first in a series of steps that, after taking into account subsequent government acquisitions, eventually resulted in the government acquiring over 90 percent of such shareholders' equity, of which 562,868,096 shares of AIG common stock were taken without just compensation.”

At its peak, the government provided $182 billion through TARP and other bailout programs—and provided AIG with another $25 billion at one point through a special, secret Fed program not disclosed until Bloomberg News won a court order last year requiring the Fed to disclose the special lending program.

In 2009, William K. Sjostrom Jr.—now a professor of law at the James E. Rogers College of Law at the University of Arizona—published in the Washington & Lee Law Review an analysis of AIG's problems.

By Sjostrom's calculations, AIG's fall stemmed from a staggering $32.4 billion in losses racked up by AIG's Financial Products unit. These losses were almost entirely from credit-default-swap activities.

Special Reports /

Greenberg, Starr International Amend Suit Against Federal Government

Related Stories

Recommended For You