AIG Won't Sue Federal Government Over $182.3 Billion Bailout
January 10, 2013 by Meg Green
NEW YORK – American International Group Inc. has refused to join shareholder Starr International Co.’s lawsuit against the U.S. government over the federal bailout of AIG in September 2008.
“In considering and ultimately refusing the demand before us, the board…properly and fully executed our fiduciary and legal obligations to AIG and its shareholders,” said Robert S. “Steve” Miller, chairman of the AIG board, in a statement. “America invested in 62,000 AIG employees, and we kept our promise to rebuild this great company, repay every dollar America invested in us, and deliver a profit to those who put their trust in us. To date, AIG has returned $205 billion to America, including a profit of $22.7 billion. We continue to thank America for its support.”
AIG, which was saved from failing when the federal government stepped in with a $182.3 billion bailout, met on Jan. 9 with representatives from both Starr and the federal government to consider whether to join Starr’s lawsuit (Best’s News Service, Jan. 8, 2012).
In November 2011, Starr filed lawsuits in the U.S. Court of Federal Claims and the U.S. District Court for the Southern District of New York alleging, among other things, the government’s 2008 receipt of a 79.9% equity interest in AIG constituted a wrongful taking without just compensation, in violation of the U.S. Constitution. The lawsuit makes claims on a derivative basis in the name of AIG and for its benefit, as well as on a direct basis on behalf of Starr and other shareholders.
Starr had requested AIG assume control of the claims Starr is pursuing in AIG’s name or allow Starr to pursue these claims on AIG’s behalf. Starr’s complaint seeks about $25 billion in damages.
In a statement earlier on Jan. 9, the board said it was considering three options: taking over Starr’s claims and prosecuting them on its own; refusing the demand and preventing the claims from being prosecuted by Starr, (a decision Starr is likely to challenge in court); or allowing Starr to prosecute the claims on AIG’s behalf.
“The AIG board has determined to refuse Starr’s demand in its entirety, and will neither pursue these claims itself nor permit Starr to pursue them in AIG’s name,” the company said in a statement.
While the New York suit was dismissed, the judge in the U.S. Court of Federal Claims case refused to toss out the case. In the lawsuit, Starr contends the government unlawfully took over AIG and then covertly funnelled billions of dollars from it to other financial institutions that were AIG clients. Starr, which is led by American International Group’s former longtime chief executive Maurice “Hank” Greenberg, was one of the largest shareholders of AIG when the government took over. Starr held about 562.9 million AIG shares when AIG was taken over. The amount of money Starr is seeking stems from market value of Starr’s shares on Jan. 14, 2011, the date on which the government received the shares, according to court records.
As of January 2011, Starr held 13.9 million shares, according to an AIG spokesman.
News of the possible lawsuit involvement, which broke Jan. 8, had already stirred up major backlash in Washington.
“Taxpayers across this country saved AIG 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,” Sen. Elizabeth Warren, D-Mass., said in a statement.
“Don’t even think about it,” U.S. Reps. Peter Welch, D-Vt., and Michael Capuano, D-Mass., wrote in a letter to Miller. “AIG became the poster company for Wall Street greed, fiscal management and executive bonuses – the taxpayer and economy be damned. Now, AIG apparently seeks to become the poster company for corporate ingratitude and chutzpah.”
Former U.S. Secretary of Labor Robert Reich tweeted, “We should countersue [AIG] for stupidity.”
While AIG may face lawsuits from shareholders, including Starr, for refusing to participate in the lawsuit against the government, the company faced public outrage if it had pursued the issue, experts said.
“A lawsuit against the U.S. government may well trigger feelings among regular citizens that the company is not only ‘biting the hand that feeds it’ but is actually trying to gain at the public’s expense,” said Matt Eventoff, owner of Princeton Public Speaking, a communications consultant.
Brian Lee, managing director of CEB, an advisory company, said, “While boards have a duty to their shareholders, they must also weigh the potential public relations fallout and negative publicity associated with these type of decisions…our experience suggest that companies often underweight the impact of reputational harm.”
But Dan Weedin, a Seattle insurance consultant and president of Toro Consulting Inc., said consumers may not be concerned with whether or not AIG had taken legal action against the government.
“Insurance buyers are funny,” Weedin said. “I don’t think most small business owners who carry AIG will care much. They are about making sure that their premiums are low, their protections good, and they tend to associate more with their agent rather than the company.”
Whether or not AIG decided to sue the federal government wouldn’t impact its business because it doesn’t involve the company’s financial stability or ability to pay claims, Weedin said.
If AIG had sued, “although you would think this might make people angry, my experience with insurance buyers is that they are more concerned about their coverage,” Weedin said. “For most, the buyout was a long time ago, and I think as long as the agents support AIG, the consumers won’t have an issue.”
As part of the bailout of AIG, the U.S. Treasury and the Federal Reserve acquired a majority of AIG’s stock. As AIG sold assets to repay the federal loans, the federal government gradually sold off its AIG stock. In December, the last of the government-owned AIG was sold, and the Treasury and the Federal Reserve said they had fully recovered the amount they committed to AIG, plus earned an additional $22.7 billion positive return (Best’s News Service, Dec. 14, 2012).
Most Starr companies and AIG companies currently have Best’s Financial Strength Rating of A (Excellent).
On the afternoon of Jan. 9, shares of AIG (NYSE: AIG) were trading at $35.76, up 0.31% from the previous close.
(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com) BN-NJ-01-09-2013 1644 ET #
