AIG Lawsuit May Hinge on Rule of Law in Allegation of Illegal Takings from Shareholders

August 28, 2014

A lawsuit against the federal government filed by the former head of AIG is going to trial on Sept. 29, and we’re going to be watching it with great interest.

Maurice “Hank” Greenburg was the largest stakeholder in AIG (12 percent) when the government stepped in to rescue it on Sept. 16, 2008. What happened next sounds awfully familiar: the government took nearly an 80 percent stake in the company and then did a reverse stock split that wound up, in the words of a Reuters article, “diluting the existing shareholders.”

Mr. Greenberg’s lawsuit is based on proving that the bailout was an illegal taking under the 5th Amendment. Sound familiar? In issuing his ruling, the judge didn’t say that he agreed with Greenberg’s position – just that he thinks there’s enough legal reasoning for the case to go forward. More from Reuters:

Judge Thomas Wheeler of the U.S. Court of Federal Claims said the case brought by Greenberg’s Starr International Co on behalf of itself and other AIG shareholders involves “complex financial and economic issues” that deserve analysis and testimony from qualified expert witnesses.

“The complexity of the submissions and the factual disagreements strongly point to the need for a trial,” Wheeler wrote in an order dated Monday.

If Mr. Greenberg’s case is successful, it will send a powerful and clear message to the federal government that while the rule of law may be suspended in extraordinary circumstances, the Constitution must always be re-applied as soon as possible. In the case of the illegal takings of dividends that rightfully belong to Fannie Mae and Freddie Mac, that means ending the conservatorship and restoring what it legally and contractually owed. We will keep an interested eye on the Greenberg lawsuit as it moves through trial.