WASHINGTON—A federal judge has ruled in favor of the former CEO of American International Group (IAG) and his claim that the government over-reached when it bailed out the company during the financial crisis of 2008, but also declined to award any damages.
The suit filed by Maurice R. Greenberg, AIG’s former CEO, on behalf of himself and other AIG shareholders contended the Federal Reserve did not have the legal right to take the equity and effectively become the company’s majority owner. In exchange for the bailout, the government took a 79.9% stake in the company.
Judge Thomas C. Wheeler of the United States Court of Federal Claims agreed with Greenberg’s argument, saying the government had been “unduly harsh,” but also said that Greenberg could not show that the shareholders were damaged by the seizure of the equity and therefore awarded no monetary judgment. Greenberg had been seeking nearly $40 billion in the suit.
“The inescapable conclusion is that AIG would have filed for bankruptcy,” the judge wrote. “In that event, the value of the shareholders common stock would have been zero.”
After the ruling, the Federal Reserve issued a statement that it “strongly believes that its actions in the AIG rescue during the height of the financial crisis in 2008 were legal, proper and effective. The court's decision today in Greenberg v. the United States recognizes that AIG's shareholders are not entitled to compensation for that decision, and that the Federal Reserve's extension of credit to AIG prevented losses to millions of policyholders, small businesses, and American workers who would have been harmed by AIG's collapse during the financial crisis. The terms of the credit were appropriately tough to protect taxpayers from the risks the rescue loan presented when it was made.”