January 08, 2013 at 17:42 PM EST
AIG Lawsuit Would Be $182 Billion Taxpayer Slap in the Face
Just one month after American International Group Inc. (NYSE: AIG ) paid back the last of its huge $182.3 billion U.S. taxpayer-funded rescue, the insurance giant is pondering whether to join a shareholder lawsuit charging the bailout terms were unfair. Former AIG CEO Maurice Greenberg initially filed the lawsuit in 2011, claiming the 14% interest rate that the government charged, as well as the large size of its stake - 92% - were harmful to AIG shareholders. Greenberg's lawsuit seeks $25 billion in damages from the U.S. Federal Reserve and the Treasury Department. The federal government had earned a return of $22 billion from the bailout, which AIG repaid in full as of mid-December. The AIG board is scheduled to meet tomorrow (Wednesday) to discuss whether to join Greenberg's lawsuit and make a decision by the end of the month. "It's absolutely outrageous and a king-sized slap in the face to U.S. taxpayers," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "This is like a trauma victim suing the ambulance company for getting him to the hospital in time to save his life. AIG was not only all too glad to participate in the bailout and stay in business, but Greenberg helped create the mess in the first place." To continue reading, please click here...
Just one month after American International Group Inc. (NYSE: AIG) paid back the last of its huge $182.3 billion U.S. taxpayer-funded rescue, the insurance giant is pondering whether to join a shareholder lawsuit charging the bailout terms were unfair.

Former AIG CEO Maurice Greenberg initially filed the lawsuit in 2011, claiming the 14% interest rate that the government charged, as well as the large size of its stake - 92% -
were harmful to AIG shareholders.

Greenberg's lawsuit seeks $25 billion in damages from the U.S. Federal Reserve and the Treasury Department. The federal government had earned a return of $22 billion from the bailout, which AIG repaid in full as of mid-December.

The AIG board is scheduled to meet tomorrow (Wednesday) to discuss whether to join Greenberg's lawsuit and make a decision by the end of the month.

"It's absolutely outrageous and a king-sized slap in the face to U.S. taxpayers," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "This is like a trauma victim suing the ambulance company for getting him to the hospital in time to save his life. AIG was not only all too glad to participate in the bailout and stay in business, but Greenberg helped create the mess in the first place."

How is the AIG Lawsuit Even Being Considered? The AIG bailout was among the most controversial of the 2008-2009 rescues. The American public, and even Fed Chairman Ben Bernanke, were outraged that the government needed to bail out a company that had behaved so irresponsibly.

"Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, we had a situation where the failure of that company would have brought down the financial system," Bernanke said on the CBS program "60 Minutes" in March 2009. "It makes me angry. I slammed the phone more than a few times on discussing AIG."

And as if the stark appearance of ingratitude isn't enough, the news of the AIG lawsuit broke
just days after the launch of an AIG "Thank You America" advertising campaign that touts the company's recovery and repayment in full of the bailout money it received.

Given the obvious negative PR bound to erupt should the AIG board decide to join Greenberg's legal crusade against the U.S. government, why do it?

The AIG board, for better or worse, has a fiduciary duty to its shareholders to at least consider the lawsuit, no matter how insulting it may seem to the American public.

Greenberg, who has all along urged AIG to join his lawsuit, is counting on that obligation swaying the board to his side.

"The government has been saying, "We're your friend, we owned and controlled you and we let you go.' But AIG doesn't owe loyalty to the government," a person close to Greenberg told The New York Times, which broke the story late Monday. "It owes loyalty to its shareholders."

It's possible the AIG board could get off the hook, however.

One of Greenberg's suits was dismissed by a federal judge in November. (Greenberg is appealing.) Another suit filed by Greenberg with different legal arguments is pending in the U.S. Court of Federal Claims.

Should the courts throw out both suits, the AIG board will be spared any further agony over deciding between upholding its duty to shareholders and looking like biggest ingrate in the history of commerce.

But as a spokesperson for the New York Fed pointed out to Reuters, it was a decision by the company's board in 2008 that really puts the AIG lawsuit in perspective.

"AIG's board of directors had an alternative choice to borrowing from the Federal Reserve and that choice was bankruptcy. Bankruptcy would have left all AIG shareholders with worthless stock," the New York Fed spokesman said.

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