BUSINESS
03/12/2013 04:57 pm ET Updated Mar 12, 2013

Former AIG CEO Hank Greenberg Presses On With Lawsuit Against Feds Over AIG Bailout

Hank Greenberg is apparently never going to stop suing the U.S. government for the unthinkable offense of bailing out his old company, American International Group -- even if AIG isn't interested.

Greenberg, the former CEO of insurance giant AIG who is now running a company called Starr International Co., filed a new complaint against Uncle Sam on Tuesday, with the help of superstar lawyer David Boies. Purportedly speaking on behalf of AIG, the lawsuit accuses the government of forcing onerous bailout terms on it, to the detriment of the real victims of the financial crisis: Hank Greenberg and his fellow AIG shareholders.

In the new complaint, Greenberg more than doubles his damage claims, to more than $55 billion from $25 billion. The extra money comes from the supposed value of toxic mortgage bonds formerly belonging to AIG, which Greenberg claims were sold too cheaply by the New York Federal Reserve. He repeats his claim that the government "violated the statutory, contractual, and Constitutional rights of" him and his fellow shareholders by snagging $25 billion worth of AIG stock during the crisis.

Without the bailout, however, AIG's shares would arguably have been worth nothing at all, and the global economy might have collapsed.

While he was CEO, Greenberg pushed AIG into new products before leaving the company amid an accounting scandal in 2005. AIG got itself into deep trouble using derivatives to insure toxic mortgages that abruptly turned worthless, leaving it without the ability to pay its counterparties. Those counterparties, in turn, were threatened with ruin if AIG had gone under, along with the many money market funds, pension funds and other investors holding AIG debt.

By the time the government bailed it out, AIG's stock-market value had nearly been erased, and no private lender would throw it a lifeline.

Though the government at first imposed tough terms on AIG for the bailout, taking a nearly 80 percent stake and charging a high interest rate for a loan, the fetters loosened quickly. Within months, the government had slashed the interest rate on AIG's loan to just the London Interbank Offered Rate, a short-term lending rate known as Libor -- which as we now know was being kept artificially low by big banks.

This January, AIG's board of directors declined to join Greenberg's suit, having already sparked a public-relations nightmare by simply considering the idea briefly. In his new complaint, Greenberg claims that the government threatened AIG with visits from Black Helicopters and the IRS (or words to that effect) if it dared join his suit:

"The United States indicated it would wage a negative public relations campaign against AIG and its directors, terminate any cooperative relationship with AIG, and heavily scrutinize AIG’s SEC, tax, and other filings from the 2008 to 2010 period when [the government] controlled AIG," the complaint says.

AIG declined to respond to that specific allegation. In a statement, the company said:

“The AIG Board of Directors' decision has not changed since it refused in January the Starr demand in its entirety, and AIG will neither pursue these claims itself nor permit Starr to pursue them in AIG’s name. AIG will move to dismiss the derivative claims asserted by Starr in AIG's name, consistent with the AIG Board of Directors' previous decision."

In an interview with The Motley Fool, Greenberg explained his rationale for pursuing the lawsuit. "First of all, we have a Constitution in the United States, and there's a provision against unlawful taking by the government. You can take anything you want, but you have to pay for it," he said.

The Treasury Department, which in December sold the last of its stock in AIG, claiming a $22.7 billion profit on the deal, did not immediately respond to a request for comment on Greenberg's allegation that it had threatened AIG. In a statement to The New York Times, the Treasury Department said:

“Two months ago, the A.I.G. board of directors carefully reviewed Starr’s allegations and decided that they were not worth pursuing. We continue to believe that the claims have no merit whatsoever, and we will continue to defend the case vigorously.”

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