Former AIG CEO: The Fed Acted Illegally!
Judge Thomas Wheeler of the U.S. Court of Federal Claims ruled that former Chief Executive Officer of American International Group (NYSE:AIG), Hank Greenberg, may pursue his claim that the Federal Reserve Bank of New York’s purchase of AIG preferred shares in exchange for the insurer’s bailout was illegal.
Monday’s decision denied a government motion to reconsider a July ruling that allowed Greenberg’s Starr International to sue for illegal exaction. Starr once held a 12 percent stake in AIG, which at one time, was the world’s largest insurer by market value.
Judge Wheeler allowed the suit to continue because he believed the Federal Reserve’s exchange of equity for the loan was questionable. While the government has argued that its 2008 bailout of AIG was not a purchase, but rather an additional consideration for the first $85 billion loan, the judge found this position to be unconvincing. He saw little merit in the government’s assertion that the board of the New York Federal Reserve had the “implied authority” to demand equity in AIG under the Federal Reserve Act. Wheeler, citing a previous ruling, said that under the act the Bank could only demand interest rates as consideration for the loan.
“The Government is merely repackaging its previous arguments, based on assumptions that the Court has already rejected,” wrote Wheeler in his decision. The judge also said there was “ample support” for Greenberg’s claim of governmental interference in the New York Federal Reserve’s stock purchase. He cited, as evidence, the provisions of the deal made between AIG and the Federal Reserve Bank, which allowed the government to keep its shares even if the loan was repaid with interest.
As of last week, the U.S. Treasury said the government had been repaid the full $182 billion bailout of the company and made a profit; however, the government still owns a 16 percent stake in AIG.
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