AIG draws fire for mulling lawsuit against feds

5 hrs.

From wire services , NBC News

AIG is considering Wednesday whether the company should join a lawsuit against the government that spent $182 billion to save it from collapse.?

American International Group Inc. said its board of directors will weigh whether to take part in a shareholder lawsuit against the U.S. over the government's $182 billion bailout of the New York-based insurer.?

If AIG decides to join the complaint, which seeks $25 billion in damages, it would pit the company against the government that in 2008 kept it from buckling under the weight huge losses on mortgage-backed securities and other toxic assets.?

AIG said that after Wednesday's meeting, its directors should have a decision by the end of the month.??

The U.S. Treasury declined to comment. It completed its final sale of AIG stock in mid-December, concluding the bailout with what Treasury called a positive return of $22.7 billion.?

A leading congressional Democrat called criticism of the deal's terms "utterly ridiculous," and former New York Attorney General Eliot Spitzer - who probed AIG when he was in office - called the prospect of a lawsuit "insulting to the public."?

The White House declined to comment on the potential for a lawsuit but defended the $182 billion bailout.?

Newly elected Senator Elizabeth Warren, feared by Wall Street as a potential thorn in its side on the Senate Banking Committee, called the lawsuit talk "outrageous" and said the company should not "bite the hand that fed them for helping them out in a crisis."??

In a statement late Tuesday, AIG said it had no choice but to consider the demand from its former chief executive, Hank Greenberg, and his holding company Starr International that AIG join his lawsuit. Greenberg has sued for damages over the bailout and wants AIG to join him in challenging the "exorbitant" terms of the government rescue.?

Legal action by AIG would be shocking, given that the company has just launched a high-profile television ad campaign called "Thank you, America," in which it offers the public its gratitude for the bailout. On Tuesday, AIG promoted the ads on Twitter, even as it came under fire over a possible lawsuit.?

"AIG has paid back its debt to America with a profit, and we mean it when we say thank you to the American people," CEO Bob Benmosche said in a statement.?

"At the same time, the Board of Directors has fiduciary and legal obligations to the Company and its shareholders to consider the demand served on us and respond in a fair, appropriate, and timely manner," he said.?

The New York Fed said Tuesday there was no merit to any allegations that the bank harmed AIG.?

"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," a representative of the bank said Tuesday.?

Elijah Cummings, the ranking Democrat on the House Committee on Oversight and Government Reform, acknowledged that AIG's board has a fiduciary duty to consider the lawsuit. But he also said the company had a choice in 2008 and picked what it considered the better option.?

"The idea that AIG might sue the government is an unbelievable insult to our nation's taxpayers, who cleaned up the mess this firm created," he said in a statement.?

Cummings' former colleague, the recently retired Barney Frank, said he was "stunned" by the news and added that AIG was a fully willing participant in the rescue.?

"There was not the hint of a suggestion of any coercion. They did this very voluntarily, very gratefully. And if the company were now to go around and join this lawsuit, that would be outrageous," Frank said in an interview.?

One expert in securities law said he doubted AIG would ultimately decide to join the case.?

"All the fiduciary standards that guide board behavior would warn against joining the suit," said James Cox, a professor of corporate and securities law at Duke University School of Law in Durham, North Carolina. "I see nothing to be gained by AIG piling on, and I see a lot of downside risk."?

The deliberations were first reported by the New York Times.?

Starr International?filed the lawsuit in November 2011 on behalf of the firm and AIG shareholders.?

The complaint, filed in the U.S. Court of Federal Claims and the U.S. District Court for the Southern District of New York, says that the government didn't provide shareholders fair compensation when it took a nearly 80 percent stake in the insurer as part of the bailout. In doing so, the government violated the Constitution, Starr claims.?

AIG said that, by law, its board must consider three options: take over the lawsuit and pursue the claims on its own; attempt to prevent the claims from being pursued by Starr; or, allow Starr to continue to pursue the complaint on AIG's behalf.?

The insurer noted that, if it decides not to let Starr pursue its claims on the company's behalf, Starr would likely challenge the move. Under that scenario, if Starr won the case, AIG would not receive any damages or portion of a potential settlement.?

The Court of Federal Claims denied a request by the U.S. to dismiss the lawsuit, which means the case will go forward regardless of AIG's participation.?

The government came to the rescue of AIG in September 2008, at the depths of the financial meltdown. The New York company did business with hundreds of firms around the world, and officials feared its collapse would wreck the financial system.?

All told, AIG's bailout was the largest of the Wall Street rescue packages.?

Since the financial meltdown, AIG has undergone a restructuring that has cut its size nearly in half. Its aim is to focus the company on its core insurance operations.?

In 2010, the company spun off Asian life insurer AIA Group in Hong Kong's biggest ever initial public offering to raise $20 billion, which was used to pay bailout debt.?

In November, AIG reported a third-quarter profit of nearly $2 billion thanks to strength in its insurance operations and investment returns. In the same period a year earlier it lost $4 billion.?

Shares of AIG ended regular trading on Tuesday?down 28 cents at $35.65. Over the last 12 months, however, the stock is up more than 50 percent.?

Source: http://www.nbcnews.com/business/economywatch/aig-draws-fire-mulling-lawsuit-against-feds-1B7905602

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