Super-Lawyer Boies Calls AIG Bailout $25B Ripoff. U.S.: 'Lifeboats Uncomfortable?'
David Boies spent much of the past month interrogating the architects of the 2008 Wall Street bailout, making the case that the U.S. cheated American International Group Inc. (AIG) shareholders of at least $25 billion partly for the benefit of an elite club of banks.
This week, the government is set for its turn to respond to claims by Boies and his client, former AIG Chairman Maurice “Hank” Greenberg, describing the lawsuit as the ultimate case of biting the hand that feeds you.
Goldman Sachs Group Inc. (GS) and other investment banks at the insurer’s expense.
Those called to the witness stand included former Federal Reserve Chairman Ben Bernanke, Goldman Sachs chief turned U.S. Treasury Secretary Henry Paulson and Timothy Geithner, then head of the Federal Reserve Bank of New York and later Paulson’s successor at the Treasury Department. All three testified about why AIG was treated more harshly than banks shored up by government money.
“It is human nature to favor individuals and institutions who we know or for whom we feel responsible,” Boies said in his opening statement on Sept. 29. Bernanke, Geithner and Paulson knew and felt responsible for investment banks and trampled AIG shareholder rights as a result, according to Boies.
Goldman Sachs, Morgan Stanley (MS) and other banks borrowed tens of billions of dollars at rates of no more than 4 percent, while New York-based AIG was saddled with a 14 percent interest rate and was forced to surrender 80 percent of its equity, Starr alleges.
‘Backdoor Bailout’After getting the stock, the government controlled the insurer to enable a “backdoor bailout” of banks and other financial institutions, according to Zug, Switzerland-based Starr, which was AIG’s biggest shareholder when the financial crisis struck.
The U.S. used its control of the company to orchestrate a reverse stock split that circumvented a shareholder vote against increasing the number of authorized shares of AIG common stock, Starr contends.
The government argues that it insulated itself from direct involvement in AIG by putting its shares in a trust.
The bailout loan was legal, voluntarily accepted by AIG’s board and couldn’t have harmed shareholders because their alternative was bankruptcy, according to the U.S. lawyers.
Oct 26, 2014