Judge says Bernanke should testify in AIG bailout lawsuit

Mon Jul 29, 2013 1:00pm EDT

Federal Reserve Board Chairman Ben Bernanke testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on ''The Semiannual Monetary Policy Report to the Congress'' on Capitol Hill in Washington July 18, 2013. REUTERS/Kevin Lamarque

Federal Reserve Board Chairman Ben Bernanke testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on ''The Semiannual Monetary Policy Report to the Congress'' on Capitol Hill in Washington July 18, 2013.

Credit: Reuters/Kevin Lamarque

(Reuters) - A U.S. judge ruled on Monday that Federal Reserve Chairman Ben Bernanke should testify in the multibillion-dollar lawsuit by the former chief of American International Group Inc (AIG.N), Maurice "Hank" Greenberg, against the United States over the insurer's 2008 bailout.

Judge Thomas Wheeler of the U.S. Court of Federal Claims rejected the government's effort to keep Bernanke from submitting to a deposition by Greenberg's Starr International Co, once AIG's largest shareholder with a 12 percent stake.

Wheeler called Bernanke a "central figure" in the decision to rescue AIG, making him a "key witness" who could provide "highly relevant" testimony about the government's bailout of the insurer, which eventually totaled $182.3 billion.

"Indeed, the court cannot fathom having to decide this multi-billion-dollar claim without the testimony of such a key government decision-maker," Wheeler wrote. "These facts constitute 'extraordinary circumstances' for the taking of Mr. Bernanke's deposition," which the judge said he plans to attend.

A Fed spokesman declined to comment. Alanna Rutherford, a partner at Boies, Schiller & Flexner representing Starr, said the company is pleased with the decision.

Once the world's largest insurer by market value, AIG was bailed out on September 16, 2008, as losses were skyrocketing from risky bets on mortgage debt through credit default swaps. The government initially took a 79.9 percent stake in the New York-based insurer.

Starr sued in 2011, and maintains that the bailout shortchanged shareholders out of tens of billions of dollars.

The company called the government's action an illegal taking that violated the 5th Amendment of the U.S. Constitution. It is also suing over a 1-for-20 AIG reverse stock split in June 2009.


The government had argued that details about Bernanke's role could be obtained elsewhere, such as meeting minutes from the Fed's Board of Governors, and that high-ranking U.S. officials in general should not be deposed over their official actions. It also said a deposition would distract Bernanke from overseeing the nation's economy and fiscal policy.

Wheeler, however, said it is "relatively routine" for top government officials to testify in Court of Federal Claims cases when they have personal knowledge of relevant information.

The court sits in Washington, D.C., and handles lawsuits seeking money from the government.

According to Wheeler, officials who have testified have included Dick Cheney, then secretary of defense; Andrew Cuomo, then secretary of housing and urban development; and General Colin Powell, then chairman of the Joint Chiefs of Staff.

Wheeler asked both sides to schedule a deposition. He said the August 16 date proposed by Starr is acceptable to him.

The government eliminated its last AIG stake on March 1.

Greenberg, 88, led AIG for nearly four decades before his 2005 ouster. Starr is appealing another judge's dismissal of a related lawsuit against the Federal Reserve Bank of New York.

The case is Starr International Co v. U.S., U.S. Court of Federal Claims, No. 11-00779.

(Reporting by Jonathan Stempel in New York; Additional reporting by Timothy Ahmann in Washington, D.C.; Editing by Gerald E. McCormick and Leslie Adler)

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Comments (4)
josobo wrote:
The actions of AIG while Greenburg was CEO are so outrageous and deceptive to consumers, this lawsuit should not even be allowed. Here we have a company leader that took hundreds of millions of dollars in pay while the company was on the verge of bankruptcy. How more ludicrous and brazen can someone be. There is no doubt that if their
tactics were investigated, Greenburg would run for the hills. AIG company has to be licensed to sell their products. They have an ethical responsibility to customers. They blatantly and intentionally violated that oath. As far as I am concerned, everyone should be replaced and licenses pulled. There needs to be a very clear message.
It seems the license means nothing and therefore businesses hold a hammer over the head of the ethics of its employees who sell their products making the licenses meaningless and companies run rampant.

Jul 29, 2013 12:42pm EDT  --  Report as abuse
FredF99 wrote:
Why aren’t they deposing Lloyd Blankfein?

Jul 29, 2013 2:34pm EDT  --  Report as abuse
Vanyak wrote:
Bailout was a big scam. Obama made Taxpayers pay for mistakes done by their rich friends at AIG. Redistribution of wealth at work.

Jul 29, 2013 3:21pm EDT  --  Report as abuse
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