Ex-AIG CEO loses appeal of bailout lawsuit vs N.Y. Fed

NEW YORK Wed Jan 29, 2014 11:28am EST

Former CEO of American International Group Inc., Maurice ''Hank'' Greenberg, (C) leaves a building in downtown New York after being deposed by the Attorney General's office March 10, 2010 file photo. REUTERS/Jessica Rinaldi

Former CEO of American International Group Inc., Maurice ''Hank'' Greenberg, (C) leaves a building in downtown New York after being deposed by the Attorney General's office March 10, 2010 file photo.

Credit: Reuters/Jessica Rinaldi

NEW YORK (Reuters) - A federal appeals court upheld the dismissal of a lawsuit by former American International Group Inc (AIG.N) Chief Executive Maurice "Hank" Greenberg accusing the Federal Reserve Bank of New York of unlawfully bailing out the insurer at the height of the 2008 financial crisis.

The 2nd U.S. Circuit Court of Appeals in New York said the New York Fed's authority to address threats to the economy in "unusual and exigent circumstances" justified the dismissal of state law breach of fiduciary duty claims by Greenberg's Starr International Co, which once held a 12 percent AIG stake.

Writing for a unanimous three-judge panel on Wednesday, Circuit Judge John Walker said letting Greenberg pursue his Delaware state law claims would have forced the New York Fed to shirk its obligation to act in the public interest, and instead act in the best interests of AIG shareholders.

Walker said this would have improperly "compromised" the federal effort "to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times."

The 2nd Circuit did not address whether the New York Fed exceeded its authority in rescuing AIG, in a bailout that began on September 16, 2008 and grew to $182.3 billion.

Its decision upheld a November 2012 ruling by U.S. District Judge Paul Engelmayer in Manhattan, who had endorsed broad central bank power to address financial crises.

Starr had accused the New York Fed of engineering a "backdoor" bailout for Goldman Sachs Group Inc (GS.N) and other Wall Street banks at the expense of AIG shareholders, by forcing the insurer to unwind bets on mortgage debt through hundreds of billions of dollars of credit default swaps.

The company and Greenberg have also been suing the government in the U.S. Court of Federal Claims in Washington, D.C., employing different legal theories.

AIG is based in New York but incorporated in Delaware.

Starr's lawyer David Boies in a statement said the 2nd Circuit decision addressed only a "narrow issue" of state law preemption and did not affect Starr's constitutional claims in the Washington court, where a trial is scheduled for September 29.

The New York Fed and its lawyer John Kiernan did not immediately respond to requests for comment. AIG spokesman Jon Diat did not immediately respond to a similar request.

The case is Starr International Co v. Federal Reserve Bank of New York, 2nd U.S. Circuit Court of Appeals, No. 12-5022.

(Reporting by Jonathan Stempel in New York; Editing by Jeffrey Benkoe and Cynthia Osterman)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

How to get out of debt

Financial adviser Eric Brotman offers strategies for cutting debt from student loans and elder care -- and how to avoid money woes in the first place.  Video