July 16, 2013 / 7:47 PM / 6 years ago

Bernanke must defend actions in AIG bailout case: Greenberg's Starr

(Reuters) - Federal Reserve Chairman Ben Bernanke was the final authority on the “punitive” 2008 bailout of American International Group Inc (AIG.N) and should testify about how and why it happened, a company run by the insurer’s former chief executive said.

Federal Reserve Chairman Ben Bernanke speaks at a meeting of the National Bureau of Economic Research in Cambridge, Massachusetts July 10, 2013. REUTERS/Dominick Reuter

In a Tuesday filing with the U.S. Court of Federal Claims, Maurice “Hank” Greenberg’s Starr International Co said Bernanke made clear in testimony to Congress and the Financial Crisis Inquiry Commission that it was his decision making that led to an AIG bailout that ultimately grew to $182.3 billion.

Starr once held a 12 percent AIG stake. It believes shareholders were shortchanged out of tens of billions of dollars when the government took a 79.9 percent stake in the big insurer at the height of the financial crisis.

Having spoken and written often about AIG in less adversarial forums than a lawsuit deposition, including when he told Congress in 2009 that “AIG’s demise would be a catastrophe, and therefore I did whatever I could to prevent that,” Bernanke does not deserve a shield from questioning now, Starr said.

“Starr has every right to probe the basis for Mr. Bernanke’s decision to impose punitive measures upon AIG - distinguishing it from every other firm that received a loan” from the Fed, Starr said. “No other witness can serve as a substitute.”

The U.S. Department of Justice, which is defending against Starr’s lawsuit, declined to comment.

It has said that Starr has failed to show the “extraordinary circumstances” justifying a deposition.

The government has also said Starr can obtain the information it wants from documents and other witnesses, and that high-ranking U.S. officials in general cannot be deposed over official actions.

Last month, Court of Claims Judge Thomas Wheeler said Starr may pursue claims over the taking of the 79.9 percent stake in September 2008, and a 1-for-20 reverse stock split in June 2009.

A trial could begin late next year. Greenberg, 88, led AIG for nearly four decades before his 2005 ouster.

The government has 10 days to respond to Starr’s filing, court records show.

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. Editing by Andre Grenon

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