Judge narrows Greenberg lawsuit versus U.S. over AIG bailout

Wed Jun 26, 2013 7:11pm EDT
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By Jonathan Stempel

(Reuters) - A federal judge has allowed former American International Group Inc (AIG.N: Quote) Chief Executive Maurice "Hank" Greenberg to continue his multibillion dollar lawsuit against the United States over the insurer's bailout, but took away some of his claims.

Judge Thomas Wheeler of the U.S. Court of Federal Claims said Greenberg's Starr International Co may pursue claims over the government's taking of a 79.9 percent stake in AIG in September 2008 and a separate 1-for-20 reverse stock split in June 2009.

The judge rejected the government's arguments that these claims should be dismissed because the stake has already been divested, and that such claims more properly belonged to AIG itself because shareholders all suffered the same type of harm.

Wheeler nonetheless granted motions by the government and AIG to dismiss "derivative claims" that Starr had asserted on behalf of AIG, including over the insurer's refusal to help him pursue the lawsuit.

AIG's board decided unanimously in January not to join Starr's case after a public backlash, including from Congress.

Critics objected to the prospect that AIG might effectively be asking taxpayers whose money helped save it from collapse during the 2008 financial crisis to return billions of dollars.

While saying he was "troubled" that Treasury Department lawyers may have pressured AIG to stay out of the lawsuit, Wheeler said the board exercised its business judgment in an "informed, transparent, rational, and exemplary fashion."

The judge ruled one day after New York's highest state court said state Attorney General Eric Schneiderman may pursue an unrelated case against Greenberg, 88, over an alleged accounting fraud at AIG more than eight years ago.   Continued...

A man exits the AIG headquarters offices in New York's financial district, January 9, 2013. REUTERS/Brendan McDermid