US Wants AIG Lawsuit Dismissed

First appeared in CNBC

The U.S. government has asked a court to dismiss a lawsuit relating to its 2008 takeover of American International Group that was filed by a company run by former AIG Chief Executive Maurice Greenberg, court documents showed.

In November, Greenberg's company, Starr International Co, sued the U.S. government for $25 billion, calling the 2008 federal takeover of the insurer unconstitutional.

Starr sued the government in the U.S. Court of Federal Claims in Washington, D.C., which handles lawsuits seeking money from the government. It brought that lawsuit on behalf of itself and other AIG shareholders.

The lawsuit marks an unusual effort to force the government to pay shareholders, who have seen AIG's stock price tumble since the middle of 2007, when the insurer's risky bets on mortgage debt through credit default swaps began to falter.

Greenberg had led AIG for nearly four decades prior to his 2005 ouster. Starr once owned 12 percent of AIG.

In a filing with the U.S. Court of Federal Claims in Washington, D.C., on Thursday, the government said although Starr may disagree with the terms to which AIG agreed, any loss resulting from that agreement should be borne by AIG and its shareholders, and not the public.

"Starr demands that the court second guess AIG and rewrite the rescue agreement by making American taxpayers pay an additional $25 billion, based upon a market valuation of AIG after the rescue," the government said in the filing.

The U.S. government argued that AIG had asked and agreed to be rescued, "electing to save itself from a failure of its own making."

AIG [AIG  29.66 ^ 0.21  (+0.71%) ], which was once the world's largest insurer by market value, was rescued by the U.S. government from the verge of collapse at the height of financial crisis in 2008. AIG's bailouts eventually totaled $182.3 billion.

The $25 billion estimate reflects what Starr called the value of the government's stake on January 14, 2011, when it swapped AIG preferred stock for 562.9 million common shares.

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

Former AIG CEO Files Lawsuit Against US for Alleged Unconstitutional Takeover

First appeared in CNBC

A company run by former American International Group Chief Executive Maurice "Hank" Greenberg Monday filed a $25 billion lawsuit against the United States, claiming that the government takeover of the insurer was unconstitutional.

In its complaint, Greenberg's Starr International said that in bailing out AIG [AIG  29.45 ] and taking a nearly 80 percent stake, the government failed to compensate existing shareholders. It said this violated the Fifth Amendment, which bars the taking of private property for public use without just compensation.

"The government's actions were ostensibly designed to protect the United States economy and rescue the country's financial system," Starr said. "Although this might be a laudable goal, as a matter of basic law, the ends could not and did not justify the unlawful means employed."

The United States, it went on, "is not empowered to trample shareholder and property rights even in the midst of a financial emergency."

Monday's lawsuit was filed with the U.S. Court of Federal Claims in Washington, D.C., which handles lawsuits seeking money from the government.

The $25 billion estimate reflects what Starr called the value of the government's stake on Jan. 14, 2011, when it swapped AIG preferred stock for 562.9 million common shares.

The Treasury Department did not immediately respond to a request for comment. AIG spokesman Mark Herr declined to comment. AIG was named as a nominal defendant in the lawsuit.

Once the world's largest insurer by market value, AIG accepted $182.3 billion of federal bailouts beginning on Sept. 16, 2008, amid a liquidity crisis spurred by its exposure to risky debt through credit default swaps.

The government's stake in AIG has fallen to about 77 percent. AIG itself has sued Bank of America [BAC  8.12 ] for $10 billion over alleged losses on mortgage securities.

Greenberg left AIG in March 2005, after nearly four decades at the helm, amid questions by regulators over its accounting practices.

AIG in 2006 paid $1.64 billion to settle federal and state probes into its business practices, and in July 2010 agreed to pay $725 million to settle a shareholder lawsuit accusing it of accounting fraud and stock price manipulation.

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

AIG Reaches a Deal to Fully Repay Taxpayers

USA Today

American International Group, which drew the brunt of public anger over big federal bailouts during the financial crisis, has reached an agreement with the government on a plan to pay back its debt, AIG announced Thursday.

Under the plan, taxpayers should at least recoup their investment and possibly turn a profit, analysts say.

"This is a pivotal milestone as we deliver on our long-standing promise to repay taxpayers, and we thank the America people for their support," AIG CEO Robert Benmosche said.

Treasury Secretary Tim Geithner said the plan "dramatically accelerates the timeline for AIG's repayment" and positions taxpayers to recover their investment.

The insurance giant received a $182 billion federal bailout package as it teetered near collapse in September 2008 amid the subprime mortgage crisis. AIG was nearly shut down by its massive stake in derivatives known as credit default swaps — essentially insurance against the risk that certain mortgage securities would default.

Its outstanding debt to the government is about $95 billion.

Under the plan, the Treasury Department would convert $49.1 billion in AIG preferred shares into common stock. Treasury's stake in the company would rise from about 80% to 92%. It would sell its shares over what's expected to be one to two years.

Treasury is expected to receive about 1.66 billion shares, and it stands to break even if it sells them for about $29 a share. AIG shares closed Thursday at $39.10, up $1.65.

Before the stock conversion, AIG must repay a $20 billion debt to the Federal Reserve Bank of New York that was part of the bailout. AIG plans to sell assets to fund it. Treasury also will take over $22 billion of $26 billion in preferred shares the Fed owns in another AIG vehicle. AIG plans to sell other assets to repay Treasury and the rest of the Fed's stake.

Analyst Christopher Whalen of Institutional Risk Analytics says the government's sale of AIG shares will dilute the stock in a sluggish market, hurting shareholders: "We don't need another big seller in the market."

UBS analyst Andrew Kligerman says Treasury is getting fewer shares than expected, making the deal less diluted for shareholders. AIG also plans to issue 75 million warrants to existing shareholders, allowing them to buy shares over 10 years at a $45 strike price — an effort, Kligerman says, to compensate them.