* AIG board to meet Wednesday to decide
* Company says obliged to consider demands
* Ex-CEO Greenberg called Fed ‘loan shark’
* NY Fed says company could have chosen bankruptcy
* AIG shares down 0.8 pct
By Ben Berkowitz and Karen Freifeld and Emily Stephenson
NEW YORK/WASHINGTON, Jan 8 (Reuters) – American
International Group Inc, the insurer rescued by the U.S.
government in 2008, said on Tuesday it is considering joining a
lawsuit that claims the bailout terms were unfair, drawing angry
condemnation from lawmakers.
A leading congressional Democrat called criticism of the
deal’s terms “utterly ridiculous,” and former New York Attorney
General Eliot Spitzer – who probed AIG when he was in office –
called the prospect of a lawsuit “insulting to the public.”
The White House declined to comment on the potential for a
lawsuit but defended the $182 billion bailout.
Newly elected Senator Elizabeth Warren, feared by Wall
Street as a potential thorn in its side on the Senate Banking
Committee, called the lawsuit talk “outrageous” and said the
company should not “bite the hand that fed them for helping them
out in a crisis.”
In a statement late Tuesday, AIG said it had no choice but
to consider the demand from its former chief executive, Hank
Greenberg, and his holding company Starr International that AI G
joi n his law sui t. Gr eenberg has sued for damages over the
bailout and wants AIG to join him in challenging the
“exor bitant” terms of the government rescue.
Legal action by AIG would be shock ing , given that the
company has j ust launched a high-profile television ad campaign
called “Thank you, America,” in which it offers the public its
gratitude for the bailout. On Tuesday, AIG pr omoted the ads on
Twitter, even as it came under fire over a po ssible laws uit.
“AIG has paid back its debt to America with a profit, and we
mean it when we say thank you to the American people,” CEO Bob
Benmosche said in a statement.
“At the same time, the Board of Directors has fiduciary and
legal obligations to the Company and its shareholders to
consider the demand served on us and respond in a fair,
appropriate, and timely manner,” he said.
AIG said its board would meet Wednesday to discuss joining
the l aws uit, with three options on its plate: take over and
pursue the claims made by Starr; refuse Greenberg’s demand and
block Starr from pursuing its claims; or let Starr pursue the
claims on AIG’s behalf.
It expects to make a decision “in the next several weeks,”
Benmosche said.
Greenberg, whose Starr International owned 12 percent of AIG
before its near-collapse, has accused the New York Fed of using
the rescue to bail out Wall Street banks at the expense of AI G
sha reholders. He has also called the NY Fed a ” loan shark” for
char ging the “exorbitant” interest of 14.5 percent on its
initial loan to AI G.
“If AIG enters this suit it would be the equivalent of a
patient suing their doctor for saving their life,” said Mark
Williams, a former Federal Reserve bank examiner who teaches in
the finance department at Boston University.
BUSINESS JUDGMENT
A federal judge in Manhattan already dismissed one of
Greenberg’s lawsuits in November; it is being appealed.
In his ruling dated Nov. 19, Judge Paul Engelmayer said AIG
had notified the court it would hold a board meeting Jan. 9 to
discuss joining one of the lawsuits, with a decision expected by
the end of the month.
A separate lawsuit under different legal theories is still
pending in the U.S. Court of Federal Claims in Washington.
One expert in securities law said he doubted AIG would
ultimately decide to join the case.
“All the fiduciary standards that guide board behavior would
warn against joining the suit,” said James Cox, a professor of
corporate and securities law at Duke University School of Law in
Durham, North Carolina. “I see nothing to be gained by AIG
piling on, and I see a lot of downside risk.”
The deliberations were first reported by the New York Times.
‘CHOICE WAS BANKRUPTCY’
The New York Fed said Tuesday there was no merit to any
allegations that the bank harmed AIG.
“AIG’s board of directors had an alternative choice to
borrowing from the Federal Reserve and that choice was
bankruptcy. Bankruptcy would have left all AIG shareholders with
worthless stock,” a representative of the bank said Tuesday.
Elijah Cummings, the ranking Democrat on the House Committee
on Oversight and Government Reform, acknowledged that AIG’s
board has a fiduciary duty to consider the lawsuit. But he also
said the company had a choice in 2008 and picked what it
considered the better option.
“The idea that AIG might sue the government is an
unbelievable insult to our nation’s taxpayers, who cleaned up
the mess this firm created,” he said in a statement.
Cummings’ former colleague, the recently retired Barney
Frank, said he was “stunned” by the news and added that AIG was
a fully willing participant in the rescue.
“There was not the hint of a suggestion of any coercion.
They did this very voluntarily, very gratefully. And if the
company were now to go around and join this lawsuit, that would
be outrageous,” Frank said in an interview.
The U.S. Treasury declined to comment. It completed its
final sale of AIG stock in mid-December, concluding the bailout
with what Treasury called a positive return of $22.7 billion.
AIG shares fell 0.8 percent to close at $35.65. After losing
half its value in 2011, the stock rose more than 52 percent in
2012, tripling the gains of the broader S&P; insurance index
.
