Fed Government Bailout And Takeover Of AIG Insurance Giant, Was An Unconstitutional Seizure Of Private Property: $25 Billion Lawsuit Ensues!

By Martha C. White

(This story has been updated to include a response from the U.S. Treasury Department.)

Former American International Group CEO Maurice “Hank” Greenberg thinks he got a raw deal, and he wants the government to pay up. Greenberg filed a lawsuit in the U.S. Court of Federal Claims asserting that the government bailout and takeover of the insurance giant was an unconstitutional seizure of private property, The Wall Street Journal reported Monday. Greenberg’s Starr International Co., which used to be AIG‘s biggest stakeholder, is seeking $25 billion in damages, based on the value of the 80 percent stake in AIG the government took after providing it with an $182 billion bailout.

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Those funds allowed AIG to pay off counterparties like Goldman Sachs in full and reward executives with $165 million in bonuses in 2008, even though AIG lost $61.7 billion in the fourth quarter of that year. This situation raised considerable ire among both the public and investors. AIG’s own value plummeted and it was reduced to selling off assets to pay back the government, both moves of which hurt Greenberg’s stake in the firm.

An AIG representative declined to comment on the suit via email. The Treasury Department called the government’s intervention “necessary, legal, and constitutional” in a statement issued Monday afternoon. “We are reviewing the lawsuit and expect to defend our actions vigorously,” it said.

This isn’t Greenberg’s first legal tussle with the government, and it’s not the first time he’s clashed with his former company. Greenberg left AIG in 2005 after an accounting fraud investigation was launched by then-Attorney General Eliot Spitzer. The criminal charges didn’t stick, but in 2009, Greenberg paid $15 million to the Securities and Exchange Commission for accounting violations. Also in that year, a federal judge ruled that Greenberg was entitled to $4.3 billion in AIG shares the company had sued in an attempt to recover.

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