Court Dismisses Ex-AIG CEO Greenberg’s Bailout Lawsuit Against New York Fed

February 10, 2014 by

A federal appeals court upheld the dismissal of a lawsuit by former American International Group Inc. CEO Maurice “Hank” Greenberg accusing the Federal Reserve Bank of New York of unlawfully bailing out the insurer in the 2008 financial crisis.

The 2nd U.S. Circuit Court of Appeals in New York said the New York Fed’s authority to address threats to the economy in “unusual and exigent circumstances” justified the dismissal of state law breach of fiduciary duty claims by Greenberg’s Starr International Co., which once held a 12 percent AIG stake.

Writing for a unanimous three-judge panel, Circuit Judge John Walker said letting Greenberg pursue his Delaware state law claims would have forced the New York Fed to shirk its obligation to act in the public interest.

Walker said this would have improperly “compromised” the federal effort “to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times.”

Maurice “Hank” Greenberg, chairman, president & CEO, American International Group, Inc. (AIG), is seen during an interview in his office in New York, Wednesday, September 22, 2004. Photographer: Diane Bondareff/ Bloomberg News.
The 2nd Circuit did not address whether the New York Fed exceeded its authority in rescuing AIG in a bailout that began on Sept. 16, 2008 and grew to $182.3 billion.

The court’s decision upheld a 2012 ruling in Manhattan by U.S. District Judge Paul Engelmayer, who had endorsed broad central bank power to address financial crises.

Starr had accused the New York Fed of engineering a “back-door” bailout for Goldman Sachs Group Inc. and other Wall Street banks at the expense of AIG shareholders, by forcing the insurer to unwind bets on mortgage debt through hundreds of billions of dollars of credit default swaps.

The company and Greenberg also have been suing the government in the U.S. Court of Federal Claims in Washington, D.C.

AIG is based in New York but incorporated in Delaware.

Starr’s lawyer said the 2nd Circuit decision addressed a “narrow issue” of state law preemption and did not affect Starr’s constitutional claims in the Washington court, where a trial is scheduled for Sept. 29.