On Monday, the U.S. Supreme Court rejected an appeal from a former CEO of AIG International, who argued that the federal government had illegally bailed out the insurance company during the 2008 financial crisis, and had done so at the detriment of shareholders.
The ruling by the court leaves in place a Washington, DC federal appeals court ruling in 2017 that decided that former AIG CEO Maurice “Hank” Greenberg and his Starr International Co. did not have a right to legally challenge the government bailout. This was because they said that only AIG itself had the right to challenge the bailout, and they chose not to do so.
Greenberg, who is 92 years old, ran AIG for almost 40 years before being removed from his position in March of 2005. In September 2008, the federal government rescued the insurance giant to keep it from going bankrupt. The company had lost vast sums of money insuring poor-quality mortgage securities.
David Boies, who is a lawyer representing Starr International Co., issued a statement that expressed disappointment with the ruling. He said that they had proved that the government went beyond its authority when it took over AIG and used it to rescue others companies that were engaged in riskier behavior, which they did at the detriment of AIG’s shareholders.
In 2011, Starr International Co. — which is an investment and insurance company with a large stake in AIG — sued the federal government. It alleged that the government improperly received a nearly 80% share of AIG, for a $85 billion loan that the Federal Reserve Bank of New York gave the company. Because of this, they claimed that the rights of shareholders were diminished, which violates the constitutional right of due process. They sought from the federal government $40 billion in damages.
Initially, a lower court had ruled in favor of Starr International Co. But at the same time it refused to award them damages. This was because they asserted that, without the government loan, the stock would not have had any value. They further asserted that the bailout actually helped Starr International Co.
The U.S. Court of Appeals for the Federal Circuit overturned that ruling, which led to the Supreme Court appeal.