AIG May Sue The American Government Claiming Bailout Cheated Shareholders

AIG International recently finished paying back the American taxpayers for their $187 billion dollar bailout of the insurer at the height of the financial crisis. Now the Board of Directors of the company are preparing to meet to discuss the merits of joining a lawsuit against the government. The lawsuit claims that the government deprived shareholders of the company of billions of dollars when they took a 92 percent stake in the company and attached interest to the bailout.

The lawsuit is a touchy subject for AIG. The company recently started airing a bunch of commercials with the theme of “Thank You America” for the bailout which essentially saved AIG from bankruptcy in 2008.

The lawsuit filed by former chief executive officer of AIG, Maurice R. Greenberg, says that under the Constitution’s 5th Amendment the government cannot deprive citizens of their property without just compensation. The lawsuit further says that the government had no right to take of what became a 92 percent stake in the company. It also challenges the deal’s high interest rates and the funneling of billions to the insurer’s Wall Street clients.

AIG has become the poster child for Wall Street excess during the financial crisis and could create a major backlash against the company both in the sphere of public opinion and in Congress which could easily pass a law punishing the company for its ingratitude.

AIG is meeting to discuss the lawsuit under a threat from Greensburg that if the Board of Directors does not even consider the lawsuit he will name them as defendants for shirking their fiduciary responsibility to their shareholders of which Greenberg remains a large one.

Frank Partnoy, a former banker who is now a professor of law and finance at the University of San Diego School of Law told DealBook:

“On the one hand, from a corporate governance perspective, it appears they’re being extra cautious and careful. On the other hand, it’s a slap in the face to the taxpayer and the government.”

The lawsuit does not argue that the bailout was not needed, just that it was fundamentally unfair to the shareholders, even though the shareholders would have received a far worse deal under bankruptcy.

Do you think it is appropriate for AIG to consider a lawsuit against the American government for the bailout which saved them from bankruptcy?