Starr sued the U.S. five years ago, claiming the government broke the law by demanding those onerous requirements, which weren’t imposed on other distressed financial firms. Court of Federal Claims Judge Thomas C. Wheeler agreed, ruling that the Federal Reserve had authority to make an emergency loan to AIG but didn’t have the authority to take shares in exchange for it.
But Starr lost in its bid for damages. The company said the value of the shares was as much as $38.7 billion, which the government later sold for $18.3 billion. At a minimum, Starr argues, shareholders should get the $18.3 billion the government pocketed. Even if the U.S. turns over that money, the government still comes out ahead, Starr said, because AIG repaid the loan along with $6.7 billion in interest and fees.
“If not for the government’s intervention, AIG would have filed for bankruptcy,” Wheeler wrote in his 2015 ruling. “In a bankruptcy proceeding, AIG’s shareholders would most likely have lost 100 percent of their stock value.”
AIG Worthless?
On appeal, Starr attacked Wheeler’s finding that AIG would be “worthless” in bankruptcy. Greenberg has said AIG was worth $80 billion at the time.
In court, Boies argued that the government had seized control of the company, an assertion met by skepticism from Reyna, who noted AIG’s board voted to accept the terms in a bid for survival.
“The stock was almost worth noting,” the judge said.
Even that initial infusion was insufficient to stabilize the insurer, Wallach added.
While the government maintains taxpayer assistance to AIG totaled $182.3 billion, Boies told the court that he does not believe there was any time the government was owed more than the value of the initial $85 billion infusion.
The government wants the panel to reverse Wheeler’s finding that the bailout terms were too onerous, asserting Starr’s argument is based on a “fictional world” where the U.S. would bail out the company without asking anything in return. AIG rejected Starr’s proposal to sue, the government said.