You may have seen ads recently from AIG, the bailed-out insurance giant, “thanking” the American people for our financial assistance and celebrating AIG’s re-emergence as a wholly private company. But on Wednesday, the company’s board of directors is going to meet to consider suing the United States on the grounds that the terms of the bailout were too onerous.
The litigation goes back to the fact that though the bailout is the only reason the company is still around at all, it wasn’t particularly friendly to AIG’s shareholders. The government took a more than 90 percent stake in the company, and federal funds that flowed “to” AIG were largely using the company as a pass-through entity to make sure that banks got paid on their CDS contracts. So Maurice Greenberg, who was CEO until 2005 and is still a major shareholder, launched a lawsuit. And now the company needs to decide whether it wants to join in on the shareholder litigation.
The downside to suing is that the company will look venal and absurd in the eyes of everyone. On the other hand, if Greenberg wins and AIG doesn’t sue, then AIG’s management will be exposed to further litigation on the grounds that they’re failed in their fiduciary duty to shareholders.
What’s less clear is whether the suit has any merits at all. It was dismissed in one jurisdication already, though it’s moving forward in another. Common sense says that absent the bailout, AIG shareholders would have nothing at all today so they don’t get to complain that they end up with less than they might have gotten under some alternate bailout. But obviously the law doesn’t always follow common sense so I can’t entirely exclude the possibility that there’s a real case here.