Former AIG CEO Sues U.S. Government For $25 Billion Due to Losses Incurred by Bailout

In the financial bizarro world this is to be expected.

When AIG and its shareholders were on the brink of complete bankruptcy, the US government stepped in with over $100 billion in bailout funds. This saved the company (and their many dependents, like Goldman Sachs), but ruined shareholders.

Now, those shareholders, led by former AIG CEO Hank Greenberg, are suing the government for $25 billion because of losses incurred during the bailout. Never mind that they would have been completely wiped out because of Hank’s mismanagement of the company before the bailouts ever took place.

A company run by former American International Group Inc Chief Executive Maurice “Hank” Greenberg sued the U.S. government for $25 billion, calling the 2008 federal takeover of the insurer unconstitutional.

The lawsuit marks an unusual effort to force the government to pay shareholders, who have seen AIG’s stock price tumble 98 percent since the middle of 2007, when the insurer’s risky bets on mortgage debt through credit default swaps began to falter.

Greenberg’s company, Starr International Co, also filed a lawsuit against the Federal Reserve Bank of New York, whose president at the time of the takeover was Timothy Geithner, now U.S. Treasury Secretary.

Once AIG’s largest shareholder, Starr said the government took a roughly 80 percent stake in AIG and charged an “punitive” 14.5 percent on federal loans without seeking a shareholder vote, hoping to provide a “backdoor bailout” for AIG trading partners such as Goldman Sachs Group Inc .

It said the bailouts that began on Sept. 16, 2008, violated shareholders’ rights to due process and equal protection, and a Fifth Amendment ban against taking private property for public use without just compensation, known as the “takings clause.”

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