A lawsuit filed by several former American International Group Inc (NYSE:AIG) shareholders including founder Maurice “Hank” Greenberg is unlikely to succeed, according to David Skeel, a University of Pennsylvania Law School corporate law professor. He points out that despite the appearance of unfairness in the treatment of AIG vs other bailed-out financial institutions, the plaintiffs in the lawsuit are facing a steep uphill battle to make their case.
The lawsuit was filed in federal court over three years ago.
Lawsuit claims AIG was unfairly singled out
Greenberg and his backers from Wall Street want compensation from the government, and argue that the terms of the bailout/takeover agreement were more onerous for AIG than for the rest of the big banks that were bailed out. In specific, American International Group Inc (NYSE:AIG), unlike the other banks, was forced to relinquish control of 80% of its stock as part of its bailout agreement.
AIG lawsuit a longshot
Prof. Skeel notes that fairness is not the legal issue at hand here, which makes the American International Group Inc (NYSE:AIG) lawsuit a longshot. “People felt mistreated…they are trying to get back a piece of what [they feel] was taken from them…. At the heart of it, the shareholders argue the government forced AIG to take the government deal,” Skeel says. “But it is highly likely that without the government bailout, the company would have gone bankrupt quickly … so the shareholders have to be able to argue the stock was worth something when it looked like they were just going to crash…. That’s going to be a hard case to make.”
Paulson, Geithner and Bernanke testifying in case
The major government decision-makers behind the bailout — former Treasury Chairmen Hank Paulson and Tim Geithner, and former Federal Reserve chairman Ben Bernanke — are all scheduled to testify during the AIG lawsuit trial.
Of note, Paulson testified in Monday, and he pulled no punches in saying that American International Group Inc (NYSE:AIG) was treated harshly both to protect the overall financial system and as an example to try and discourage other companies from making the same mistakes.