The United States Department of Justice (DOJ) formally filed an appeal against the court ruling indicating that the government’s terms for the bailout of American International Group (AIG) were “unduly harsh.”

The court ruling involved the case filed by Maurice “Hank” Greenberg, the former CEO of AIG. Greenberg through his firm, Starr International alleged that the U.S. government violated the Fifth Amendment of the Constitution after taking control of AIG.

His firm also argued that the government overstepped its authority by imposing tougher terms on the insurance giant than the conditions on some Wall Street banks that also received bailout during the financial crisis.

AIG

Court ruling involving AIG bailout case

In June, United States Court of Federal Claims Judge Thomas Wheeler stated in his opinion and ruling that the government’s reasoning for taking control of AIG “appeared entirely misplaced.”

Judge Wheeler said “The government’s unduly harsh treatment of AIG in comparison to other institutions seemingly was misguided and had no legitimate purpose.” According to him, the government carefully orchestrated the takeover of AIG to avoid any shareholder vote and maximize benefit for taxpayers.

The Federal Reserve controlled 79.9% stake in AIG. According to Judge Wheeler, the central bank had no legal right to become the owner of the insurance giant. Although Greenberg won the case, the court did not award any damages since AIG shareholders did not suffer financially,

“The end point for this case is that, however harshly or improperly the government acted in nationalizing AIG, it saved AIG from bankruptcy. Therefore, application of the economic loss doctrine results in damages to the shareholders of zero,” said Judge Wheeler.

U.S. government disagrees with the court ruling

The U.S. government issued a statement indicating that it was not satisfied with the ruling and expressed concern that it might set a dangerous precedent by declaring that the actions of the Federal Reserve was illegal.

“We disagree with the court’s conclusion regarding the Federal Reserve’s legal authority and continue to believe that the government acted well within legal bounds.”

The Federal Reserve previously pointed out that its actions on the AIG bailout during the 2008 financial crisis were “proper, legal, and effective.” The central bank also emphasized that the terms were “appropriately tough to protect taxpayers from risks” associated with the rescue loan.

Mr. Greenberg through his lawyers also plans to challenge the ruling on the damages this month. Greenberg issued a statement in June indicating that they will “appeal the ruling that there is no remedy for the government’s illegal conduct.”

He added, “We will ask the court of appeals to confirm that the government is not entitled to keep billions of dollars of citizen’s money in its pocket.”