New York Fed wins end of Greenberg’s AIG bailout lawsuit

NEW YORK, Mon Nov 19, 2012 – The Federal Reserve Bank of New York won the dismissal of former American International Group In. CEO Executive Maurice “Hank” Greenberg’s $25 billion lawsuit accusing it of acting unlawfully in bailing out the insurer during the 2008 financial crisis.

U.S. District Judge Paul Engelmayer in Manhattan on Monday dismissed in full the case brought on behalf of Greenberg’s company Starr International Co, which once held a 12 percent stake in AIG.

Greenberg had accused the New York Fed of wasting more than$60 billion of AIG and taxpayer funds in a “backdoor bailout” that let favored trading partners such as Goldman Sachs Group Inc. be repaid in full and freed from legal liability.

He also said the bank circumvented the law by letting the U.S. Treasury take a nearly 80 percent stake in the New York-based insurer without giving existing shareholders a vote.

But the judge found that AIG agreed to the bailout in a moment of “corporate desperation” and rejected what he called Greenberg’s likening of the New York Fed to a “loan shark” that forced AIG into an unfair bargain.

“Merely because the AIG Board felt it had ‘no choice’ but to accept bitter terms from its sole available rescuer does not mean that that rescuer actually controlled the company,” Engelmayer wrote.

A spokeswoman for David Boies, who is a lawyer for Greenberg, had no immediate comment. A spokesman for the New York Fed did not immediately respond to requests for comment.