Bermuda Company Sues US For Billions

A Bermuda company run by former American International Group Inc. CEO Maurice [Hank] Greenberg today [Nov. 21] filed a $25 billion lawsuit against the United States, claiming that the government takeover of the insurer was unconstitutional.

In its complaint, Mr. Greenberg’s Bermuda-based private equity firm Starr International Co. said that by bailing out AIG and taking a nearly 80 percent stake, the US government failed to compensate existing shareholders.

Starr also claimed in its complaint this violated the Fifth Amendment, which bars the taking of private property for public use without just compensation.

“The government’s actions were ostensibly designed to protect the United States economy and rescue the country’s financial system,” Starr said. “Although this might be a laudable goal, as a matter of basic law, the ends could not and did not justify the unlawful means employed.”

The United States, it went on, “is not empowered to trample shareholder and property rights even in the midst of a financial emergency.”

Monday’s lawsuit was filed with the US Court of Federal Claims in Washington, which handles lawsuits seeking money from the government.

The $25 billion estimate reflects what Starr called the value of the government’s stake on January 14, 2011, when it swapped AIG preferred stock for 562.9 million common shares.

The Treasury Department did not immediately respond to requests for comment from US news outlets. AIG also declined to comment. AIG was named as a nominal defendant in the lawsuit.

Once the world’s largest insurer by market value, AIG accepted $182.3 billion of federal bailouts beginning on September 16, 2008, amid a liquidity crisis spurred by its exposure to risky debt through credit default swaps.

The government’s stake in AIG has fallen to about 77 percent. AIG itself has sued Bank of America Corp. for $10 billion over alleged losses on mortgage securities.

Mr. Greenberg left AIG in March 2005, after nearly four decades at the helm, amid questions by regulators over its accounting practices.

AIG in 2006 paid $1.64 billion to settle federal and state probes into its business practices and in July 2010 agreed to pay $725 million to settle a shareholder lawsuit accusing it of accounting fraud and stock price manipulation.

In 2009 Mr. Greenberg told a US court that he had a private jet fly a large block of Starr International’s stock to Bermuda from New York to prevent AIG from seizing it.

“It was a reaction to the entire environment that was emerging between AIG and Starr International,” he told US District Judge Jed Rakoff. “It was starting to get very ugly.”

A key witness in the dispute between Starr International and American International Group, Mr. Greenberg appeared peevish under questioning by the lawyer for his former company, Ted Wells.

Mr. Greenberg also admitted to being “angry” at suddenly losing his job at the company that he had built into the world’s largest insurer. AIG has maintained a large Bermuda presence since shortly after the Second World War.

“Yes. It was sudden and abrupt….Yes I was angry,” he told Mr. Wells when asked about his ouster.

AIG was suing Starr International for $4.3 billion in damages representing the sale of millions of AIG shares since Mr. Greenberg left the insurer and the return of more than 185 million AIG shares that Starr International controlled.

AIG accused Mr. Greenberg, chairman of the privately held, Bermuda-based Starr, of illegally taking the stock, worth at one point at least $20 billion, in 2005.

AIG contended the shares were pledged to fund a deferred compensation plan for selected employees.

Starr disputed that saying the beneficiary of the shares was always a charitable trust.

Mr. Wells told Judge Rakoff that a private jet was flown from Bermuda to New York in late September 2005 so that Starr representatives, accompanied by bodyguards, could transfer the shares to accounts in Bermuda.

A jury decided that Starr did not breach a trust, a decision later upheld by Judge Rakoff. In a 58-page written judgment, Judge Jed Rakoff in US District Court in Manhattan upheld the jury’s finding that prevented the bailed-out insurer’s bid to collect $4.3 billion in damages from Starr.

Mr. Greenberg, 85, an insurance industry legend, is the father of ACE Ltd. president and CEO Evan Greenberg.

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