Why A.I.G. Did Not Sue the Government

Why A.I.G. Did Not Sue the Government

When American International Group’s directors met this month to consider joining a lawsuit against the same federal agencies that rescued it with a $ 182 billion financial crisis bailout, they received a stark warning from their lawyers. One lawyer said that the lawsuit had only a 20 percent chance of succeeding, according to a document released on Wednesday.

At the time, A.I.G. was weighing whether to join a suit filed by A.I.G.’s former chief executive, Maurice R. Greenberg, and the firm he now runs, Starr International. The case, brought on behalf of fellow shareholders, was based on the argument that A.I.G. investors lost tens of billions of dollars when the government attached onerous terms to the bailout.

But A.I.G.’s lawyers were skeptical, noting that the long odds were not the only reason to steer clear of the case. Even if the $ 25 billion lawsuit against the Treasury Department and the Federal Reserve Bank of New York succeeds, one lawyer pointed out, it could damage A.I.G.’s reputation.

Citing recent negative media coverage about the board’s deliberations, the directors agreed. The lawsuit, they worried, “threatened to destroy much of the good work that A.I.G. and its employees had done rebuilding A.I.G. and its name and reputation” after the bailout, according to a letter by Paul Curnin, the lawyer who advised A.I.G.

The letter, sent to Mr. Greenberg’s lawyers, offer a lens into A.I.G.’s decision-making process over two days in early January. After discussion, directors unanimously voted to avoid the lawsuit.

A public uproar erupted after The New York Times reported that the company was weighing whether to join the case. Lawmakers slammed the company for even considering the case.

The government argued that Mr. Greenberg’s claims were frivolous, as the company’s only alternative was bankruptcy.

The directors met on Jan. 8 with Mr. Curnin, a partner at Simpson Thacher & Bartlett, who outlined his concerns about the case. While the board had a duty to its shareholders to consider the case, Mr. Curnin noted that “Starr’s claim had a low likelihood of success on the merits.” He reached the conclusion, he said, after hiring outside legal experts to study the case.

Both sides then made a final pitch to the directors at a Jan. 9 board meeting. The directors gathered to hear presentations from Mr. Greenberg’s lawyer and senior officials from the Treasury Department and the Federal Reserve Bank of New York.

In the middle of their deliberations, the directors learned that at least one state insurance regulator had called to talk the company out of joining the case, according to the letter filed on Wednesday.

Ultimately, the directors sided with the government. “A deal is a deal,” they said, according to the letter.


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