AIG Is Doing Well, But Not Its Shareholders Who Are Suing Uncle Sam For Taking their Shares

While we were engaged in doing our usual thing, we missed a significant taking story of which we learned today while perusing the New York Times; Rescued by Bailout, A.I.G. May Follow a “Thank You” with a Suit, Jan. 8, 2013, at p. A1. It turns out that the shareholders of AIG (the big insurance outfit that got bailed out by Uncle Sam) is contemplating joining a pending lawsuit against the government on a taking theory. The bottom line of the lawsuit is that by the time all the bailout machinations were done with, Uncle Sam wound up owning 92% of AIG stock at the expense of the AIG shareholders. True, in later transactions AIG made a profit of $22 billion, but that was AIG, not its shareholders individually.

That may be well and good for AIG which thus has nothing to complain about, but what about those shareholders? They intone the old cry of “we wuz robbed” — their stock was taken and diluted, leaving them worse off. They also complain that AIG paid Uncle Sam excessive interest of 14%. But that isn’t the real point now. Those shareholders want AIG to join them in their lawsuit against Uncle Sam, which creates a dilemma for AIG. On its face, suing the party that rescued it from bankruptcy would be a PR disaster; an act of monumental ingratitude on the part of AIG, amounting to chutzpa. But on the other hand, say the shareholders, AIG’s duty is not to Uncle Sam or to good manners, but to its shareholders, and they have been royally screwed — raptus regaliter, as the Romans used to say. So the board of AIG is pondering what to do. If they decide not to join the shareholders’ lawsuit they may be exposing AIG to a lawsuit for breach of its duty to its shareholders. But they decide to join, they will have a major PR problem on their hands: they would then be suing Uncle Sam who rescued the company and was instrumental in making it possible for it to make that $22 billion.

And a litigational aside. “The Justice Department which assigned about a dozen lawyers to the case and hired outside experts, told the [Claims Court] judge handling the matter that [the plaintiff entity] was seeking 16 million pages in documents from the government,” causing the “startled” judge to respond “How many?”

Stay tuned.

Follow up. reports that at it meeting of today (1/9/13) AIG decided not to join the shareholders’ suit against Uncle Sam. Click here.

Afterthought: We should also include a citation to the opinion of the U.S. Court of Federal Claims dealing with this issue: Starr International Co., Inc. v. United States (Fed.Cl. 2012) 106 Fed.Cl. 50. It’s a whopper of an opinion (47 pages and 29 headnotes, dealing with issues of inverse condeemnation and corporate law), so we recommend that before reading it you have a drink and put your feet up. Good luck!