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Federal Government Releases Ruling in AIG Bailout

June 15, 2015
Aaron Kessler, Leslie Scism
New York Times, Wall Street Journal

The U.S. Court of Federal Claims recently ruled on behalf of American International Group (AIG) in a case brought by Starr International Co. Inc., formerly one of the largest shareholders of AIG stock. The lawsuit challenged the U.S. government over the 2008 bailout of AIG. In the ruling, Judge Thomas C. Wheeler found that the Federal Reserve overstepped its authority by taking 79.9 percent of AIG’s equity as a condition of the bailout.

Judge Wheeler ruled, “The Government’s unduly harsh treatment of A.I.G. in comparison to other institutions seemingly was misguided and had no legitimate purpose, even considering concerns about ‘moral hazard.’” He also stated, “There is nothing in the Federal Reserve Act or in any other federal statute that would permit a Federal Reserve Bank to take over a private corporation and run its business as if the Government were the owner.”

AIG was represented by the law firms Boies, Schiller & Flexner LLP and Skadden, Arps, Slate, Meagher & Flom LLP. Several BRG experts testified in the case: Robert MacLaverty on credit default swaps, Edward O’Brien on securities lending, and Dr. C. Paul Wazzan on prejudgment interest. The BRG experts and other experts in the case were supported by Elizabeth Kroger Davis.

For further information on the decision, visit The New York Times and The Wall Street Journal (subscription may be required).

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