AIG Suit Against New York Fed Over Bailout Dismissed

Starr International, an AIG subsidiary, had its claims that AIG was wrongfully managed during the bailout rejected.

Insurance Networking News, November 19, 2012

Patricia Hurtado, Bloomberg

Starr International Co.’s lawsuit against the Federal Reserve Bank of New York over the government bailout of American International Group Inc. was dismissed by a federal judge in New York.

Starr, an AIG shareholder headed by AIG’s founder, Hank Greenberg, claimed the government used its 2008 bailout of New York-based AIG to channel money improperly to the insurer’s trading partners. U.S. District Judge Paul Engelmayer in Manhattan federal court rejected the claims in a filing dated Nov. 16.

Starr sued the New York Fed in November, saying it breached its duty to AIG shareholders by loaning $85 billion at 14.5 percent while offering better terms to banks in a “backdoor bailout.” AIG almost collapsed after bets tied to the housing market soured, and the bailout was revised at least four times before reaching $182 billion.

Starr said in its complaint that the bank coerced, induced and required AIG directors and officers to “violate their duties” to Starr International and AIG. Beginning in 2008 and continuing until at least January 2011, the federal government “imposed a series of transactions” that “resulted in depriving” AIG and its shareholders of tens of billions of dollars, Starr said.

The New York case is Starr International Co. v. Federal Reserve Bank of New York, 11-8422, U.S. District Court, Southern District of New York (Manhattan).

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