In Dramatic Decision Judge Finds Fed Bailout Of AIG Was "Illegal", Government "Violated Federal

Zero Hedge ^ | 6/15/15 | Tyler Durden

[Nachum]

Earlier today, former AIG head Hank Greenberg's long-running legal battle of the US government came to a dramatic end when in a 75-page ruling, U.S. Court of Claims Judge Thomas Wheeler found that Greenberg was indeed correct in claiming the government overstepped its legal boundaries in its "unduly harsh treatment of AIG in comparison to other institutions" which was "misguided and had no legitimate purpose."

But because “the question is not whether this treatment was inequitable or unfair, but whether the government’s actions created a legal right of recovery for AIG’s shareholders" Wheeler found that Greenberg was not owed any money as AIG would have gone bankrupt without the government's forced intervention. Greenberg was seeking at least $25 billion in damages for shareholders.

The reason for the case is that years after the initial $85 billion bailout which eventually ballooned to $182 billion, AIG - with the government's explicit backstop and thus zero credit risk - managed to repay the government bailout funds and the government with a $22.7 billion profit. Greenberg argued that the pre-bailout equity holders deserved a piece of the pie, very much the same way that Fannie and Freddie stakeholders are also arguing they too deserve a piece of the post-government bailout pie.

However, “in the end, the Achilles’ heel of Starr’s case is that, if not for the Government’s intervention, AIG would have filed for bankruptcy. In a bankruptcy proceeding, AIG’s shareholders would most likely have lost 100 percent of their stock value" the judge found, and admitted that the pre-government bailout equity value of financial companies - since all of them were facing bankruptcy without a bailout - was zero. Whether this opens up the door to a class action lawsuit by all those who were short financials into the bailout and were then

[Lurkina.n.Learnin]

He won everything but damages.

[OrangeDaisy]

The insurance companies were solvent. They would have been taken over by their respective state of domicile insurance board, and the states would have sold to the highest bidder.

[TBP]

This opens up fertile legal ground for lots of cases.

[OrangeDaisy]

Lots of employees had the 401K company match in stock and lost 95% of it’s value. Prior to Enron, the company strongly encouraged officers to hold shares of stock, and many officers did this through the 401K. Despite Enron, many had not replaced the stock with another investment. AIG management (evenly lower and middle management) had stock options that went underwater and then expired. The stock dropped from $80 to under $5 and then reverse split 1 for 20. The current stock price today is $62. Divide that by 20 and you see that AIG stock is worth about $3 on a pre-crash basis. I doubt the stock will recover in my lifetime.

[Lumper20]

Years ago he did own a huge stack in AIG. In the 80’s. He has other Insurance holdings or had. I lived in Omaha for a bit and several friends who were well off knew him. No he did not own it when it bellied up.