Summary: A lawsuit filed against the U.S. government over the bailout of AIG will go to trial, which begins on Monday.
On Monday, a trial will begin that will decide if the rescue of American International Group Inc by the United States government was legal, according to Reuters.
The case questions the limits of the government in how it responds to major financial crises. It will focus on the September 2008 bailout of AIG by the New York Federal Reserve.
The trial should last six weeks and will feature former Treasury Secretaries Henry Paulson and Timothy Geithner and former Federal Reserve Chairman Ben Bernanke.
Maurice Greenberg, the former chief executive of AIG, and his lawyer will argue that the government looked to unlawfully punish shareholders of AIG with harsh terms.
The lawyers have said that the offer of $85 billion in loans from the New York Fed in exchange for an 80 percent stake in AIG and high interest rates was unconstitutional theft from the company’s shareholders.
Greenberg was the largest shareholder of AIG using Starr International Co and Starr filed the lawsuit in November of 2011.
Lawyers for the government said the following in court papers: “Starr’s case stems from a misperceived entitlement … that when AIG faced an existential crisis in September 2008, AIG was entitled to dictate the terms of its own rescue.”
The bid by the government to dismiss the suit was rejected by U.S. Judge Thomas Wheeler in August. The lawsuit is asking for $50 billion in damages.
The case will ask two major questions; is it legal for the government to take $35 billion in AIG shares and pay $500,000 and if the government was permitted to condition the $85 billion loan using an equity stake in AIG.
The $182.3 billion bailout was paid back in full by AIG in December of 2012, which provided taxpayers with a profit of $23 billion.
There were many legal experts who did not think this lawsuit would even reach the trial stage.