Starr and Greenberg File Fiduciary Case Against FRBNY After AIG Takeover
In September 2008, at the depth of the financial crisis, the U.S. Government arranged for control of the American International Group to be lodged in the Federal Reserve Bank of New York. With that power, FRBNY for two years caused AIG and its board and top managers to engage in a series of deals that, to AIG shareholders, were designed more to benefit the financial system and other financial institutions than AIG.
As AIG’s controlling shareholder, FRBNY thereby breached its fiduciary duties to AIG and its other shareholders, charges a complaint filed in Federal court in Manhattan. The complaint, filed by AIG’s largest private shareholder, Starr International and its CEO Maurice (“Hank”) Greenberg, was drafted by David Boies (Boies, Schiller & Flexner) and John Gardiner (Skadden Arps). It accompanies the commencement of a parallel case filed in the Federal Court of Claims against the United States under the takings clause of the Fifth Amendment. Following are some excerpts from the complaint against the FRBNY.
6. FRBNY [caused] AIG to pay AIG’s credit default swap counterparties 100 cents on the dollar . . . which at the time could have been compromised for substantially less than 100 cents on the dollar.
7. FRBNY was ostensibly motivated in these transactions by a desire to help the counterparties weather the financial crisis without confronting the public and political opposition that the FRBNY feared would arise if it aided the coutnerparties openly and directly. Regardless of whether the FRBNY’s support of the counterparties was good or bad public policy, in using AIG and AIG’s assets to accomplish a secret “backdoor bailout” of AIG’s counterparties, FRBNY breached the duties it, and those acting in concert with FRBNY, owed to AIG.
8. FRBNY then concealed both the identityof the counterparties receivving payments as well as the fact that those counterparties were paid in full. . . .
11. FRBNY [caused the evasion] of AIG’s existing Common Stock shareholders’ right to approve the massive issuance of the new Common Stock shares required to complete the Government’s taking of a nearly 80% interest in the Common Stock of AIG [in violation of Delaware corporate law].
14. [I]n a series of self-dealing transactions, FRBNY used its control over AIG to divert the rights and assets of AIG and its shareholders to itself and favored third parties . . .