Hank Greenberg: still at it! My lord. Remember when AIG was going to sue the government along with him, and everyone freaked out, and then it didn't, and everyone was all "whew, glad that's over"? Hahaha yeah. Not over.
Greenberg filed his amended complaint in his lawsuit against the government today, and in addition to sort of doubling down on his damages claim,1 he makes a whole lot of hay out of the fact that when he asked AIG to join his lawsuit, people made fun of him. Also I guess some other stuff:
The Government also threatened the AIG Board with the purpose and effect of intimidating AIG and its directors into acting to halt this litigation. The United States indicated it would wage a negative public relations campaign against AIG and its directors, terminate any cooperative relationship with AIG, and heavily scrutinize AIG’s SEC, tax, and other filings from the 2008 to 2010 period when Defendant controlled AIG.
Government officials mounted a campaign, including in the days immediately preceding the Board meeting to consider Plaintiff’s demand, to intimidate the AIG Board that condemned the AIG Board for even considering, much less accepting, the demand. ...
As a result of the various factors that had compromised the independence and due care of the demand process, the AIG Board did not take the several weeks it had stated to this Court it would take to make a considered decision following the presentations to it on January 9, 2013, but rather rejected the demand the same day, less than three hours after those presentations ended. The AIG Board had in fact made its decision to reject Starr’s demand even before the presentations were made.
We talked about this when it happened, and I pointed out that this stuff matters.2 Greenberg is mostly - not entirely but mostly - suing on behalf of AIG. In particular, the extra $32 billion that he found in the lawsuit's couch cushions this time around is entirely AIG's claim: the shareholders never had that money; the company did.
Of course Greenberg doesn't run AIG and hasn't for some time, so you might reasonably ask "why can't AIG decide whether to sue on behalf of AIG, instead of Greenberg doing it?" The law asks that same question. And the answer is that the decision really is up to AIG, for the most part: Greenberg has to ask them to sue, rather than suing himself, and if they say no then the case is over.
And that happened so it is. Except it's not! Because if AIG's directors were "either too self-interested or too controlled by the alleged wrongdoers to make a valid business decision to dismiss the suit," then Greenberg gets to go ahead. And now he's arguing that they were. And ... I mean, you tell me. For myself, if I were AIG I wouldn't have sued either, but nonetheless I'm a little unimpressed by AIG's decision, given that it was made instantly, under pressure, and without making any effort to calculate the value of the lawsuit.
The creepy thing about Hank Greenberg's AIG litigation is that he's right about almost everything. Did AIG get worse bailout terms than everyone else? Sure, probably. Were AIG's bailout and its Maiden Lane vehicles used in part to funnel money to more favored banks? Umm, I don't know, I get less worked up than some people about the fact that Maiden Lane paid off AIG's creditors at 100 cents on the dollar,3 but I gotta say it seems kinda suspicious that Maiden Lane settled an $18 billion RMBS rep-and-warranty claim with Countrywide for $43 million, or less than a quarter of a cent on the dollar. And was AIG's board pressured into trying to squash this lawsuit? Yeah, actually, it totally was.
That doesn't mean he'll win, and it doesn't mean that he should win. The fact that AIG's shareholders got a far less cushy bailout than, say, Bank of America's doesn't mean that they had a Constitutional right to a cushier bailout. That's not the way it works, I'm pretty sure. A New York federal court found as much, and: seems right to me. But Greenberg's current suit is in a rather more receptive court in D.C., and he's on a miniature roll there. He got certified as a class action yesterday,4 survived a motion to dismiss, and must generally be feeling better about it than he has in some time. I suppose that's why he's dreaming big and asking for the $55 billion.
Greenberg Forges Ahead With Lawsuit Over A.I.G. Bailout [DealBook]
Starr Proceeds With Fight Over AIG Rescue [WSJ]
Greenberg doubles claims in AIG bailout lawsuit vs U.S. to $55 bln [Reuters]
AIG shareholders win class-action status in lawsuit versus U.S. [Reuters]
Starr International Co. v. U.S.:Second Amended Complaint [Ct. Fed. Claims]
Starr International Co. v. U.S.:Class Certification Opinion [Ct. Fed. Claims]
1.I'm not exactly sure he's asking for $55 billion; the math in the complaint is not as easy as all that. The way the Greenberg lawsuit works is this:
- Once AIG was great.
- [Things happened.]
- AIG was less great.
- One or more of those Things was unconstitutional.
- Give me my money back!
Yeah sure he's asking for damages both for the government taking his shares, and for the government handing out AIG's money to its creditors like a chump, but that doesn't mean that you just add up those damages. This is not measure-twice-cut-once precision; it's throwing stuff at the wall and seeing what sticks. If the government came to him tomorrow and offered him $25 billion HE'D TAKE IT.
2.Ooh what I said was that Greenberg's lawyer, David Boies, would
note that, despite their promises to the court of “further deliberation” and a “... designed to ensure to the maximum extent possible that AIG’s Board will have the information and time necessary to make an informed decision on the difficult issues raised by Starr’s demand,” the board made its decision within hours after – and, from news accounts, probably before – this morning’s mock trial. And that they threw their promised deliberative process out the window under pressure. And he’ll sort of have a point, no? And Greenberg’s lawsuit will drag on.
So I called David Boies pretty right, no? I'm gonna stick to the "will drag on" prediction too.
4.Here's a nerdy thing. The court certified two classes, one of people who owned stock when AIG signed its credit agreement with the government agreeing to give the government 80% of AIG, and another of people who owned stock when AIG did a reverse share split that actually gave the government 80% of AIG. Those two things together made AIG a ward of the state and supposedly took away Greenberg's property, but Greenberg isn't really sure which one did it. There are problems with saying it was the credit agreement - because that was after all an arms'-length transaction between a desperate AIG and a government with a bag of money; and there are problems with saying it was the share split - because the split was just carrying out an already-agreed-to deal. So he sort of punts and says it's one or the other and he'll represent both classes. From the court's opinion:
The Government posits that Starr cannot adequately represent both classes because there are conflicts within the proposed classes, as well as conflicts between the two different proposed classes. In arguing that there are conflicts between the two proposed classes, the Government highlights the premise that “the Government can only take the same property once,” and avers that both classes allege a taking of the same interests. Starr disagrees with the characterization, and points out that the signing of the Credit Agreement and the reverse stock split were two distinct events that each resulted in a taking of different interests, and recovery for both classes would be proportionate to the amount of shares held at the time of the taking (“[e]ach of the actions taken by the Government had an effect that was shared across all of the common stock on a ratable basis, share for share.”). Starr’s proposal of two classes is consistent with the Court’s previous findings of sufficient allegations that the Government had conducted two separate actions requiring just compensation: “(1) the imposition of the Credit Agreement on September 22, 2008; [and] (2) the reverse stock split on June 30, 2009[.]”
Is this not obviously wrong? Greenberg was a shareholder at both points so if he can convince a court that either event was a taking then he wins. But what if you owned shares when AIG signed its credit agreement and then dumped them in disgust? What if you didn't own shares but then bought in after the credit agreement? Then you care about which was the taking. Greenberg doesn't and can argue whichever has the better odds. How can he represent the people who were shareholders at only one point?