The insurance industry has long protested about “frivolous lawsuits”
which allegedly clog the court system and drive up insurance costs. AIG
is a big part of that industry. In fact, it is the largest insurance conglomerate
in the world.
Given that, it’s ironic that the former CEO of AIG is pursuing what
most people would consider the most frivolous lawsuit imaginable: a claim
against the federal government arising from the federal government’s
successful bailout of AIG.
That’s right. Hank Greenberg, who was forced out as AIG chairman
in 2005 over various financial frauds, is suing the feds for successfully
bailing AIG out during the 2008 financial crisis. Greenberg, who still
held huge amounts of AIG stock even after he was fired, thinks the value
of his AIG stock suffered too much when the government saved the value
of AIG stock.
To understand this story, one has to go back a few years. Before the great
recession, AIG was a relatively stable and financially conservative insurance
business. Unfortunately, AIG couldn’t resist the temptation to try
and make easy money by insuring risks associated with mortgages and other
flimsy assets. AIG insured so many bets stemming from dubious assets that
it didn’t have a fraction of the money it needed to actually pay
on those bets.
Those bets went spectacularly bad, of course, and AIG was left holding
the bag. In late 2008, it was facing immediate financial ruin. In fact,
it was on the verge of filing for bankruptcy when the government agreed
to be a “lender of last resort.” The government held its nose
and agreed to step in because it felt a collapse of AIG would further
damage the world financial system.
As part of the bailout package, the government required AIG to provide
it with an 80-percent share of AIG stock. That was a no-brainer at the
time. AIG was so far in the red that if the bailout didn’t happen,
AIG’s stock would have become worthless anyway. Furthermore, the
terms the government offered to AIG were the exact same terms
proposed by AIG to private lenders when it went to them begging for a bailout in the same
Now, in better financial days, Greenberg is suing the federal government
over the terms of the bailout the government wasn’t required to
provide. He claims it really wasn’t legal and fair for the government
to get AIG stock as part of the bailout deal. He seeks $23 billion for
himself and other AIG shareholders for the value of the stock the government
took. Again, this is the same stock that would have been dead worthless
if the government hadn’t saved AIG’s bacon.
This type of hypocrisy reveals what the term “frivolous lawsuits”
really means. The term is really just code for a lawsuit brought by the
wrong type of people. There are no frivolous lawsuits for fabulously rich
and powerful people. They can pursue any type of claims they want - including
those which make a normal person’s blood boil.
Are you looking for legal counsel? Roman & Gaynor can help. Contact
our seasoned legal team to
schedule a free case consultation today.