The U.S. Justice Department has asked a federal appeals court to overturn a lower court's ruling that Federal Reserve Board Chairman Ben Bernanke must testify in a lawsuit filed by former American International Group Chief Executive Officer Maurice "Hank" Greenberg.
Greenberg's Starr International Co. is suing the federal government to reimburse AIG shareholders $55.5 billion they allegedly lost as a result of the bailout. Starr International Co., where Greenberg currently serves as chairman and CEO, is the lead plaintiff in the case and held about 12% of AIG's stock in 2008.
Lawyers for the federal government have opposed efforts to have Bernanke testify because he is a high-ranking government official whose deposition should not be taken, except under extraordinary circumstances.
"The demands of civil litigation, if not appropriately limited by the courts, will impair the ability of senior government officials to lead the departments and agencies for which they are responsible," DOJ lawyers said in a petition filed with the U.S. Court of Appeals for the Federal Circuit.
Efforts to reach lawyers for Starr International were not immediately successful.
The lawsuit was granted class-action status in April, when two classes related to the case were certified by a federal judge. The classes represent AIG shareholders from Sept. 16 to 18, 2008, and those who owned AIG stock when it underwent a reverse stock split on June 30, 2009.
The lawsuit originally sought to recover more than $23 billion related to the government takeover that saw the Federal Reserve Bank of New York take a 79.9% equity and voting interest in AIG as part of the $182.3 billion bailout. Shareholders are now also seeking to recover an additional $32.5 billion in lost collateral that was given to Maiden Lane III LLC, a special-purpose vehicle designed to absorb toxic assets held by banks doing business with AIG, according to an amended complaint filed March 11.
At issue is whether the federal government violated AIG's Fifth Amendment rights under the Takings Clause of the U.S. Constitution when it took a majority equity stake in the company. The lawsuit alleged the stock was taken from shareholders without just compensation. Also, the case challenges that the shareholders did not get to vote on the 2009 reverse stock split, which was engineered by the Federal Reserve during the bailout.
Starr contends the government unlawfully took over AIG and then covertly funnelled billions of dollars from it to other financial institutions that were AIG clients. At the time of the government takeover, Greenberg was AIG's largest shareholder, with 562.9 million shares of the company. As of January 2011, Starr held 13.9 million shares.
AIG's board considered joining the suit or allowing Starr to sue on its behalf, but ultimately decided against either option.