NEW YORK — American International Group said Wednesday that its board of directors decided not to join a $25 billion shareholder lawsuit against the U.S. government over the bailout that rescued the company.
The suit was filed by Starr International, a company headed by AIG’s founder and former Chief Executive Officer Maurice Greenberg. It alleges that the government took nearly all ofthe insurer’s stock as part ofits bailout without giving investors proper compensation. The $182 billion bailout of the insurer by the Treasury was the largest of the 2008 financial crisis.
AIG is in the midst of a “Thank You America” ad campaign to show its gratitude for being rescued from the brink of collapse.
The prospect of the insurerjoining the lawsuit triggered responses from government officials. A congressman from Vermont issued a statement telling AIG: “Don’t even think about it.”
AIG, which was legally obligated to consider joining the lawsuit, demurred.
“The Board of Directors properly and fully executed our fiduciary and legalobligations to AIG and its shareholders,” Robert Miller, chairman of AIG’s board of directors said in a statement Wednesday. “We kept our promise to rebuild this great company, repay every dollar America invested in us, and deliver a profit to those who put their trust in us.”
Joining the suit would havebeen “reputational suicide,” for AIG, James Cox, a law professor at Duke University, said in an interview before the announcement. “You’re essentially suing the hand that had fed you and rescued you from financial collapse, and I don’t think there’s any way to tell that story in any other way.”
AIG would have gone bankrupt if the U.S. hadn’t rescued it, leaving shareholders with nothing, Jack Gutt, a New York Fed spokesman, wrote in a statement Tuesday.
“There is no merit to these allegations,” he said of the suit.
The board’s vote was unanimous, AIG CEO Robert Benmosche said. The insurer will file a formal statement in court explaining theboard’s decision in the “coming weeks,” according to the statement.
AIG nearly failed after insuring mortgage investments worth billions of dollars that tanked when homeowners began to default on their loans. Regulators were concerned that if it were allowed to fail it would send shock waves through the financial system, which was already reeling as Lehman Brothers collapsed.
Miller said in the statementthat the insurer had returned $205 billion to the government, resulting in a profit of $22.7 billion for the U.S.
Since the financial meltdown, AIG has undergone a restructuring that has cut its size nearly in half. Its aim is to focus the company on its core insurance operations.
In 2010, the company spun off Asian life insurer AIA Group in Hong Kong’s biggest ever initial public offering to raise $20 billion, which wasused to pay bailout debt.
In November, AIG reported a third-quarter profit of nearly $2 billion thanks to strength in its insurance operations and investment returns.
In the same period a year earlier it lost $4 billion.
The Treasury Department announced last month that it sold all of its remaining shares of AIG.
“AIG should thank American taxpayers for their help,not bite the hand that fed them for helping them out in a crisis,” said Sen. Elizabeth Warren, a Massachusetts Democrat, in a statement. Warren previously led a congressional panel that reviewed federal bailouts of financial firms.
Information for this article was contributed by Steve Rothwell of The Associated Press and by Zachary Tracer, Noah Buhayar and Tom Schoenberg of Bloomberg News.
Business, Pages 23 on 01/10/2013