(MENAFN- AFP) A US court ruled Monday that the government takeover of insurer AIG at the height of the financial crisis was illegal, but refused to grant billions of dollars in damages to company founder Hank Greenberg.
The court said that the Federal Reserve's New York branch had no authority to both lend money to the failing company and seize its equity as it did in a dramatic weekend rescue in September 2008, the same weekend Lehmann Brothers failed.
"A Federal Reserve Bank has no right to control and run a company to whom it has made a sizable loan," Washington Court of Claims judge Thomas Wheeler said.
But he also said that Greenberg's company Starr International would have ended up with nothing had the government not stepped in, and so did not prove to the court its claim for $40 billion.
"While the taking of 79.9 percent equity ownership and the running of AIG's business were not permitted under the Federal Reserve Act, the government did not cause any economic loss to AIG's shareholders" because, without the bailout, shareholders would have had nothing, Wheeler wrote in his decision.
He cited the words of a financial advisor to the company's board who told them to take the deal in 2008 which left them with 20 percent of the company.
With AIG certain to fail under massive derivatives losses at the time, "twenty percent of something (is) better than 100 percent of nothing," the advisor had said.
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