* Lower court judge found New York Fed exceeded its power
* Greenberg's company Starr plans U.S. Supreme Court appeal
(Adds planned U.S. Supreme Court appeal, comments)
By Jonathan Stempel
May 9 A federal appeals court threw out a ruling
that the U.S. government illegally bailed out insurer American
International Group Inc during the 2008 financial
crisis, in a defeat for former chief executive officer Maurice
The Federal Circuit Court of Appeals in Washington said
Greenberg's Starr International Co had no legal right to
challenge the bailout because that right belonged to AIG, which
chose not to sue.
Tuesday's decision by a three-judge panel was a victory for
the government in a lawsuit testing its power to bail out
companies, including those deemed "too big to fail."
David Boies, Starr's lawyer, said "we respectfully disagree"
with the decision and they would appeal to the U.S. Supreme
Court. The Department of Justice had no immediate comment.
AIG was rescued in September 2008 after running up huge
losses from insurance on shoddy mortgage securities.
Starr said the government harmed shareholders through an
unconstitutional "exaction," by taking a 79.9 percent stake in
the stricken insurer in exchange for a high-interest $85 billion
loan from the Federal Reserve Bank of New York.
"While punitive measures against a corporation may
ultimately be borne by its shareholders, a finding that those
measures targeted shareholders directly is a wholly different
matter," Chief Judge Sharon Prost wrote for the appeals court.
"The alleged injuries to Starr are merely incidental to
injuries to AIG, and any remedy would go to AIG, not Starr," she
Starr had been New York-based AIG's largest shareholder,
with a 12 percent stake. It sought more than $40 billion of
damages for shareholders.
In June 2015, Court of Federal Claims Judge Thomas Wheeler
agreed with Starr that the New York Fed overstepped its
authority in arranging the $85 billion loan, but he refused to
award damages because AIG would have gone bankrupt without it.
The judge also rejected damages for a subsequent reverse
Wheeler ruled after a trial featuring testimony from former
Fed chairman Ben Bernanke, and former Treasury secretaries Henry
"Hank" Paulson and Tim Geithner.
Greenberg appealed Wheeler's damages ruling. The government
appealed his standing and exaction rulings.
Dennis Kelleher, CEO of nonprofit Better Markets, in an
interview welcomed the decision, saying the case may help
regulators address future financial system shocks "without
worrying about courts second-guessing them years later."
AIG's bailout eventually totaled $182.3 billion but was
repaid, leaving taxpayers with nearly $23 billion of profit.
Greenberg, 92, led AIG for nearly four decades before being
ousted in March 2005.
The case is Starr International Co v U.S., Federal Circuit
Court of Appeals, Nos. 2015-5103, 2015-5133.
(Reporting by Jonathan Stempel in New York; Editing by Lisa Von
Ahn and Andrew Hay)