A federal appeals court on Tuesday reversed a lower court decision that the 2008 bailout of the insurance giant AIG illegally shortchanged investors, saying that those investors lacked standing to sue for losses.
The decision is a setback for investors in AIG, including its former CEO Hank Greenberg. It is the latest move in a case that has illuminated the actions of the government in the financial crisis and featured testimony from principal actors such as former Federal Reserve Chairman Ben Bernanke.
U.S. Court of Appeals for the Federal Circuit Judge Sharon Prost wrote in the decision issued by the three-judge panel Tuesday that they were vacating the lower court’s 2015 decision that the terms of the 2008 bailout constituted “an illegal exaction.”
The 2015 decision found that AIG investors were mistreated in the bailout but awarded them no damages on the theory that their shares would have been worthless without the government intervention. The investment firm Starr International, led by Greenberg, sought damages of more than $40 billion. The appeals court’s decision also instructed the lower court to dismiss claims for relief.
The case was marked by testimony from officials who scrambled in 2008 and 2009 to piece together deals to bail out financial markets, including from Bernanke and Timothy Geithner, the head of the Federal Reserve Bank of New York and later treasury secretary under former President Barack Obama.
The proceedings called attention to the terms that AIG investors received relative to investors in big banks who received bailout deals during the crisis and on the support that the AIG bailout provided to big banks that would have been imperiled if AIG had been allowed to fail.
