WASHINGTON (The Deal) -- The trial in a $40 billion lawsuit claiming the federal government illegally confiscated property of American International Group (AIG) shareholders got underway Monday -- with dueling perspectives emerging on day one of a much anticipated hearing that is providing a window into how regulators sought to stem a growing financial crisis in 2008.
At the core of the dispute in federal claims court in Washington is a 79.9% equity stake in AIG the U.S. government received in September 2008 in exchange for an $85 billion taxpayer-funded emergency loan made to the embattled insurer. The lawsuit was spearheaded by Maurice "Hank" Greenberg, former chairman and CEO of AIG, in 2011. Greenberg's investment firm, Starr International, was the insurer's largest shareholder - with an 11% stake - at the time of the bailout.
AIG, considered the poster child for the financial crisis, eventually needed further assistance and ultimately received a whopping $182 billion -- a sum that gave the government a 92% stake at the peak and one that the insurer eventually repaid. AIG's notorious financial products group made the company massively interconnected internationally. The firm also did not have sufficient capital or adequate oversight during the years leading up to the crisis. Its primary regulator in the U.S. during the build up to the crisis, the Office of Thrift Supervision, was dissolved by Congress after the crisis due to its oversight failures.
Many regulatory observers are skeptical about Greenberg's chances of success. However, Federal Claims Court Judge Thomas Wheeler gave the Starr International chief's top lawyer, David Boies, a partner at Boies Schiller & Flexner, additional time to wrap up his opening argument beyond the time that was allotted, indicating that he may think it has some merit. The lawsuit will likely take roughly six weeks to run its course. High-profile ex-regulators from the crisis era, including former Treasury Secretaries Hank Paulson and Timothy Geithner as well as ex-Fed chief Ben Bernanke, are tentatively scheduled to testify. Bernanke could testify as soon as next Monday but both sides said they haven't nailed down a specific time for his testimony.