UPDATE: This article, originally published at 1:24 p.m. on Tuesday, June 16, 2015, has been updated with Hank Greenberg's plans to appeal the ruling that denied him damages.
NEW YORK (TheStreet) -- Hank Greenberg's victory in a lawsuit claiming the government's 2008 bailout of AIG illegally penalized shareholders looks like a win in name only.
Yes, a federal judge ruled that the government lacked the legal authority to take an 80% equity stake in the insurance giant, which eventually received $182 billion to prevent its collapse.
But Greenberg, who filed the suit through his Starr International firm, and other shareholders were awarded nothing since the judge also found that AIG would have filed for bankruptcy without the bailout. In that case, investors would likely have lost everything.
It turns out, ironically, that the decision not to award damages carried a big benefit for New York-based AIG, even though it didn't directly help shareholders. The company's shares popped 3% on Monday, largely because of an obscure clause buried in reams of bailout filings and stipulations that indemnified the government from lawsuits.
If Greenberg -- the company's former CEO and one of its largest shareholders at the time of the bailout -- had won damages, the clause "would have subjected AIG to reimbursing Greenberg and any other member of the [plaintiff] class," said John Nadel, a managing director of equity research with Piper Jaffray.
The agreement held the government harmless from any losses or liabilities connected with the bailout in any way, even after the money was repaid, according to a September 2008 regulatory filing.
"I think AIG would have challenged it, particularly given the court's ruling that taking the equity stake was in fact unconstitutional, and I think AIG would have at least had legal ground to argue whether the indemnification was valid," Nadel said.
Eliminating the risk of a payout in Greenberg's case, which might have totaled as much as $40 billion, is important to current shareholders since many analysts are bullish about its large cash holdings, including $4 billion from the sale of its stake in AerCap Holdings (AER), that could be put toward dividends and buybacks.
That cash infusion, in addition to previous forecasts of $6 billion to $7 billion in 2015 capital returns to investors, makes it likely the total would reach $11 billion this year, Nadel said. That would represent a roughly 14% return to investors. Piper Jaffray maintains an overweight, or buy, rating on AIG.
But the risk hasn't been eliminated completel: Greenberg issued a statement to investors Tuesday of his intent to appeal, according to a Wall Street Journal report. AIG dropped 58 cents to $61.99 today in New York.
"The idea that Greenberg and his team would appeal I don't think is a surprise to anybody," Nadel said. "He won, but he didn't win."
Greenberg isn't the only one dissatisfied with the ruling: U.S. Federal Claims Judge Thomas Wheeler's decision has some troubling implications for the future, a securities law professor said. For one, it's likely to increase moral hazard, the potential for asset managers and institutions to take on excessive risk because there are insufficient penalties for doing so.
"The decision is disturbing in several respects and uses a flawed logic," John C. Coffee of Columbia University, wrote in an email to TheStreet. "It seems to feel that the Fed has a duty to be fair to failing financial institutions because of its 'monopolistic' position. Under that dubious logic, the Fed might be sued for not granting a bailout when it thought the risk was too high or the social need too low. All in all, this is a check on financial regulators who were already too equivocal and undemanding."
The plaintiff's argument that AIG's equity was unlawfully taken during the crisis and that the interest on its loans was re too high compared with peers is misguided, Coffee said. It is not the Federal Reserve's obligation to swaddle companies that have put themselves on the brink of collapse.
"If one reads this case as requiring the Fed to be fair and not harsh, the moral hazard problem is aggravated," he said. "An AIG can take more risk because the Fed cannot demand its 79.9% pound of flesh."
Bailout opponents "can feel comforted by the decision because it will chill the regulators' willingness to bail out a failing bank -- but the failure to bail out AIG could have unleashed a much greater financial panic," Coffee said.
Bailouts, however, may well occur again, Judge Wheeler noted, and contain terms just as stringent as those imposed on AIG.
"A troubling feature of this outcome is that the government is able to avoid any damages notwithstanding its plain violations" of the law, Wheeler wrote. "Any time the government saves a private enterprise from bankruptcy through an emergency loan, as here, it can essentially impose whatever terms it wishes without fear of reprisal."