When the federal government seized control of American International Group at the depths of the financial crisis in 2008, officials commandeered nearly 80% of the company’s equity in exchange for what were nominally called “loans”, without ever obtaining a shareholder vote or paying shareholders compensation for the seizure. The government treated all other financial firms far more favorably, even using some of the “loans” to secretly bail out other financial institutions. The government never conducted a valuation of the assets it commandeered.
To owners of AIG stock, this amounts to a taking in violation of their Fifth Amendment rights, according to their class action lawsuit against the United States in the U.S. Court of Federal Claims. The complaint, filed by AIG’s largest private shareholder, Starr International and its CEO Maurice (“Hank”) Greenberg, was drafted by David Boies (Boies, Schiller & Flexner) and John Gardiner (Skadden Arps). The suit seeks at least $25 billion in damages.
Pivotal paragraphs from the complaint read as follows:
10. The Government is not empowered to trample shareholder and property rights even in the midst of a financial emergency. The Fifth Amendment . . . directs that the Federal Government shall not deprive any person of “property without due process of law” and forbids the Government from appropriating private property “for public use, without just compensation.”
11. [A]lthough public policy goals may justify the taking of private property to serve public ends, when the Government does so it is required by the Constitution to ensure that the property is acquired in accordance with law, that the burdens associated with the taking are not imposed in a disparate and unfair manner, and that just compensation is paid. . . . As Justice Holmes long ago admonished, “a strong public desire to improve the public condition is not enough to warrant achieving the result by a shorter cut than the constitutional way of paying for the change.”
13. The Government’s actions were ostensibly designed to protect the United States economy and rescue the country’s financial system. Although this might be a laudable goal, as a matter of basic law, the ends could not and did not justify the unlawful means employed by the Government to achieve that goal. Even in exigent times, and perhaps most especially then, the Government may not ignore basic protections afforded under the United States Constitution or disregard established legal rights.
A few additional paragraphs laying out the factual basis for the claim follow. Read More