U.S. Appeals Ruling in AIG Bailout Dispute -- Update

By Angela Chen 

The U.S. government on Wednesday filed to appeal a judge's ruling that it violated the law when it took a controlling stake in American International Group Inc. in 2008.

Judge Thomas C. Wheeler ruled in June that the government action, during the most dramatic stretch of the financial crisis, was unlawful. Still, he accepted the government's arguments that without a Federal Reserve bank's $85 billion loan to AIG, the company would have filed for bankruptcy and shareholders likely would have been left with nothing.

"We disagree with the court's conclusion regarding the Federal Reserve's legal authority and continue to believe that the government acted well within legal bounds," a spokesman for the U.S. Department of the Treasury said.

Judge Wheeler of the U.S. Court of Federal Claims wrote in his opinion that the "government's unduly harsh treatment of AIG in comparison to other institutions seemingly was misguided and had no legitimate purpose, "

In addition to the government's appeal, AIG's former longtime chief executive Maurice "Hank" Greenberg said he would appeal the decision not to award shareholders any of the $40 billion in damages they were seeking.

A representative for Mr. Greenberg wasn't immediately available, and AIG declined to comment on the appeal by the U.S.

Judge Wheeler had said "zero damages" were being awarded because he had to take into consideration that AIG's alternative to the government's harsh deal terms was to file for bankruptcy, an outcome that likely would have left shareholders with nothing.

Wednesday's appeal by the U.S. was filed in a one-paragraph notice that didn't offer further details.

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