After years of legal wrangling, closing arguments are finally approaching in the federal lawsuit over the legality of the bailout of American International Group Inc.Lawyers for each side will have two hours apiece on Wednesday to boil down 37 days of testimony from a bench trial last fall and summarize thousands of pages of briefs dissecting the 2008 rescue of the New York-based insurance conglomerate.
When former, long-time AIG Chief Executive Maurice R. "Hank" Greenberg brought the suit in 2011, many legal observers gave it little chance. But as his high-powered team, led by famed litigator David Boies, delivers its final pitch to the judge, a ruling in favor of the plaintiffs now doesn't seen as far-fetched as it once did. That makes the legal showdown at the U.S. Court of Federal Claims a key event in Washington this week.
Mr. Boies will square off against a senior lawyer from the Department of Justice, Kenneth Dintzer. They'll address, among other things, a handful of questions raised late last month by Judge Thomas Wheeler that jump straight into some of the most complex issues in the case. Judge Wheeler's ruling isn't expected for weeks, if not several months.
A ruling in favor of Mr. Greenberg could have widespread ramifications in any future financial crisis by making such lawsuits more likely, though Congress has acted to give regulators more tools for avoiding financial-sector meltdowns to start with and for dealing with them if they occur.
AIG fully repaid the bailout, which reached more than $182 billion at its peak, by late 2012, and the company, with a narrowed focus, is once again turning a profit. But shareholders from before the crisis who held on to the stock are still sitting on massive losses, and have had their ownership diluted by new shares that were issued under the terms of the rescue.
Mr. Greenberg was the biggest individual shareholder in AIG before its collapse. His suit alleges the government overstepped the authority it had at the time by demanding a 79.9% equity stake in exchange for an immediate $85 billion lifeline, among other wrongdoing. The suit seeks tens of billions of dollars for a class of about 300,000 shareholders.
In his opening argument in September, Mr. Dintzer characterized Mr. Greenberg's position as "you brought the life boats but they weren't comfortable enough." The government has maintained that AIG voluntarily accepted the terms as an alternative to a bankruptcy filing, which likely would have wiped out shareholders entirely. In justifying the equity stake, the government's legal filings cite phrasing in a decades-old law that the Fed can make loans to nonbanks "subject to such limitations, restrictions and regulations" as it deems necessary.
The 89-year-old Mr. Greenberg, who ran AIG for nearly four decades, is expected to be in court Wednesday to hear Mr. Boies sum up his case. It will be his first appearance in the courtroom. He couldn't sit in during the testimony last fall because he was a potential witness, though he ultimately wasn't called to the stand.
While Judge Wheeler's views won't be clear for some time, he shed some light on his thinking with a March 27 order in which he outlined a schedule for the closing arguments and identified some matters for the lawyers to address.
He lays out five questions, some of them focused on fine legal points. The list doesn't give away the judge's hand but it could give pause to each side because it suggests he needs more information on areas they may feel they already addressed in the often-tedious trial and voluminous court filings.
For instance, he asks: "Would voluntary consent constitute a valid defense" to the claim that the U.S. illegally exacted the equity stake? Mr. Boies has consistently maintained that voluntary consent is irrelevant if the court finds the equity stake wasn't legal to start with.
One of the government's seeming strong suits has been testimony by former AIG directors that they voted for the government aid package, including the equity stake, voluntarily-that is, they didn't feel coerced by the government.
Judge Wheeler also asked the lawyers to address testimony by government officials at trial "that bankruptcy was not an option for AIG, and they would not have allowed a bankruptcy filing to occur." He added: If bankruptcy wasn't an option for AIG "what relevance, if any," does bankruptcy have to the court's analysis?
While the judge didn't mention names, Former Fed Chairman Ben S. Bernanke, former Federal Reserve Bank of New York President Timothy Geithner and former U.S. Treasury Secretary Henry Paulson all fielded questions from Mr. Boies about their past comments about "catastrophic" economic consequences of a bankruptcy by the then-far-flung financial-services company, were it not rescued. Mr. Boies has argued that officials didn't intend to let AIG file for bankruptcy because loaning money to AIG would benefit other major financial firms in the equivalent of "backdoor bailouts."
After confirming that he had in the past said that it would have been "catastrophic to let AIG fail," Mr. Geithner testified last fall he "didn't mean to imply that AIG did not have the option" of a bankruptcy filing.