Stakeholders With $55M Securities Fraud Case Against Government Over AIG Bailout Get Class Action Certification

The plaintiffs who are suing the US Government over losses they claim they sustained during its bailout of American International Group (AIG) have been granted class certification. Seeking $55 million, they are contending that the government behaved unconstitutionally when it rescued the company in 2008 during the economic crisis.

In their securities case, investment firm Starr International Co. is claiming that the federal government violated the Fifth Amendment via two transactions that resulted in the delivery of $182 billion in loans backed by US taxpayers and other financial facilities to the beleaguered insurance giant. Starr once was the largest shareholder of AIG, possessing a 12% stake. Judge Thomas C. Wheeler of the U.S. Court of Federal Claims certified two classes related to the two transactions.

One class is comprised of AIG shareholders from September 22, 2008, when a credit agreement granting the government a 79.9% stake in AIG went into effect. The second class is made up of shareholders from the beginning of June 30, 2009 that were not given the chance to vote on a reverse stock split that the government allegedly initiated. The plaintiffs say that both actions were an illegal taking that violated the US Constitution.

They claim that the US government effected a property taking by executing a number of actions that at the end caused the latter to acquire an over 90% interest ownership in AIG. They are also accusing the government of being in violation of the law when it took or was involved in “illegally exacting” 526 million AIG shares valued at about $23 billion without giving shareholders fair compensation. Another claim accuses the Federal Reserve Bank of New York of giving away the insurer’s legal rights and $32.5 billion of collateral to counterparties of AIG.

The government tried to argue that the proposed class did not meet the US Court of Federal Claims’ adequacy requirement for certification qualification, which has to make sure that class members don’t have interests that antagonize the other’s, and that such conflicts existed between the two classes. The court, however, found that Starr did a sufficient job of alleging that the two proposed classes interests were distinct and nonexclusive enough that there was no conflict. It also determined that a class action would be best seeing as there may be tens of thousands of class members.

Earlier this year, AIG decided not to join Starr International Co’s lawsuit after voters and Congress expressed anger that the insurer might sue the entity that came to its rescue. This, AIG repurchased warrants from the US Treasury Department. Now the US no longer has any financial stake in the insurance giant.

At Shepherd Smith Edwards and Kantas, LTD, LLP, our institutional investment fraud lawyers represent clients with individual securities cases. We find that investors stand to recover more when they file their own fraud claims or lawsuits. We have helped thousands of claimants and plaintiffs recover their investment losses.

Related Web Resources:
Starr International Co. v. United States, Law.du.edu

AIG Stakeholders Certified in Class Suit Alleging Government Bailout Unconstitutional, Bloomberg/BNA, March 18, 2013

AIG shareholders’ suit certified as class-action
, Chicago Tribune/Reuters, March 11, 2013

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