When American International Group’s directors met this month to consider joining a lawsuit against the same federal agencies that rescued it with $182 billion financial crisis bailout, they received a stark warning from their lawyers. According to court documents released on Wednesday, one lawyer said that the lawsuit had a 20 percent chance of succeeding.
The long odds were not the only reason to steer clear of the case, which was based on the argument that A.I.G. shareholders lost tens of billions of dollars when the government attached onerous terms to the bailout. Even if it won the $25 billion lawsuit against the Treasury Department and the Federal Reserve Bank of New York, the lawyer pointed out, it could cost A.I.G. a far greater price: its reputation.
Citing recent negative media coverage, board members agreed. The lawsuit, they worried, “threatened to destroy much of the good work that A.I.G. and its employees had done rebuilding A.I.G. and its name and reputation following†th bailout, according to a letter by Paul Curnin, the lawyer who advised A.I.G.
The documents offer a lens into A.I.G.’s decision-making process over two days in early January. After the debate, directors unanimously voted to avoid the lawsuit.
The process began after a public uproar erupted after The New York Times reported that the company was weighing whether to join the case. Lawmakers slammed the company for even considering the case, which was filed on behalf of fellow shareholders by A.I.G.’s former chief executive, Maurice R. Greenberg, and the firm he now runs, Starr International.
The government argued that Mr. Greenberg’s claims were frivolous, as the company’s only alternative was bankruptcy.
The directors met on Jan. 8 with Mr. Curnin, who outlined his concerns about the case. While the board had a duty to its shareholders to consider the case, Mr. Curnin not! ed that “Starr’s claim had a low likelihood of success on the merits.†He reached the conclusion, he said, after hiring outside legal experts to study the case.
Both sides then made a final pitch to the directors at a Jan. 9 board meeting. The directors gathered to hear presentations from Mr. Greenberg’s lawyer and senior officials from the Treasury Department and the Federal Reserve Bank of New York.
In the middle of their deliberations, the directors learned that at least one state insurance regulator had called to talk the company out of joining the case, according to the letter filed on Wednesday.
Ultimately, the directors sided with the government. “A deal is a deal,†they said, according to the letter.
