The Federal Reserve Bank of New York won the dismissal of former American International Group Chief Executive Maurice “Hank” Greenberg’s $25 billion lawsuit accusing it of unlawfully bailing out the insurer during the 2008 financial crisis.
The decision issued yesterday by US District Judge Paul Engelmayer in Manhattan was a ringing endorsement of broad central bank power to try to preserve the global financial system from systemic threats.
It was also a defeat for Greenberg, 87, and his Starr International Co. Before the bailout, AIG had been the world’s largest insurer by market value, and Starr was its largest shareholder, with a 12 percent stake.
“The decision vindicates the Fed at every turn,” said David Skeel, a law professor at the University of Pennsylvania.
Starr accused the New York Fed of engineering a “backdoor” bailout for Wall Street banks at the expense of AIG shareholders, by forcing the insurer to unwind its bets on mortgage debt through hundreds of billions of dollars of credit-default swaps.