Published October 16, 2013
A federal appeals court has recently allowed pre-trial depositions of two major figures in the 2008 government bailout of American International Group (AIG), FOX Business Network has learned.
The depositions of Tim Geithner and Hank Paulson in their respective capacities as New York Federal Reserve Bank president and Treasury Secretary took place over the past four weeks, according to people with direct knowledge of the matter. The depositions are part of a lawsuit filed by Starr International alleging that the massive bailout was unconstitutional.
Starr, run by former AIG chief Maurice “Hank” Greenberg, is seeking $25 billion from the federal government.
News of the depositions comes as the court on Tuesday temporarily blocked the deposition of Federal Reserve Chairman Ben Bernanke. Bernanke testimony is expected to be taken after he leaves offices as planned early next year.
Geithner, Paulson and Bernanke were central figures in the massive government bailout of the financial system during the dark days of the banking crisis, where many of the nation’s top financial institutions such as insurance giant AIG, were on the verge of insolvency were it not for billions of dollars in government assistance.
But a lawsuit filed on behalf of Starr International, an insurance company run by Greenberg, alleges that the parts of the AIG bailout were illegal and ended up costing shareholders billions of dollars. Through Starr, Greenberg was once one of AIG’s top shareholders.
It is unclear what Paulson and Bernanke said during their depositions, which have been sealed by the court. Greenberg’s lawyer, David Boies, is trying to convince a federal judge to make them public.
“We will, as the Court of Appeals directs, seek to depose Chairman Bernanke after he leaves office early next year,” Boies said in a statement. “Based on Chairman Bernanke’s documents and public statements, and on the sworn testimony of other Government officials who have already been deposed, we are confident that we can make the showing of the importance of this testimony that the Court requires.”
An attorney for Greenberg declined to comment of the depositions of Geithner and Paulson. Spokeswomen for both Geithner and Paulson declined to comment on the matter.
Following the 2008 bailout measures, Geithner became President Barack Obama’s Treasury Secretary replacing Paulson who went on to write a book about the financial crisis. Bernanke remained as Fed chairman, though he is set to be replaced by Janet Yellen after his term ends early next year.
People close to Greenberg believe Bernanke along with Paulson and Geithner can show how elements of the AIG rescue plan went beyond established law; under the bailout, the government took an 80% stake in the insurer, but in so doing crushed existing shareholders.
Greenberg has long argued that the government could have taken other measures that would have been less onerous, much like the direct loans and guarantees it gave many of the big banks that were part of the bailouts.
He also has argued that that a direct government takeover of an insurance company -- even one as vital to the financial system as AIG had been -- is against the law.
AIG had written insurance contracts on toxic debt held by the banks; once AIG’s ability to make good on those claims was imperiled, the nation’s banking system faced imminent collapse.
Government officials have argued that the existing law gave them the authority to takeover any company, such as AIG, that plays such a major role in the banking system.