The US Court of Appeals for the Federal Circuit [official website] on Tuesday upheld [opinion, PDF] the government bailout of American International Group (AIG) [corporate website] as lawful. The ruling came down in a denial of an appeal from Starr International Co [corporate website] where shareholders were bringing suit against the government, arguing that the bailout was not only unconstitutional but harmful to the shareholders. Starr alleged the government’s reverse stock split option was made to falsely increase the price of the shares and the high interest loan in exchange for equity was not permitted by the law. The court found that because AIG was not party to the suit and the methods saved the company from ruin, there was no claim.

In sum, while we have no reason to doubt that Starr was affected by the Government’s acquisition of AIG equity, Starr has not established any ground for direct standing under either federal or Delaware law. The alleged injuries to Starr are merely incidental to injuries to AIG, and any remedy would go to AIG, not Starr. The Equity Claims are therefore exclusively derivative in nature and belong to AIG, which has exercised its business judgment and declined to prosecute this lawsuit. We need not reach the remaining issues on appeal with respect to the Equity Claims, including the question of whether the equity term was permissible under § 13(3) of the Act.

AIG has been part of numerous lawsuits since the 2008 financial crisis [BBC backgrounder]. In February, former American International Group (AIG) CEO Maurice Greenberg agreed to settle [JURIST report] accounting fraud charges, first brought by then New York Attorney General Eliot Spitzer in 2005. In June 2015, the court ruled [JURIST report] that the Federal Reserve bailout of AIG in 2008 exceeded its authority but did not award any damages. In March of the same year a judge for the US District Court for the Southern District of New York approved [JURIST report] a $970.5 million settlement between AIG and shareholders who said they were misled about the company’s subprime mortgage exposure.