WASHINGTON - A U.S. judge has ordered that Federal Reserve Chairman Ben Bernanke can be questioned in a lawsuit against the government filed by the former head of American International Group Inc.
It is rare for a Fed chairman to be deposed in a lawsuit. But Judge Thomas Wheeler of the U.S. Court of Federal Claims said Monday that he made an exception because Bernanke has firsthand knowledge of the government's decision to bail out AIG at the height of the financial crisis.
Hank Greenberg, the former AIG CEO, has sued the government over the $182 billion bailout, which AIG has since repaid. Greenberg claims the terms of the bailout were too onerous and is seeking at least $25 billion.
"The court cannot fathom having to decide this multibillion-dollar claim without the testimony of such a key government decision maker," Wheeler said in his ruling.
Greenberg's lawyers want Bernanke deposed on Aug. 16. Wheeler said that date was acceptable to him, though lawyers for the government may wish to choose another date.
Spokesman David Skidmore said the Fed had no immediate comment.
Wheeler said he will extend "deference and courtesies" to Bernanke in the conduct of the deposition and plans to attend the deposition "to provide appropriate judicial oversight."
Former Treasury secretaries Henry Paulson and Timothy Geithner have agreed to give depositions in the case. Each played a key role in designing the bailouts.
The lawsuit was filed in November 2011 by Greenberg's company Starr International, which was the largest AIG shareholder. It accuses the government of taking valuable assets from AIG's shareholders without their consent or fair compensation, in exchange for the government's 80 per cent stake in the company. The government's actions violated parts of the Fifth Amendment, the lawsuit contends.
Alanna Rutherford, an attorney at the firm Boies, Schiller
"This case seeks compensation for the stock of AIG shareholders that the U.S. government took in 2008 without authorization and without compensation," Rutherford said in a statement.
New York-based AIG had considered joining Greenberg's suit but decided not to do so in January, after the prospect of such action by AIG had already triggered public outrage.
The government says the allegations are groundless. AIG's only alternative to not receiving federal aid was bankruptcy, which would have left shareholders with worthless stock, the New York Fed has said.
AIG nearly collapsed after making huge bets on mortgage investments that later soured. Federal regulators were concerned that if it were allowed to fail it would hurt the broader financial system, which was already reeling after Lehman Brothers collapsed in the fall of 2008.
The Treasury Department provided about $68 billion to AIG through its Troubled Asset Relief Program, or TARP. The remainder, $114 billion, came from the New York Fed.
AIG became a symbol for excessive risk on Wall Street and was criticized, among other things, for paying millions of dollars in bonuses to executives after it was bailed out.
In recent years AIG has undergone a massive restructuring that cut its size in half and turned its focus to its core business of writing insurance.