Verret in American Lawyer: Government Presence Changes AIG Power Relationship
Professor J.W. Verret finds the government's involvement in American International Group, Inc. (AIG), unsettling, telling The American Lawyer there is danger of politics entering the decision-making process when the government is aware of significant decisions the company makes.
"We've designed all kinds of rules based on a certain understanding about the power relationships between shareholders and companies," says Verret. "The presence of the government as a controlling shareholder completely changes that power relationship. I think we're going to see politically influenced settlements, and I think it's going to be bad for shareholders."
Verret also points out that the government has sovereign immunity as protection against various types of lawsuits, while it also has a potential conflict of interest in cases in which the government has an interest in the survival of a company guilty of unlawful actions.
Since September 2008, the American taxpayers have owned 80 percent of AIG courtesy of a government bailout. Verret testified before Congress in May in a hearing concerning the huge company and has published on the topic of the bailout.
Look Who's Holding the Reins! The American Lawyer, September 1, 2009. By Andrew Longstreth.
"Since the government bailout of American International Group, Inc., last September, American taxpayers have owned 80 percent of a company engaged in many lines of business, most too complex for human comprehension. There are many simple truths buried amid that corporate complexity--bonuses are still too big for the public's taste, and loan payback time is a long way off. But for lawyers, the starkest truth is this one: For the first time, the U.S. government is the controlling shareholder in a company that routinely carries a gigantic litigation docket; in its last quarterly filing, American International Group, Inc. devoted ten pages to disclosures about pending litigation. But now when AIG makes a major decision involving a big case, AIGs trustees, the Federal Reserve, and the U.S. Department of the Treasury are in the loop.
"And with public money involved, AIG is now faced with plenty of armchair litigators. Take the company's litigation against its former CEO, Maurice "Hank" Greenberg. Ever since the insurance company ousted him in 2005 amid an accounting scandal, they've been lobbing allegations at each other in courts from Panama to New York. Their biggest showdown so far was a three-week trial in federal court in Manhattan over a block of AIG stock worth more than $4 billion, starring two of the highest-profile and highest-paid lawyers in the country--David Boies of Boies, Schiller & Flexner for Greenberg and Theodore Wells, Jr., of Paul, Weiss, Rifkind, Wharton & Garrison for AIG."
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