Transcript of Meeting Before Aig BD

EXHIBIT C
Case 1:11-cv-00779-TCW Document 121-3 Filed 04/26/13 Page 1 of 65

CONFIDENTIAL AIGD 00014
AIG Board of
Director's Meeting
TRANSCRIPT of the stenographic notes
of the proceedings in the above-entitled
matter, as taken by and before
Page 1
CAROLYN CHEVANCE, a Shorthand Reporter, and
Notary Public of the State of New Jersey, held
at the office of AIG, 180 Maiden Lane, New
York, New York, on January 9, 2013, commencing
at 8:00 a.m.
Elisa Dreier Reporting Corp. (212) 557-5558
950 Third Avenue, New York, NY 10022
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AIG Board of Directors 1 AIG Board of Directors
MR. SEITZ: I call this meeting 2 MR. BOIES: Thank you very much.
to order. I would thank you all for 3 Let me begin by expressing our
coming at this early hour. 4 appreciation for the opportunity to be
This is a historic meeting, but 5 here.
it's one of many that this Board has 6 This is an oppOliunity not only
gone through in fulling its fiduciary 7 for the Board and for the AIG
duties considering important actions 8 shareholders, but for Starr
such as the matter before us today. 9 International.
Tom Russo, if you could tell us 10 I want to begin just reminding
procedure here? 11 everybody about the contents of what
MR. RUSSO: Thank you all. 12 happened in 2008.
We've spent a lot of time all of us at 13 I know this is all something
the table for the past months, and we 14 that you have gone through probably many
have taken our fiduciary duties very, 15 times, but I want to just be sure that
very seriously, some believe that we 16 you have the contents.
should dismiss everything, and we don't 17 Because in September of2008
believe that is necessary. 18 there was a global financial crisis,
We have a protocol that everyone 19 Lehman had just been brought down, Bear
knows. We are going to stick very 20 Stearns had fallen earlier. The Fed had
strictly to the time limits. We are 21 taken extraordinary action earlier in
staliing the meeting exactly at 22 the year in opening the discount window
8 o'clock. 23 to primary dealers.
The master of ceremonies will be 24 It was about to open the Fed
CJ, sll}'e of that, and
25 discount window to JP Chase,
Page 3 Page 5
then after everyone has an opportunity 2 Morgan Stanley and Goldman Sachs, along
to say something and we hear rebuttals 3 with holding companies. It was a time
we will take a break, discuss and at 4 of financial turmoil.
that time ifthere is any questions that 5 And the government was providing
we have we will figure them out at that 6 financial assistance many times. One of
time. CJ will stand in as the 7 those companies that the government
questioner for the Board, 8 provided financial assistance to was, of
So if you have questions, and 9 course, AIG.
then after that there will be an 10 And AIG financial assistance
opportunity to answer those questions in 11 came in the form of loan, pursuant to
a transparent way so everybody can hear 12 Section 13(3). I'm sure you probably
what everyone else is saying. 13 had a look or discussion about 13(3),
At that point in time we will 14 and it was a statute that in the past
then spend time with the Board by 15 in the aftermath of the depression, it
ourselves. So that is basically the 16 was designed to give the Fed paliicular
procedure. CJ? 17 authority to make certain loans under
MR. SEITZ: Thank you, Tom. 18 particular circumstances.
Just to be clear, the Board will not be 19 And this loan was provided
rebutting the presentations. 20 because the government recognized at the
Likewise we would ask if you 21 time two things: First, if AIG were
have questions of the Board we are here 22 permitted payment it would have
to listen to the question and answer 23 catastrophic affects on the economy.
session. 24 Second, AIG had a liquidity
Thank, 25 problem not a solvency problem. The
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loan was fully secured. The government 2 way that was not permitted by federal
said so at the time. 3 law.
The government had most recently 4 The Board of course right now
said it again in this litigation. The 5 has three options; one, the Board could
loan is fully secured, the taxpayers 6 take over the claims that we have
were not at risk. 7 brought on behalf of AIG and its
In that context the financial 8 shareholders and prosecute them
assistance to AIG, while obviously to 9 themselves, and you could pick a lawyer
the benefit of AIG at the time, was 10 of your choice to prosecute it.
financial assistance that was not given 11 We could help you prosecute it
out of charity. 12 if that were your choice, but that is
It was given because that was 13 entirely within the Board's discretion.
the mandate of Section 13(3), to try to 14 You take over the lawsuit and
protect the economy against systematic 15 decide to prosecute it, you can select
problems that would result from the 16 whatever lawyers you want and we will
failure of the particular financial 17 make everything we have done available
institutions. 18 to them.
And the loan that was provided 19 Second, you can remain neutral
was provided under the terms it was 20 and thereby permit Starr to attempt to
supposed to be the telms specified in 21 recover money from AIG and its current
Section 13(3). 22 shareholders.
Now, there were many other 23 That is you can simply say as
alternatives that the govemment had to 24 you have at various times in the past
provide financial assistance to AIG. 25
when shareholder
Page 7 Page 9
It could have Qrovided loan 2 behalf of AIG, you could say we are not
guarantees, could have applied access 3 going to take this case over and
the to federal window, bridge loan, 4 prosecute it, but we are not going to
could have tried to get other 5 stop the private shareholders from
participations from foreign wealth funds 6 prosecuting on behalf of AIG.
which were some of the suggestions that 7 We will take the benefit if
were made. I'm sure the Board is aware. 8 there is a benefit, the private
But what they chose to do in 9 shareholders will bear the cost of
Section 13(3), and with respect to our 10 proceeding and let it go forward.
lawsuit, what we are doing is not 11 Third, you could act
challenging the fact that they chose to 12 affirmatively to prevent Starr's claims
assist AIG through 13(3), as opposed to 13 on behalf of AIG from proceeding. That
some of the other mechanisms that they 14 is you can act affirmatively and try to
made available to other companies; 15 take over Starr's claims and kill them,
although that is part of the tax rule 16 that is, prevent us from continuing to
background in the context, that I think 17 bring these actions on behalf of AIG and
is important for the Board to evaluate 18 its shareholders and prevent us from
when evaluating the nature of what the 19 recovering.
claims are. 20 Because Starr's claim, direct
But what we are saying is the 21 claim, with respect to the taking of the
terms that the government exacted were 22 80 percent equity. I know it's
inconsistent with requirements of 13(3) 23 79.9 percent but I will use 80 percent
and those terms were to the severe 24 to round it off.
disadvantage of AIG shareholders in a 25 Because those claims are going
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to proceed in any event, the judge has 2 They said, AIG would be
already ruled that Starr International 3 ungrateful. AIG was rescued. AIG
has the right to pursue the government 4 should simply thank the government and
for direct claims and taking that 5 go on its way. AIG shouldn't challenge
80 percent equity. This lawsuit is 6 what the government did.
going to go forward. 7 The court said no. The court
The consequence of the Board 8 said that the government did not have
taking the action in the third choice, 9 the right to exact equity as a condition
that is, of taking over Starr's 10 of making that loan.
derivative claims and attempting to kill 11 The court said the government
them, is that -- it's not that the case 12 did not have the right to use AIG's
is going to go away, it's not that you 13 assets, for example the ML III
are not going to be involved in 14 transaction, as a back door bailout to
litigation, it is simply that you will 15 benefit other companies.
deprive the shareholders ofthe ability 16 The court rejected those
to paliicipate in whatever recovery 17 arguments as a matter oflaw. The court
ultimately comes. 18 did not rule on the facts because there
Starr has agreed to pay the cost 19 was a motion to dismiss, but what the
of this litigation if it continues to go 20 court said was that the legal claims
forward as a shareholders derivative 21 that we stated were valid legal claims.
suit, that is the company decides not to 22 And it's particularly important
take over the case but allows Starr to 23 in evaluating the contents of what that
go forward. 24 ruling means, to understand that the
Starr is going to pay the cost 25 facts that we are relying on are
N ~ ~ " " " _ ~
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oflitigation. If there is any recovery 2 essentially all facts drawn from the
attorney's fees will come out of that, 3 government's own documents, own
ifthere is no recovery there is no cost 4 admissions, Congressional Committee
to the company at all. 5 reports and Inspector General repOlis.
So that this litigation can go 6 We are not making any of these
forward without any expense to the 7 facts up. These are not facts that we
company, without the company being 8 tind in many shareholders derivative
required to pay. 9 suits that I know a lot of you are
Rejecting the case, trying to 10 familiar with.
kill it, will simply deprive AIG and the 11 The plaintiffs come in and make
shareholders of the ability to 12 allegations that there is serious doubt
participate in what is potentially tens 13 as to whether they are going to be able
of billions of dollars from the 14 to prove those facts when they go to
government. 15 trial.
We think it is critical that the 16 This is a situation in which the
Board in considering its decision 17 essential facts that we are relying on
remember that the Court of Federal 18 are facts that already have been found
Claims has already ruled that Starr has 19 by Congressional Committee, already been
stated valid legal claims against the 20 found by Inspector General and already
United States. 21 admitted in the context of this
The United States moved to 22 litigation both by admission that the
dismiss. They made to the court 23 government has given us in depositions,
essentially precisely the arguments they 24 and in their own documents.
are making to this Board. 25 A second point that I think is
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very impOliant to keep in mind, in 2 Now there is no mention of
evaluating the meaning of the Court of 3 punitive purpose in 13(3). There is no
Claims decision of the valid legal 4 authorization to give the Department of
claims is that the government's loan to 5 the Treasury or the Federal Reserve Bank
AIG was fully secured by AIG's assets. 6 a roving commission to go out and try to
It's a liquidity problem not a 7 punish people that they think have not
solvency problem. Government said so 8 run the company or permitted the Board
then, the government says so now. 9 and management of the company to run the
The government admitted that the 10 company in the way that the Fed and the
loan was fully secured. They admitted 11 Treasury later decided they should be
it then, they told the Congressional 12 run.
Committee that later and they now 13 A punitive purpose is by
admitted it again in this litigation. 14 definition outside the scope of 13(3),
With a fully secured loan that 15 and it is a punitive purpose that the
they charged initially 14-and-a-half 16 government has now admitted was the
percent interest on, even if 13(3) had 17 rationale for what they did with AIG.
given the government the ability to take 18 And they've admitted that it was
equity, there would have been no 19 the rationale not merely for the
justitication, because they already had 20 interest rate but for the taking of the
a fully secured loan, they already had a 21 80 percent of the company's equity.
high unprecedented discriminatory, in 22 Again, I asked the government,
our view, interest rate. 23 these representatives of the government,
The government is admitting to 24 whose testimony binds the government in
all the companies that they have gave 25 this litigation, why_did you take the
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financial assistance to, none of them 2 80 percent of equity? Did you need it
were charged an interest rate 3 for collateral? Were you trying to make
approaching 14-and-a-hal f percent. 4 a profit? And the representative said
And when I asked the 5 no, that wouldn't be appropriate. The
government's witness and for non-lawyers 6 government is not a speculator. The
there is a Rule of Civil Procedure 7 government is not in this to take make a
called Rule 30(b)6 and that requires the 8 profit. We did it to be punitive.
party to put forward a witness that is 9 We did it to send a message and
going to represent the views of the 10 make an example of AIG. Unanswered was
party, and the paliy is bound by what 11 why they wanted to make an example out
that witness says. 12 of AIG and not one of the hundreds of
So that when that witness speaks 13 other companies that were in this spot.
that witness is making admissions that 14 But regardless of the answer to
we can rely on in the litigation. 15 that question, what stands out is the
And when I asked the 30(b)6 16 admission that what was being done here
representative of the United States why 17 was being done for punitive purpose.
did you have a 14-and-a-half percent 18 And there is no punitive
interest rate? Why did you have this 19 authorization in 13(3). Indeed it is
uniquely high interest rate? This 20 the contrary, Section 13(3) says
discriminatorily high interest rate? 21 interest rate and the terms will be set
The answer was we wanted to be 22 in order to compensate for the loan.
punitive. We wanted to punish the 23 It is not designed for any other
shareholders for allowing their company 24 purpose and what the Court of Claims has
to get into this problem. 25 already held is the fact that the
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government set out to use this lending 2 has been produced in discovery in which
authority to exact not merely full 3 the General Counsel of the Federal
security for the loan, not merely an 4 Reserve is admitting that the taking of
unprecedentedly high interest rate, but 5 the ownership of the stock along the
80 percent of the company's equity, 6 lines in this term sheet, that is
constitutes a complete legal exaction 7 specifically relating to the term sheet
and a taking under the Constitution. 8 that the government imposed, will not
Now, it is also worth 9 work for the Fed, trust or no trust.
remembering that the court has held that 10 Those are not my words. Those
even if the purpose had been non 11 are the contemporaneous words of the
punitive of taking this equity, the 12 General Counsel of the Fed.
government didn't have the authority 13 So even if contrary to fact, the
under Section 13(3) to take the equity. 14 taking of the equity had not been a
To quote the Court of Claims, 15 punitive taking, which by itself makes
where it says the only consideration 16 it illegal, it would have been illegal
prescribed by Section 13(3) is an 17 because it was something that was not
interest rate subject to the 18 authorized by Section 13(3).
determination of the Board of Governors. 19 I already made the point that
There are lots of subsidiary 20 the government lacked the authority to
issues here that I am passing over in 21 impose the terms of the private sector
the interest of time, one of them for 22 term sheet and yet that is exactly what
example being that it has now been 23 they did. Exactly what the Board of the
admitted by the United States that they 24 Federal Reserve system stated the merger
did not make a detelmination by the 25 bank making loans for all

Page 19 Page 21
Board of Governors as to the appropriate 2 conceivable purposes, the loans made by
interest rate. 3 the Federal Reserve in their interest
What they did was simply take 4 they are made not-for-profit but for a
the private sector telm sheet. The 5 public purpose.
private sector term sheet as we 6 I think you are going to come
understand it, AIG had never approved 7 back time and again to the fact that
and indeed may never have been aware of 8 this was not an act of charity. The
the terms of it. 9 government now tries to embarrass Starr,
Private telm sheets are drafted 10 trying to embarrass this Board and AIG
by private parties, they never asked 11 by saying you are a charity case.
from AIG and imposed it on AIG. Now 12 You took this charity and now
they made changes, something that 13(3) 13 you are suing the charity that saved
does not give them the ability to do. 14 your life.
When I asked the representative 15 Now in fact, this was not a
of the government, how did you determine 16 charitable undel1aking at any time.
what the right interest rate was? The 17 This was providing a fully secured loan
answer was we just took what was in the 18 and a very high interest rate pursuant
private term, we took that and imposed 19 to a public policy set decades earlier
it. 20 to provide exactly this kind of
The Chairman of the Fed admitted 21 assistance, in exactly this kind of
in 2008 that the Federal Reserve was not 22 situation.
authorized to purchase equity securities 23 The fact that they have now
and we now have -- this is one of the 24 admitted repeatedly that what they were
documents we now have a document that 25 doing was being done for punitive
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purposes underscores what the Court of 2 from seeking compensation for actions
Claims previously held; which is that 3 that the Court of Claims has already
there is no basis for the action that 4 held are on their face, if you can prove
they took. There is no legal basis, 5 the facts, a violation of law.
there is in our view no basis in 6 And as I say, the facts that we
fairness, but fairness is not the 7 have to prove are facts that are already
primary issue here. 8 admitted in depositions, in documents,
We think that what the 9 in Congressional reports, and Inspector
government did was unfair and 10 General reports.
discriminatory. It singled AIG out from 11 Let me turn to Maiden Lane.
hundreds of other companies to charge 12 There is, I think, wide
the highest interest rate. It singled 13 recognition that there were a number of
AIG out from hundreds of companies to 14 different alternatives available to deal
take equity without consideration. 15 with the issue that ML III addressed.
It was trying to make an example 16 The Department of Treasury and
of AIG, and at the same time what it was 17 the Federal Reserve Bank's own documents
trying to do was use AIG for its own 18 reveal that they considered a series of
public purposes. 19 different alternative ways of dealing
Now we don't dispute the public 20 with the CEO issue.
purpose. It's not necessary for us to 21 They picked to present to the
do that. 22 Board the alternative that became ML
What we do dispute, however, is 23 III, that was the most disadvantageous
that if you are going to take something 24 to AI G and its shareholders of all the
for a public has to_"."m"," __
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that they considered, and
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be born not by the shareholders of the 2 the documents that we've already gotten
particular company, but by the public 3 in discovery and discovery is just
itself, and that issue is well 4 beginning, demonstrates that the ML III
illustrated by ML III. 5 transaction was the transaction of the
There is really two different 6 alternative transaction considered that
basis derivative claims here, one 7 was the least advantageous to AIG.
relating to taking 80 percent equity, 8 And as Sara Dahlgren admitted,
and the other relating to the ML III 9 "It seems to me that the special purpose
transaction. 10 vehicle", that is the ML III, "benefit
The Board is already aware 11 everybody but AIG", and she goes on to
because it is publicly announced, that 12 explain why.
as a result of the ML III transaction 13 The SIGTARP report concluded
and as a result of the equity that was 14 that ML III was a "back-door bailout" of
taken, the government has already made a 15 AIG's counterparties in that, and here I
profit of between $20 and $30 billion on 16 am quoting the report, "!JTespective of
the so-called AIG rescue. 17 their stated intent, however, there is
This is not a matter of dispute. 18 no question that the effect ofFRBNY's
This is a matter of admission. All of 19 decision, indeed, the very design of the
their loans have been repaid, with 20 federal assistance to AIG was the tens
interest, with high interest. And they 21 of billions of dollars of government
have made between $20 and $30 billion in 22 money was funneled inextricably and
profits. 23 directly to AIG's counterparties.
The question is whether or not 24 That is the government took
AIG's shareholders should be prevented 25 money put it into ML III and charged AIG
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Page 26 Page 28
1 AIG Board of Directors 1 AIG Board of Directors
2 for it, and then funneled it 2 government decided to pay all the
3 inextricably and directly to AIG 3 counterpaliies at par, hundred cents on
4 counterparties. 4 the dollar. Now the government said
5 It may very well have been 5 well, they were owed a hundred cents on
6 appropriate government policy at the 6 the dollar. Well, no they weren't owed
7 time to try to stabilize and assist 7 hundred cents on the dollar right then.
8 these counterparties, but the law is 8 That is the maximum that they would ever
9 clear that if the government wants to 9 be able to recover.
10 assist these counterpmiies they have to 10 Every other company in this
11 assist it with public funds, not with 11 situation negotiated significant
12 funds that AIG is going to have to pay 12 haircuts, every other company except
13 back. 13 AIG, and when the government presented
14 And the problem with ML III was 14 this to the Board and one of the things
15 not that there was a back-door bailout, 15 that they asked for was what Board
16 although that raised a certain public 16 approval, if any, is there of the ML III
17 policy issue. 17 transaction, and we were told there was
18 The problem from AIG's 18 only one Board meeting at which it was
19 standpoint wasn't that the back-door 19 considered or approved, we got the
20 bailout was accomplished, but used in 20 minutes of that Board meeting, and if
21 large part AIG assets, and the 21 you look at those minutes there is
22 government then for months, perhaps more 22 nothing in there that says -- where the
23 than a year, concealed the nature of 23 government says we are going to pay
24 this back-door bailout until it was 24 these people, all the people, a hundred
25 revealed in Congressional 25 cents on the dollar.
~ , ~ ~ ~ ~ ~ ~ - - ~ ~ ~ ~ ~ ~ ~ ~ ~ " ~ ~ ~ - - - - - - ,
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AIG Board of Directors
investigations.
The reason that they did was
Page 27
because they wanted these bailouts to be
in the SIGTARP repOli back door because
they were concerned about whether there
would be public support for their
activity and stabilizing.
Now, again, we don't need to
debate whether that is good government
policy or not. We don't need to debate
whether the Federal Reserve and the
Treasury were right or wrong in trying
to stabilize these counterpmiies
without the public being aware of
exactly what was happening.
All we need to establish for
purposes of our litigation is that that
stabilization, that assistance was
coming from AIG.
AIG was bearing a part of the
burden, a large part of the burden of
what was being done, and you see that in
two aspects of the ML IIJ transaction.
The first is where the
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Something that would have been
contrary to what every other company in
this situation was doing at the time or
has done at any time in the past.
The amount of financial
experience sitting around this table is
greatest, and I ask you to think about
of when in this type of crisis, in this
kind of illiquidity situation, where you
have all these counterparties that
cannot afford to have a default, how
many times have creditors been paid al
hundred cents on the dollar without
taking any haircut, without getting any
discount.
In this particular case of a
handful of counterpm1ies we contacted,
some even indicated they were prepared
to get discounts, but the government
decided, the government not AIG.
There is nothing in the record
that the Board approved this, and I
don't think this Board ever would have
approved it. That they would not -- the
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Page 30 Page 32
government would not take the haircut 2 admitted now, were subject to
and negotiate a discount from one 3 litigation.
counterpat1y unless every counterparty 4 Subject to a variety of claims
was treated equally. 5 that allowed their role in creating the
The government may want to do 6 liability that exists. Every other
that for public policy or governmental 7 major company in AIG's position has
purposes, but the principal is the 8 asserted those claims. Every other
government can't use its control over 9 company believes those are valuable
private enterprise and make that private 10 claims.
enterprise serve public purposes without 11 I believe AIG would have had
providing conversation, and yet that is 12 those claims, would have had valuable
exactly what happened, and exactly what 13 claims, and recognizes those are
happened when they took the 14 valuable claims and that they were given
shareholders' equity, that is exactly 15 up for no consideration, and they were
what happened with respect to ML Ill. 16 given up again because what the
Of course the ML III documents 17 government was trying to do was
were drafted not by AIG, but by counsel 18 stabilize the counterparties.
for the government. They were presented 19 These counterparties were other
to the Board, the Board was not at any 20 financial institutions the government
of the presentations that had been 21 wanted to protect and assist, and maybe
presented. We were told we got all of 22 for legitimate reasons.
them. 23 Again, we don't have to
I was told that the 24 challenge the government public policy
counterpat1ies were going to be given 25 determination that they wanted to assist
Page 31 Page 33
par, and indeed the documentation that 2 these counterparties, wanted to insulate
the Board was given indicated that the 3 them from the litigation, wanted to give
counterparties would be getting a 4 them a hundred cents on the dollar so
percentage of par. The implication is 5 they would have more liquidity
that there would be negotiation there. 6 themselves.
In addition to paying a hundred 7 The principle that we are making
cents on the dollar, the government gave 8 and the principle the Court of Claims
the ML III counterpat1ies releases. 9 adopts is when the government does that
I want to stop for a second, and 10 it can't put that burden just on AIG and
make sure everybody understands how 11 the shareholders.
important it is. 12 I want to spend just a couple of
They weren't given the benefit, 13 moments on the government's alleged
AIG. AIG was already paying these 14 affirmative defenses.
people a hundred cents on the dollar, so 15 They say Starr waited too long,
they couldn't have any claims ag"inst 16 they say indemnification clauses, I
AIG. 17 don't know how much emphasis they are
So when you exchange these 18 going to put on that today. I don't
mutual releases, AIG doesn't get 19 think any of these terms are serious,
anything because AIG already paid the 20 certainly the coul1 has not -- Court of
people a hundred cents on the dollar, 21 Claims, these have not even been
but the counterpat1ies are getting 22 seriously pushed by the government,
something very valuable. 23 indemnification clauses that seek to
Because the counterparties were 24 relieve the government's accountability
as the government knew then and has 25 for unconstitutional acts
9 (Pages 30 to 33)
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Page 34 Page 36
conventionally, repeatedly, uniformly 2 justified by the statute pursuant to
held before public policy, we cited 3 which the loan is made.
cases on that. 4 The idea that AIG was so weak
There is no doubt that this case 5 that the government could do anything it
was brought within the statute of 6 wanted to with AIG at that point is
limitations period. The idea that we 7 inconsistent with what the law requires.
should have brought it even earlier than 8 It is I think also inconsistent
the statute of limitations is in our 9 and sort of common sense in fairness, if
view paIiicularly inappropriate given 10 the time of Hurricane Sandy, if somebody
the fact that many of the facts that we 11 was driving by the place on the Jersey
are relying on here are facts that only 12 Shore or Staten Island, certain places
came to light as a result of the 13 in Long Island, and there was a shop
Congressional investigations, and 14 owner whose shop was about to be
Inspector General reports. 15 destroyed by the water, had a lot of
Facts that if there had not been 16 valuable paintings in it and the shop
those reports maybe the public wouldn't 17 owner said give me some help, get these
know about them now. 18 paintings out ofhere to safety, and the
Some of what happened and you 19 van driver said, I will take it out but
are aware, but much of what happened, 20 you have to pay me for doing that.
much of the aspects of the punitive 21 Okay, I'll pay you, and he says
character, the punitive intent of what 22 in addition you have to give me
the government was doing, aspects of the 23 80 percent of the value of those
back-door bailout, use of the ML III 24 paintings.
transaction, are facts that only come to 25 I don't think we would think
Page 35 Page 37
I ight as a result either of these 2 that was fair, and I don't think we
Congressional investigations and the 3 would think that was legal. Imagine
Inspector General repOIis or have come 4 it's not a van owner, it's a fire and
to light because of discovery. 5 rescue department vehicle that has been
At the end I want to address a 6 sent there for the express purpose of
conceptual point that I avelied to and 7 rescuing people and the fire department
that is not really a legal argument, but 8 chief says, you know, this guy shouldn't
it is an argument that the government 9 have put a valuable painting store so
has pushed strongly in the Court of 10 close to the water, he should have had
Claims, pushed strongly to this Board, 11 insurance, he should have moved earlier,
and in the last few days I have been 12 he wasn't -- he was reckless and so I'm
pushing strongly to various members of 13 going to punish him by saying if I save
the press; and that is that there is a 14 him, if! rescue him, if! do what the
lack of gratitude on the part of AIG, 15 government told me my job is to do, I'm
and that somehow standing up for AIG 16 going to require him to tum over
shareholders' rights demonstrates a 17 80 percent of the paintings to the fire
disloyalty, a lack of gratitude for the 18 department.
government rescue of AIG. 19 We would know that is illegal
Now, as the COUli of Claims has 20 and we would know that that is wrong,
held that sentiment, if even true, is 21 and yet that is what happened here.
legally irrelevant, because when the 22 The government had a power to
government comes in and makes a rule, 23 loan that was given to the Federal
even if it has all the power in the 24 Reserve Bank for a paIiicular purpose,
world it cannot exact more than is 25 to deal with exactly the kind of
10 (Pages 34 to 37)
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Page 38 Page 40
situation that AIG found itself in. 2 Treasury and the decisions made by its
It was not given to punish, it 3 leaders in that very difficult time.
was not given to make a profit, it was 4 The Treasury urges this Board
not given to justifY illegal actions. 5 not to endorse those claims.
Even leaving aside the question 6 Four years ago AIG took
of why should AIG shareholders be 7 unprecedented financial support from the
singled out, most of the AIG 8 U.S. taxpayers for a total of
shareholders who are out there didn't 9 $182 billion, and despite this many
have any idea there even was AIG FD. 10 thought that the company would not
These are not the people that were 11 recover.
responsible for the problem. 12 Yet in one of the most
What was happening was AIG, like 13 remarkable corporate turn around's of
hundreds of companies, was swamped with 14 all time AIG has repaid those funds and
the hurricane not named Sandy, but the 15 has even returned a profit of
financial liquidity crisis, global 16 $22 billion to the U.S. taxpayers.
financial liquidity crisis of2008. 17 This achievement is due to the
They were victims as much of 18 leadership, to the management in the
that disaster as the people of Hurricane 19 room, and to the hard work of AIG
Sandy. 20 employees.
You don't have to accept that. 21 The rescue was by the government
Even if you think they were 22 but the recovery has been by AIG.
responsible, the government, this 23 Now AIG is a company that is
government, this Treasury Department, 24 built on promises. For AIG now to allow
this Federal Reserve Bank has no power 25 a lawsuit to proceed in the name of the
~ ~ ~ " ~ " " " , , , , _____ _ A ~ " ~
Page 39 Page 41
to use its lending authority to punish, 2 company demanding that the U.S.
and yet that is what they did, that is 3 taxpayers return $50 billion of that
what they admitted they did, and we are 4 repaid money, which is a profit and then
not even asking you to decide that. 5 some more would undermine all ofthe
All we are saying is let the 6 good work that AIG has done.
cOUlis decide, let the AIG shareholders 7 It could be perceived as AIG
have their day in cOUli. Let a neutral 8 going back on its promises.
judge make those decisions. Thank you. 9 Now, in the interest of avoiding
MS. BIVENS: Thank you very much 10 repetition here today John Kiernan, who
for the opportunity to address the Board 11 is here on behalf of the New York Fed
today. 12 and I have split the subjects that we
I'm Francis Bivens of Davis Polk 13 will address to the Board today, as we
and Wardell, and I am here representing 14 have done in our written submissions.
the institutional interests of the 15 I will address the claims that
United States Department of the TREASURY 16 relate to the equity grant that was
in this process. 17 given to the U.S. taxpayers in September
AIG and the Treasury worked 18 of2008.
together throughout the rescue and the 19 Mr. Kiernan will address issues
restructuring of AIG, standing shoulder 20 related to Maiden Lane III and he also
to shoulder in the face of extreme 21 will address some of the questions that
criticism of the rescue. 22 the Board has presented to us about
The Board is being asked in this 23 damages and other related issues.
process to endorse a complaint that 24 Treasury understands that this
attacks the very policies of the 25 is a business decision for the Board.
11 (Pages 38 to 41)
Page 42 Page 44
2 And that the Board will need to weigh 2 derivative demand it cannot remain
3 the costs and benefits of the options 3 neutral and if it does the law will
4 presented to it. 4 interpret that neutrality as a proven
5 I'm going to cover a number of 5 endorsement of the claims, and what that
6 issues this morning that go to that 6 means for AIG is that the admissions
7 analysis, but I would like to make four 7 that are made in the course of that
8 principal points. 8 litigation will be admissions of the
9 First, there is no passive 9 company.
10 option for this Board. The Board either 10 That any findings of fact or
11 needs to decide to endorse these claims, 11 conclusions of law that are made by the
12 to reject the demand, it cannot remain 12 court will be legally binding on AIG,
13 neutral. 13 and they will bind the company not just
14 Second, the decision to allow 14 in this litigation, but in every other
15 claims to proceed in the company's name 15 litigation related to the rescue.
16 is not costless. 16 So as a practical matter you
17 Third, a decision to end the 17 will own this litigation for legal
18 derivative claims will help to put an 18 purposes, for public relations purposes
19 end to the direct claims brought by 19 and representational purposes.
20 Starr. 20 The decision of whether the case
21 And fourth, and I added this 21 proceeds in the company's name is in
22 point only to respond to something in 22 your hands, and it will be the company's
23 the New York Times m1icle yesterday, 23 lawsuit if it goes forward.
24 which is that this case will not be 24 So what is this case that you
25 settled. 25 will own if you allow these claims to
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Mr. Kiernan and I are authorized 2 proceed? I think it is important for
to say one thing and one thing only on 3 the Board to hear the allegations that
behalf of the United States today, and 4 have been brought in Starr's complaint
that is that it will not settle the 5 and compare them to facts that are known
case. 6 today to the Board.
I can tell you on behalf ofthe 7 Because I think if you see the
Depat1ment of the Treasury, the Treasury 8 juxtaposition of the two you will see
would not offer a settlement on any 9 how difficult it would be for the
terms. 10 company to support these claims.
Now to start with my first point 11 And supp0l1ing the case is not
that there is no passive option for this 12 an academic exercise. If the case goes
Board; one of your questions today asked 13 forward in the company's name there will
whether there is any legal significance 14 be AIG employees who have to testifY,
between the Board authorizing AIG to 15 there will be briefs submitted on behalf
pursue the claim or the Board simply 16 of the company supporting the claims,
allowing Starr to pursue the claims on 17 and in all likelihood if there is a
behalf of the company. 18 derivatives case brought here it will
And the short answer is that 19 likely be determined in a public trial.
there is no difference between those two 20 So the testimony of the AIG
options. 21 employees will not take place in some
As a legal matter, the Delaware 22 deposition in a closed conference room.
Supreme Court, which is the highest 23 The AIG employees will be
court on these issues, has made clear 24 testifYing in a public proceeding in
that when a Board is presented with the 25 open court in a proceeding that will be
12 (Pages 42 to 45)
Page 46
1 AIG Board of Directors
2 followed very intently by the media.
3 So let's take the key
4 allegations one at a time. The first of
5 which is that the rescue was forced on
6 the Board.
7 Now, you heard from Starr this
8 morning that all of the essentially
9 facts for Starr's case have already been
10 proven, and I respectfully disagree with
11 that because the central factual
12 proposition must be proven to support
13 any of Starr's claim, whether it is a
14 legal exaction, is that Starr must show
15 that the rescue was forced on the Board
16 and that the decision to accept the
17 rescue was not voluntary.
18 Now the Board knows that the
19 decision was in fact voluntary. Some of
20 the members ofthe AIG Board from
21 settlement of 2008 sit here today, other
22 members are at your disposal, several of
23 the company's lawyers who were in the
24 room on that day are also present here
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Page 47
before Congress that the Board's
decision to accept the government rescue
was voluntary, and if this case proceeds
Mr. William's undoubtedly will be called
as a witness at trial.
Mr. William's testimony is
entirely consistent with the
Septem ber 16th Board minutes. The
minutes make clear that the Board was
told of the New York Fed offer, that it
was told that there was no private
sector solution.
It was given the clear choice
between accepting the rescue and
bankruptcy, the Board deliberated,
consulted with advisors, it was clear at
that point in time from the term sheet
that the rescue package included the
79.9 percent equity telm, and after
deliberations the Board made a clearly
unanimous vote to support the rescue but
there was one dissenting vote, and I
think that dissent in and of itself
demonstrates that the Board had a
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Page 48
voluntary choice, it knew it had a
choice and did not feel compelled to
accept the rescue.
Now, Starr, although not in
front ofthe Board today, has argued
that in fact it wasn't on September 16th
that the equity term was transferred
over.
He argues in his papers that it
was in fact on September 22nd and
September 22nd credit agreement that the
equity term was granted to the
taxpayers.
But I would posit that it
doesn't matter which of those two dates
that in fact happened on, because the
Board also approved the September 22nd
credit agreement, and Starr has gone to
great lengths to try to demonstrate that
the government had taken control of AIG
between the 16th and 22nd, and put forth
the argument that in fact the government
ordered Mr. Liddy to sign the credit
agreement on
Page 49
But in fact because the Board
also approved the credit agreement, for
Starr to be able to establish that point
he would have to prove that the
government also controlled the Board on
September 22nd, and I think that is a
proposition that this Board cannot
accept.
The next allegation of Starr is
that the government discouraged a
private sector exclusion.
Now, I believe that the Board is
aware that it was in fact a real and
very serious potential private sector
solution preceding the government
rescue.
There was a private sector
consortium that went so far to draft
term sheets for a $70 billion credit
facility for the company, and then
Lehman failed.
And then AIG could not get a fix
on the amount of money it would need for
a rescue and could not get a fix on its
13 (Pages 46 to 49)
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Page 50 Page 52
assets, and the private sector option 2 transaction to suppOli that group of
disappeared. 3 institutions.
At the end of the day there was 4 The problem with that theory is
no private sector solution and at that 5 that those institutions were the one
point the New York Fed had to step in. 6 constituency that actually would have
Now, Starr talks about private 7 been all right in a bankruptcy, in an
wealth funds that were available and 8 AIG bankruptcy.
specifically points to a consOliium that 9 That group of counterpaliies
JC Flowers put together that included 10 could not be negotiated with, as AIG
the China Sovereign Wealth CIC, but that 11 well knows. AIG employees actually
consortium was offering a $10 billion 12 conducted the whole first round of
credit facility, which would not have 13 negotiations with those counterpaliies.
satisfied the very first day of lending. 14 No counterpaliies would conceive
AIG threw down $14 billion on 15 anything in those negotiations because
the first day of the rescue and had 16 in a bankruptcy they were first in line
thrown down $37 billion at the end of 17 for 100 percent recovery, and the idea
the first week. 18 that they would have been the reason
There was no private sector 19 that the government stepped in to AIG
solution of that magnitude. 20 doesn't make any sense at all.
AIG has in fact made a number of 21 All of this is to say that the
public statements acknowledging that 22 facts simply don't support Starr's
there was no private sector solution at 23 claims.
the time. 24 The next allegation is that the
...
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Page 51 Page 53
litigation about the rescue that the 2 putting aside the fact that the
rescue offer "credit markets were shut 3 discrimination is actually not relevant
down and no private sector solution was 4 here for a legal matter; AIG needed the
available". 5 most money and got the most money of any
AIG has also stated in its 2008 6 institution that was rescued during the
10K that by the time of the rescue AIG 7 financial crisis.
had no viable private sector solution to 8 Many different -- many of the
its liquidity issues. 9 different rescue packages that Starr
And finally, I ask you to think 10 points to when he is making these
about whether it makes any sense at all 11 allegations of discrimination can be
that the government would want to lend 12 explained by the existence of Tarp,
to AIG in September of2008. 13 which gave the government lucrative
Lending to AIG at that point in 14 rescue options that were not available
time was an extremely risky venture. 15 in September of2008 before Tarp was
The size of the rescue that would be 16 passed.
needed was unknown at that point in 17 But beyond that, every situation
time, and the outcome of the company was 18 during the financial crisis was unique,
equally uncertain. 19 and for example, I'm sure that Lehman
The only theory that Starr can 20 wishes that it had been rescued.
come up with as to why the government 21 The next allegation is that the
would want to step in is that it wanted 22 government improperly delayed offering a
to step in in order to support the 23 rescue package to AIG.
Maiden Lane III counterparties, and to 24 Mr. Willumstad has testified
be in a position to execute that 25 before the Congressional Oversight
14 (Pages 50 to 53)
Page 54 Page 56
2 Communal that when he met with Tim 2 of AIG subsidiaries, and at the time the
3 Geithner in July of2008 he down played 3 financial condition of AIG was largely
4 the severity of AIG's financial 4 unknown, and the government at the time
5 condition and did not make a real plea 5 viewed this loan as quite risky.
6 for assistance at that time. 6 The equity term and the interest
7 That fact alone blows a hole in 7 that was charged was charged for the
8 the theory that the government 8 purpose of compensation for taking the
9 intentionally delayed in presenting a 9 loan at risk.
10 rescue package to AIG for seven weeks to 10 Starr claims that the equity
11 force it into a precarious financial 11 term punitive, I believe, ignores the
12 state. That is simply not the case. 12 fact that it was part of the private
13 The next allegation is that the 13 sector term sheet.
14 rescue tel1TIS were punitive. You just 14 Starr did acknowledge that that
15 heard Starr claim that the government 15 term was developed by the private
16 made $30 billion from the rescue, and he 16 sector, but I think that fact alone
17 argues that the size of that return is 17 demonstrates that it was in fact
18 somehow improper or punitive. And in 18 compensation for the loan, that was what
19 considering that claim it is instructive 19 the private sector was charging or
20 to look at the rate of return that the 20 planning to charge AIG for a $50 billion
21 government got from the rescue. 21 facility.
22 And while the overall recovery 22 The government stepped in at a
23 is a big number, the loan itself was 23 greater loan amount and charged
24 massive, $182 billion and it was 24 compensation that was equivalent to what
__ over quite a long period ...... private sector ... _._ .... _ ...
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Page 55 Page 57
time.
And if you look at the annual
rate of return earned by the government
for that loan it is somewhere in the
range of 4 to 5 percent.
The 14.5 percent interest rate
that Starr made reference to earlier was
an initial rate that dropped almost
immediately after the loan was made.
The five percent return is
actually quite modest, especially in
light of the risk that the government
was taking in extending the loan and
also in the context of the time period.
In 2008 and 2009 credit wasn't
available at any price and so the five
percent return is again in that context
modest and certainly in no way punitive.
I want to pause on the concept
of risk for a moment, because Starr has
made the claim that the loans were fully
secured and that the taxpayers were not
at risk.
The loans were secured by assets
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In fact, when the Fed stepped in
they simply took over the private sector
term sheet and they certainly were not
going to ask for less compensation then
the private sector had demanded for the
loan.
The equity term is also in line
with the consideration that has been
given historically in other government
rescues.
And for example, when the
government stepped into Continental,
Illinois in 1984 the government received
a 79.9 percent equity term as
compensation for that rescue.
Starr also alleges, although we
did not hear it today, that the equity
stake was not consideration for the loan
and that the only consideration paid for
the equity stake was $500,000 in cash.
AIG's 2009 10K shows that the
equity stake was in fact consideration
for the $85 billion loan.
Once again Starr's claims would
15 (Pages 54 to 57)
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Page 58 Page 60
be vety difficult for this Board to 2 rescue.
support. 3 And in that complaint Boies
Finally, Stan' in his claims is 4 Schiller recognizes that the 79.9 equity
arguing that the rescue harmed AIG and 5 stake was consideration for the $85
harmed AIG's shareholders. 6 billion loan, that AIG would have been
AIG has repeatedly acknowledged 7 bankrupt without the rescue.
that it has received untold benefit from 8 It also acknowledges that no
the government rescue. I don't think 9 private investors could come to the
anyone would dispute the fact that AIG 10 rescue because of the enormous amount of
owes its very survival to the rescue. 11 capital that AIG needed and the
AIG's shareholders were not 12 difficulty AIG had in valuating its
harmed either. The AIG equity holders 13 assets.
like Starr retained $5 billion of value 14 If AIG endorses Starr's claim it
in their equity shares the day after the 15 will find itself in the same awkward
rescue, and if that is compared to what 16 position as Boies Schiller. AIG already
would have been achieved in bankruptcy, 17 having committed to a version of the
which is a zero value for those shares, 18 rescue that is at odds with Starr's
it is vety hard to argue that those 19 claims.
shareholders were hatmed. 20 Timely, Starr would have you
Futiher evidence that Starr 21 believe that there might be some unknown
claims have no merits can be found in 22 facts that could come to light in
the fact that these allegations are made 23 discovety that would suppOli Starr's
only by Stan'. 24 claims, but we are not operating here on
In the four years that have gone 25 a blank slate.
, , " ' ~ - ~ ~ , ~ ~ , , ~ " " " ' ~ - ~ - , , - - -
Page 59 Page 61
by since the rescue there have been 2 After the intense scrutiny that
countless congressional investigations, 3 this rescue has received the facts are
inquiries, hearings, reams of documents 4 known and they do not support Starr.
have been produced by Treasury, by the 5 Now, my second point today is
New York Fed, by other patiicipants in 6 that the decision to suppOli Starr's
the financial crisis, hours and hours of 7 claims and allow these claims to proceed
testimony has been taken from the 8 in the company name is not costless.
leaders of the institutions that 9 Starr has taken the position
participated in the rescue. 10 here today that the derivative
Not one of those investigations 11 litigation could be pursued without any
or public sources concluded that the 12 expense, and Mr. Boies has gone so far
government somehow forced AIG to accept 13 to say in court this is the kind of
the rescue. 14 litigation that cannot be contrary to
Not one of them stated that the 15 the interest of the company, and that
terms of the rescue were punitive, and 16 simply is not the case.
none ofthem has found that AIG was 17 The Board has asked some
singled out with unfair treatment. 18 questions about legal fees, but fi'ankly
Even Boies, Schiller has 19 the legal fees are inconsequential
endorsed a version of the rescue that is 20 compared to the substantial cost to the
entirely at odds with Starr's claim. 21 company in pursuing the claims.
Boies Schiller represents KIA, 22 First, the government will be
an investment authority in a securities 23 your adversaty by signing onto the
fraud case brought against Al IG for 24 litigation, AIG will be terminated, the
statements made by AIG prior to the 25 cooperative relationship that it had
16 (Pages 58 to 61)
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Page 62 Page 64
with the Department of Treasury and the 2 Every day AIG makes promises to
New York Fed and will instead be 3 businesses, homeowners and families and
positioning itself in direct opposition 4 they expect AIG to live up to the
to those institutions. 5 promises, that is what AIG sells.
AlG will in fact be attacking 6 Allowing this lawsuit to proceed
the very institutions and the public 7 would run counter to that message.
servants that paliici pated in the 8 It would also mean supporting a
rescue. 9 government conspiracy that AIG knows not
A decision could also lead to 10 to be true. And as a matter of business
another wave of congressional 11 program and business ethics, that is
investigations, and AIG employees and 12 just not right.
AIG Board members could be called to 13 For a company so focused on its
testifY before Congress and justifY the 14 reputation, especially right now, it
decision to pursue a lawsuit asking the 15 cannot be the right choice to proceed
U.S. taxpayers to return billions of 16 with this litigation.
dollars to AIG. 17 My last point is that a decision
The public backlash and 18 to dismiss the derivative claims will
reputational risk of this lawsuit is 19 help put an end to the direct claims.
also real. 20 Ask yourself why Starr is
The lawsuit could very easily be 21 pushing so hard to have this Board
perceived as "another example of 22 suppOli its claims. Why is this in
corporate America thinking it doesn't 23 StalT's interest?
have to play by the rules or that it can 24 From the standpoint of a
go back on its knees." 25
benef,!s substantially
Page 63 Page 65
What that does for the company 2 more from the direct claims then from
is it takes you backward. AIG has 3 the derivative claims.
emerged from the financial crisis a 4 The direct claimants or the
strong and profitable business thanks to 5 shareholders at the time of the rescue,
the remarkable and bold management team 6 the beneficiaries of the derivative
and the leadership of this Board. 7 litigation or the present shareholders
AIG once again has a brand name 8 and they would be fighting over the same
that it can proudly stand behind. AIG 9 recovery, so why does Starr want AIG at
is back, bring on tomorrow. 10 all and the answer is is that Starr
In 2010 Mr. Benmosche promised 11 wants your endorsement with the backing
the American taxpayers that AIG would 12 of the AIG Board.
return all of the rescue funds and give 13 Starr's claims gain weight and
the taxpayers a profit. 14 credibility that they do not have today,
And I don't have to tell you 15 and the converse is also true.
that that promise was made with 16 A decision by the Board to
skepticism as to whether AIG could in 17 refuse Starr's demand will be a blow to
fact keep the promise, but it has. 18 StaiT'S direct claims.
And the benefit to AIG and its 19 Number one, your decision not to
reputation and franchises has been 20 allow the case to proceed will send a
substantial. Supporting this lawsuit 21 message to the D.C. court that Starr's
could unravel all of that. 22 claims lack merit.
At the same time AIG is running 23 Number two, it will create
its thank you America ads, AIG would be 24 procedure opportunities to challenge the
demanding the profit back and then some. 25 direct claims and to cause more
17 (Pages 62 to 65)
Page 66 Page 68
2 immediate appellate review of those 2 Bank is the only defendant in the New
3 claims, which we believe will help end 3 York action which the judge has rejected
4 the case. 4 as a matter of law.
5 Despite what Starr says it 5 It is not a defendant in the
6 simply isn't the case that the direct 6 D.C. action where the United States is
7 claims will go on regardless of what the 7 the only defendant, but the D.C. action
8 Board does. 8 is about the same conduct, the New York
9 In conclusion, rejecting Starr's 9 Fed is obviously tremendously interested
10 suit is in the best interest of the 10 in the D.C. action. So I'm here
11 company because Stan"s claims are 11 speaking on behalf of the Fed in those
12 meritless. 12 capacities.
13 AIG has turned the page. The 13 Of course our purpose in being
14 financial crisis is behind you, you have 14 here today is to help the Board make its
15 returned AIG to what it was for decades. 15 decision with respect to this demand, so
16 A strong respected leader of 16 I'm going to try to focus my remarks on
17 corporate America. To decide today to 17 both the themes and the particulars and
18 sue your rescuer based on a version of 18 the questions that the Board has asked.
19 events that you know did not happen 19 One of the questions that -- one
20 would take the company backward. 20 of the points that was clearly on the
21 Do not be tempted to support a 21 Board's mind and appropriately so, is
22 lawsuit you know to be wrong based on 22 how to weigh what I would call Starr's
23 the promise of creative lawyering or the 23 free option.
24 elusory comments of a cost-free option. 24 That is the proposition that
25 Lawyers do not act alone. They only act 25 says why not, since Starr is prepared to
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Page 67 Page 69
at the behest of their clients.
A frivolous lawsuit allowed to
proceed in AIG's name would do a world
of damage before it's dismissed to you
and to us.
As an institution the Treasury
firmly believes that it and the Fed and
the New York Fed acted together legally
within the statutorily granted powers
and in the public interest in rescuing
AIG.
Treasury will stand up for what
it believes to be right here in the
public realm and in court if it has to.
This Board has no reasonable
basis to believe that Starr's claims
have merit. Rejecting them is both in
AIG's interest and it's the right thing
to do. Thank you very much.
Thank you. Good morning. My
name John Kiernan from Debevoise &
Plimpton for the Federal Reserve Bank of
New York.
As you know the Federal Reserve
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pay the legal fees and carry the water
here, let Starr speak for AIG and can)'
this case forward and see if it can
collect back the 80 percent equity
interest per AIG and its shareholders
while making sure that AIG keeps all the
benefits that it already has obtained,
and why not just let us take release of
it so you can lie low enough so if the
case loses it's Starr's loss and that
way you protect yourself against the
risk of embarrassment if it turns out
that Starr is able to actually win
something. That is obviously a serious
proposition.
It is w0l1h noting that that
kind of option is absolutely
conventional in cases where an
individual shareholder is trying to
persuade a company to let it take over
and bring a derivative action on behalf
of the company against third parties.
The proposition is just as
conditionally rejected as a matter of
18 (Pages 66 to 69)
Page 70
2 course, by Board's because Board's have
3 the view it is not individual
4 shareholders but they who actually have
5 the responsibility to decide what claims
6 are made by the company, and the free
7 option argument simply misses that
8 fundamental point.
9 Apmi from that basis
10 shOlicoming of Starr trying to take over
11 your function on deciding what should be
12 done by AIG, the three main propositions
13 that emerge from your questions is that
14 we believe are provided powerful reasons
15 that you should reject Starr's demand.
16 The first proposition is that
17 Starr's claims are losers and are
18 ultimately going to be found to be
19 losers if the AIG Board -- there is
20 going to be a loss that is recognized to
21 be AI G's loss too and there are also
22 substantial impediments of recovery.
23 The second proposition is one
24 that unsurprisingly is one that was soft
remarks by Starr today, but
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Page 71
is the essential practical predicate and
was repeatedly in Judge Wheeler's
decision the central reason why he
denied the motion to dismiss.
By the way, he did not find that
the claims had legal merit. Your
lawyers will be able to advise you what
a court does in a motion to dismiss, it
is required to accept all of the
allegations in the complaint as true.
And the central predicate, the
judge said I have to accept this as true
at this point, is that AIG is entitled
to repudiate the terms of the deal to
which it agreed, because it entered
those deals involuntarily.
The reason it did that was that
the Federal Reserve Bank of New York so
controlled the Board's decision-making
that the Board was incapable of acting
as independent fiduciaries in the
business interest of AIG and the
shareholders.
That is the factual predicate
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which is pivotal to the case, pivotal to
the judge's decision not to grant the
motion to dismiss is false. You know
it's false. You know it is false with
respect to the claims that are directed
lat your own decisions, because you know
that you have acted independently and as
fiduciaries, as directors, that is true
even though as Starr has alleged you
can't possibly be elected by trust for
the Treasury shareholders.
You all are people of
extraordinary statutory representation,
and it is simply inconceivable that you
would have agreed to serve or continued
to serve as members of this Board if you
had believed at any time that you were
incapable of acting as fiduciaries for
the benefit of AIG and its constituents.
Yet StaJT has even reserved the
capacity to order explicitly that this
Board is incapable because it is not
independent of even deciding this demand
issue, bmecause you are -- you don't
the capacity as fiduciaries.
Not only do you know that is
Page 73
true about yourself, the three of you
who are here on the Board in 2008 we
submit also know that you were equally
able to make the kind of decisions and
do the best for AIG.
In fact, it was a difficult
period in 2008 when it was one of the
hardest decisions you made as a Board.
Our submission that the rest of
you know or strongly from your
experience that your predecessors
equally acted as fiduciaries and were
independent decision makers during those
times.
You know they were esteem able
people, and you know that those people
devote pmiicular attention to
exercising their fiduciary duty
responsibly during those critical
moments of Board decisions, where they
knew their decision was going to be
under a microscope.
19 (Pages 70 to 73)
Page 74 Page 76
2 The third proposition, which is 2 submission is the belief you should hold
3 linked to these two propositions, is 3 that the AIG Board made voluntary
4 that a deal is a deal even it is 4 decisions to agree to the terms that
5 difficult. 5 Starr is now asking to seek to
6 As the judge said in his opinion 6 repudiate, and should by itself be
7 a choice between a rock and a hard place 7 dispositive about your views of the
8 is still a choice, and it is the kind of 8 claims and should lead to reject Starr's
9 choice that the Board is sometimes 9 demand.
10 called upon to make. 10 Starting in reverse
11 Here the decision to the rescue 11 chronological order, Starr is
12 agreement in 2008 was not just a 12 challenging the January 2011 action in
13 decision the Board made but one that 13 which Starr's 80 percent of preferred
14 should be proud of. 14 shared interest was converted into a 80
15 It was a decision that averted 15 percent promissory share and it
16 bankruptcy and saved the company and 16 challenged the March 2009 reverse
17 started AIG on the long road to where it 17 stocks, and unless you have questions
18 has become today. 18 about what the challenges are, I will
19 There is nothing inherently 19 pass over them quickly except to note
20 suspect or wrongful about a rescue, 20 that Starr's predicate to both of those
21 obtaining an interest as part of the 21 claims that these were government
22 consideration for a loan. It's so 22 initiated actions in which the Board
23 common as to be conventional for a 23 lacked any independent capacity to make
24 rescue lenders in private commercial 24 any decisions; therefore, abandoning its
__ and the Fed of ____ .r-2_5 ___ ____ ," __
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Page 75
didn't invent that concept for this
deal. It simply inherited it from the
private rescue folks who were looking at
potential rescues.
The proposition that a voluntary
entered deal is a deal, is linked to
issues of business integrity and public
representation. That we discussed
already with respect to the decision.
Our submission is that when you
weigh the three options against the
absence of merits, the voluntariness of
the Board's actions, and the issues
posed by trying to get out of a deal
that was entered into by a Board acting
as independent fiduciaries by bringing a
lawsuit against taxpayers, those
considerations, the balance of those
considerations should weigh in the favor
of you rejecting the demand.
Let me turn briefly to the
merits. Now you will want to consider
the advice of your own lawyers,
including their analysis but our
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rejected.
The record also -- instead
Page 77
suggests that you thought the exchange
was a good deal for AIG. Getting the
preferred shares transformed into common
shares was an important step toward the
very important AIG goal of eliminating
government ownership, by making them
more salable and that AIG had not
initiated the reverse stock spl it, and
did so for the reasons stated in the
proxy statement.
Now, let me turn next on the
merits to ML III. One of the aspects of
the ML III claim is that it is purely
derivative and agreed to be such, this
is not one that is perceived if you
reject this claim it is -- Starr seems
to be looking at this transaction for
the manner that is fi'ankly the worst
from the reality of those.
As AIG executives testified
consistently with the testimony by
Federal Reserve executives and others at
20 (Pages 74 to 77)
Page 78 Page 80
2 the time, the fundamental realities that 2 guaranteed instead of discounts is both
3 was being focused on until November of 3 factually and as a matter of perspective
4 2009, the second liquidity crisis that 4 given these emergent circumstances at
5 had a very significant and specific 5 the time, it's just missing.
6 deadline. 6 Mr. Habya -- Starr talks about
7 November 10th, which was the 7 how easy it would have been and should
8 date when the quarterly earnings 8 have been to contain concessions from
9 announcement -- sorry, November '08, you 9 the counterpaliies.
10 have a November 10th deadline, because 10 It is striking that there is no
11 that is the date that you report 11 identification of any source that they
12 earnings, and meetings with the rating 12 compiled to force these counterpmiies
13 agcncies made absolutely clear unless 13 to agree to concessions, particularly as
14 AIG got a hold of its liquidity problems 14 the circumstances became more emergent.
15 and got them under control, that 15 Mr. Habya testified that he on
16 quarterly earnings repOli was going to 16 behalf of AIG negotiated ferociously for
17 result in significant down grades which 17 over a month and was unable to obtain
18 under the contracts for the 18 any concessions at all on taking the
19 counterparties and other counterparties 19 entitlement at any number less than par.
20 was going to necessitate tens of 20 Instead it was handed and asked
21 millions of dollars. 21 if they could solve this problcm and
22 There was an emerging crisis and 22 negotiate with the counterparties only
23 it needed to be -- it was AIG who came 23 days before the November 10th deadline,
24 up with the solution that it was to 24 these negotiations took place intensely
25 create a special purpose vehicle into 25 and under very short time demands.
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Page 79 Page 81
AI G Board of Directors 1 AIG Board of Directors
which the CDO's would be bought and 2 All of those counterparties were
CDS's would be torn up, and by moving 3 asked to provide concessions, contrary
the CDO's off the balance sheet you 4 to what was told to us this morning,
would eliminate the downside risk of the 5 only one of the counterpmiies have any
CDO, and also eliminate the liquidity 6 interest in talking about a possible
risk associated with the CDS and then go 7 concession.
forward. 8 That was UBS, as to whether it
This would be funded by a 9 is -- they said we are willing to talk
combination of contribution by the 10 to you about a possibility of a two
government, $25 million loan and 11 percent recession, that is what we are
contribution by AIG, and AIG surrendered 12 talking about.
that it had been contractually required 13 But only if every other
to pledge -- to post to the CDS holders. 14 counterparty agrees and of course other
Those of you who were on the 15 counterparties did not agree.
Board at the time it ended up being a 16 This is not something where
Sunday evening, November 9th Board 17 there was a reason for the Fed that they
meeting before the earnings announcement 18 would move -- the national economy or
the following day, after a marathon 19 anybody else to buyout the
session of negotiations over that 20 counterparties at par instead of some
weekend. 21 number fi'om par. That was the deal.
Now, Starr's perspective that 22 And most importantly of course the Board
this deal was an unconstitutional taking 23 agreed to this deal.
of AIG's properties were brought out at 24 Now, Judge Wheeler in his
the par values that AIG practically 25 decision to dismiss specifically said
21 (Pages 78 to 81)
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Page 82 Page 84
that he was required at that stage of 2 written by Mr. Greenberg and those are
the case to accept Starr's claims that 3 Mr. Greenberg's Board notes.
the Board has control, but you aren't 4 The Judge Engelmayer explained
required, and you know that that is not 5 in detail in his opinion why it was
the case. 6 entirely legally acceptable for the Fed
It was suggested that the Board 7 to make pati of the consideration for
didn't know the issues, if you read the 8 its provision of$85 billion in rescue
minutes of that meeting you know that 9 funds, that the provision by AI G of an
the Board new the issues, had lots of 10 80 percent equity interest to a trust
legal financial advisors at that meeting 11 could benefit the public, particularly
and approved the advance action. 12 given that the Fed took the extra step
As to whether it was told 13 in ensuring it never had any economic or
specifically that the counterparties 14 voting interest at all in any ofthis
would be bought out at a hundred cents 15 equity by virtue of having created this
on the dollar, Board minutes are not 16 independent trust, and where Mr. Boies
always -- there is a lot of discussion 17 pointed to a comment by a Fed official
and statements in the minutes saying 18 saying the terms as they exist doesn't
there was an extensive discussion about 19 work, that is because the term sheet as
the terms of the agreement and 20 existed called for this money to come
discussions with the counterparty. 21 directly from the Fed.
We do know if you look at the ML 22 The next sentence in the memo
III term sheet, at the back of those 23 that Mr. Boise quoted, it would be fine
Board materials it explicitly says the 24 if this went to Treasury, which is
notional amount, and we have given you 25 in fact happened.
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Page 83 Page 85
in tab five e-mails from the prior 2 Now, Judge Engelmayer's reason
evening showing that AIG people in the 3 for saying it was entirely legitimate to
room, including their lawyers and 4 obtain this equity interest was not
general counsel, knew that notional 5 complicated, there is an enormous body
amount corresponded with no convention, 6 of authority that says it is within the
we discussed this in the e-mail traffic 7 powers of the National Banks to obtain
the night before. 8 equity as part ofthe consideration for
As for the release point, it's 9 their loans, and there is an express
remarkable that this point is still 10 provision in the Federal Reserve action
being made because tab seven shows me 11 that says in addition to whatever else
the request for Board release came from 12 is incidental powers are necessary to
the AIG and not from the Fed, it was 13 engage in the business of banking, and
AIG's words and they wanted it and they 14 so the notion that you are limited to
wanted to be done with the counterpatiy 15 exclusively what is specified in Section
transaction. 16 13(3) doesn't add up legally, and that
Let me turn to the 17 is what the judge found.
September 2008 transaction briefly. 18 Judge Wheeler has not yet
Factual merits. 19 endorsed that, but in denying dismissal
I do want to pause and say that 20 he explicitly relied on his obligation
the memo that attributed in the slides 21 to accept as true Starr's claim that the
was a memo from Sara, is a memo that was 22 trust was an alter ego ofthe Fed, had
in Sara's files, the language in that 23 no separate existence or any independent
memo results from the fact that that 24 decision-making, which is simply not
memo was not written by Sara and it was 25 true.
22 (Pages 82 to 85)
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Page 86 Page 88
We are confident that the United 2 What the courts have done is
States is ultimately going to win on 3 they made absolutely clear that a
this point and obviously your lawyers 4 voluntary agreement, they have carved
will advise you on that. 5 out very narrow exceptions and the cases
But let's suppose just for the 6 they cite fall within those narrow
sake of discussion, that after 7 exceptions.
consulting with your lawyers you are 8 Those narrow exceptions are the
still not sure, your question four asked 9 parties who enter the deal enters the
us that question, and that question 10 deal under protest stated at the time
essentially is if we as a Board believe 11 when the deal was entered, and second,
that we and our predecessor Board's, 12 in some circumstances Congress has
directors of AIG, voluntary and freely 13 waived effectively the protest
entered into the transactions containing 14 requirement by providing in the statute
that Starr is now asking to repudiate 15 that this is for the benefit of a party
the deal terms, does that end Stan"s 16 to be able to seek to recover funds that
claim? The answer to that question is 17 was improperly paid in a later action.
categorically yes. 18 Judge Wheeler recognized in his
Let me explain why. If you look 19 own decision that involuntary component.
at the two claims, a transaction cannot 20 He went out of his way to expressly
be as matter of common sense an 21 predicate the denial of the motion to
unconstitutional of taking without just 22 dismiss in the action claim on the
compensation unless he is compelled, 23 obligation to accept once again Starr's
that a contractual exchange of 24 contention that the Board did not
consideration where one party gives up 25 voluntarily agree to the deal.
Page 87 Page 89
$85 billion loan and another party gives 2 Here, AIG was not -- had a legal
up consideration including sayan 3 entitlement to receive the rescue loan
80 percent equity interest, are not -- 4 at all or any particular -- AIG did not
what happened in September 2008 was a 5 protest the deal at the time, and the
deal the Board corrected and wisely 6 Federal Reserve Act contains no
concluded that the borrowing terms 7 provision having the purpose of letting
though tough, the borrowing terms that 8 borrowers recover from funds that they
the Board did not like, were better then 9 agreed to pay.
bankruptcy, and it agreed to a 10 Now, AIG not only made no
transaction similarly by definition 11 protest at the time, but it made no
compel the action from a private party 12 protest for years thereafter, while
with money that the government had no 13 enjoying the benefits of the Fed's
power to require that party to pay, but 14 performance, and ofthe Fed's further
made it pay to get something it was 15 rescue loans, restructuring the rescue
entitled to get. 16 loans and such gestures that the Fed
Involuntarily, unquestionably 17 unilaterally reducing the interest rate
made clear that they are not going to 18 by 550 basis points one month after
let private parties who enter a contract 19 initially issuing its loan, when there
with the government simply go in and let 20 was no reason that they needed to do
the government perform its side of the 21 that.
contract and then later on after the 22
performance of the contract say wait a 23 Now, there are many things that
minute, it is illegal and I get to get 24 the government could and would have done
out of our side of the deal. 25 differently to protect American
23 (Pages 86 to 89)
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Page 90 Page 92
taxpayers during the course of its many 2 argument is not that they are
further loans and dealings with AIG, if 3 unavailable for any constitutional
AIG had raised a protest at any time 4 violations, but unavailable for
along the line with the equity fees was 5 intentional or willful violations of
illegal or improper, but AIG never did 6 Constitution rights and your lawyers can
that. 7 provide that. That is a tremendously
There is nothing reasonable 8 high bar. The prospect that they are --
about the proposition that AIG would 9 that AIG or Starr is going to
just sit silently why the government 10 demonstrate that there was a willful
performed its side of the deal and 11 violation is extremely difficult.
waited until it no longer needed the 12 You also asked about the credit
government and then and only then say 13 agreement and substitution provision,
now we decided we don't have to perform 14 that is the provision that is
our side of the deal because the terms 15 conventional provision.
are illegal. It's simply not 16 It says if any provision is
permissible as a matter of law. 17 invalid you replace it with the closest
I'm not talking about statute of 18 substitution. How do you respond to
limitations issues. 19 Starr's argument that no substitute is
Now, if this case goes forward 20 available. What I say is recognize how
every director who was asked to testify 21 the bar is, how high the bar is.
-- celiainly will be asked to did you 22 In order to prevail you not only
exercise your independent judgment and 23 have to demonstrate an 80 percent equity
did you have the capacity to protest and 24 interest, but no other economic
the answer to both of those questions 25

Page 91 Page 93
would be yes. 2 interest telm, not a continuation of the
Now let me go to the limitations 3 original interest and an obligation to
on recovery. On damages, we contend the 4 pay 80 percent of income every year to
damage measure is zero, simply because 5 the Fed.
the measure for damages taking the value 6 None of those would have been
of what was illegally taken exactly at 7 enforceable as substitutes. That is a
the time of the action or taking that 8 bar that AIG and Starr is simply not
would have been in September what was 9 going to get over.
the equity value of 80 percent of AIG's, 10 There are set offs based on net
you measure that, ifthe Fed had not 11 operating loss benefits because Treasury
provided the loan, you don't measure it 12 exempted from the application of the
based on the value as created. 13 rule that the change of control results
The equity value of AIG's 14 in the loss of mid-operating loss
80 percent equity cut would be zero 15 benefits.
because AIG would have been bankrupt and 16 So it is a direct result that
that would have been lost in the 17 this Treasury action, AIG saved enormous
bankruptcy. Damages would be zero. 18 tens of billions of dollars in net
On indemnification obligations, 19 operating losses that are available to
apart from the absence of damages, there 20 set off a benchmark, to offset future
are indemnification entitlements, your 21 income in 2011 with $45 million.
question is are there any circumstances 22 Those are directly available
where they are lost, the contract says 23 because it is directly because of the
the lost because of gross negligence and 24 Treasury option to say because of the
willful misconduct the public policy 25 fact that they loss the alternative
24 (Pages 90 to 93)
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Page 94 Page 96
scenarios. 2 from other cases, unrelated parties.
Now, the Board we submit knows 3 It is going to resolve this
that AIG should not be suing to undo its 4 case, certainly going to resolve this
September 2008 crisis. 5 case. This case, if you allow Starr to
This Board knowing its facts and 6 go forward and not take it over
having its own perspective has not seen 7 yourselves, it is going to be binding on
a reason to bring such a lawsuit, the 8 unrelated cases, unrelated parties.
decision about whether AIG should bring 9 With respect to the threat which
such a claim is your's and you remember 10 would make the government your
that it is yours as a Board, not 11 adversary, I suggest to you that that is
StaIT'S. 12 not the appropriate thing to consider.
We submit that the Board should 13 It is not, I think, an
not allow Starr's campaign to pressure 14 appropriate basis for decision shoulder
you, it knows it is not well founded or 15 to shoulder with you and now you deserve
in AIG's best interest and that is the 16 to give us the benefit of not suing for
reason. 17 recovery of the AIG shareholders.
MR. SEITZ: Thank you. 18 With respect to the question as
MR. BOIES: First with respect 19 to whether this is a valid claim; first,
to whether they had an option on number 20 Court of Federal Claims already upheld
two, which is not to take over a case. 21 legal basis and I stressed before it is
The government says you don't 22 a legal basis, I also stressed the facts
have that option. You either have to 23 that you should be relying on are facts
take it over or kill them. This Board 24 that come from depositions and
knows that that is not true, it has in 25 documents.
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Page 95 Page 97
the past allowed shareholders to make 2 It is not, contrary to what they
decisions to go forward and the Board 3 said, it is not categorically -- even if
understands that that is a possibility. 4 you conclude that everything was
Second, with respect to whether 5 voluntary.
it is a cost issue, they say briefs are 6 Illegal exaction cases are all
going to have to be filed, depositions 7 related in which people have agreed to
taken, testimony is going to have to be 8 what the government demands.
given at trial. 9 The fact that you agreed to
That is going to be true if you 10 bring this action is not the case, your
don't take over the case -- the 11 lawyers will have to advise you on this,
depositions are going to be taken by 12 a defense. Any idea some how the
Starr, briefs are going to be given by 13 government can get that back through an
StaIT, testimony is going to be given. 14 indemnification clause I think also has
With respect to the idea that 15 no supp0l1.
somehow we should let this case go 16 They say they will furnish you
forward by Starr is going to be binding 17 with the indemnifications, perhaps they
on the Board, findings are going to be 18 will. I haven't seen any
made and other litigation, I know of no 19 indemnification in this case in a legal
support from that. 20 exaction case, wherein the government
Obviously they will give you 21 was able to avoid an illegal action or
whatever support they have for that, but 22 taking its claim on the grounds that
I know of no support that if you don't 23 they have an indemnification from the
take over the case you simply allow it 24 company that is the victims.
to go forward it is going to be binding 25 The reason is obvious because
25 (Pages 94 to 97)
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Page 98 Page 100
if you can exact illegally you can exact 2 you have to look to see can you confer
indemnification, and what the public 3 whether this was intended to be punitive
policy is is if the government cannot by 4 or not. This is where the government
use of its power to achieve an illegal 5 has admitted that it was intended to be
extraction, exact that illegal benefit 6 punitive.
and then exact the indemnification -- 7 And there is simply no authority
the idea that the legal exaction claim 8 in 13(3) or anyplace else that gives the
can be barred simply by finding 9 Federal Reserve Bank or the Treasury the
something that's voluntary would under 10 right to impose conditions for the
cut any illegal exaction claim in which 11 purpose of not securing the loan, but
the company agreed what was being 12 for punishing.
exacted. That is true of virtually 13 They say that this was
every exaction. 14 compensation for the loan, and they
Now, they claim that the loan 15 quoted the 10K and a complaint filed in
benefitted AIG, and I don't think we have 16 another action. That is our point.
to disagree that the loan benefitted AIG. 17 Our point is that it was taken
The question is not whether AIG 18 as consideration, as a condition of
benefitted and had taken a loan in 2008, 19 giving the loan, but it was an improper
the question is whether the terms of 20 condition.
that loan were or were not appropriate. 21 It was one that was illegally
The question is in addition to 22 exacted, contrary to statutory authority
having fully secured loan with a high 23 in 13(3) and for a punitive purpose.
interest rate is the government entitled 24 And when you have something that
to exactly 80 percent of the equity. 25 is illegally taken, illegally exacted
Page 99 Page 101
The loan may very well have been 2 for a punitive purpose without statutory
in AIG's interest, obviously giving up 3 authority, that is something that the
80 percent ofthe equity if you didn't 4 company is entitled to recover back.
have to is not in AIG's interest. 5 It's not a question,
The question is, can the 6 respectfully, of keeping promises. What
government use its power to exact that, 7 the government wants to say is look all
because of what the government says was 8 of you people at the Board table made
a total weakness of AIG's argument. 9 these promises, all of you have been
That is exactly what a illegal exaction 10 involved in everything that has been
claim is designed to do. 11 going on, and it would be a breach of
Counsel addresses the punitive 12 your faith for you now to say we are
aspect of only by saying that the rate 13 going to try to recover this for the
of return does not demonstrate what was 14 shareholders.
being done punitively. That is not the 15 What the Court of Federal
point. 16 Claims, is where you have something that
The point is ifthe government 17 is outside the statutory Board, it is
has admitted that what they did was 18 exactly a condition of a loan, it
intended to be punitive. 19 doesn't make any difference whether the
The issue is when you have a 20 loan itself was favorable.
government admission and what was being 21 Presumably in most cases the
done was punitive to the shareholders, 22 benefit that you are getting is
is that the proper basis for exacting 23 favorable or you wouldn't be doing it.
80 percent of a company's equity. 24 The question is whether it is
This is not a question whether 25 proper or improper legal or illegal
26 (Pages 98 to 101)
Page 102
2 for the government to impact as a
3 condition additional consideration for a
4 punitive purpose outside of the
5 authority of the statute, and that is
6 what they did here.
7 It is not a question did the
8 loan benefit AIG? The question is, was
9 the exaction of the 80 percent equity
10 improper? Because it was outside the
11 statutory authority and for a punitive
12 purpose. That is the central issue.
13 That is what they have to
14 grapple with. That is what the Board
15 has to grapple with and that is what the
16 COUl1 of Claims already grappled with.
17 The COUl1 of Claims did not say
18 that this is only outside of the
19 statutory authority because we assume
20 that it is voluntary.
21 It said directly that there was
22 no statutory authority to take this
23 equity independent interest, and the
24 Court of Claims said it didn't make any
whether it was done through a
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Page 103
trust or funneled to the Treasury or
not.
It was, in their own words,
consideration for the Federal Reserve
Bank's loan.
Once they admit that this was a
condition of the loan, consideration for
the loan, taken as a demand to get the
loan, they have admitted that it is
coming to them, or whoever they direct
it to, doesn't make any difference, as
the court has already held.
What you are being asked to do
is to not merely not take over, but to
affirmatively kill the case that the
Federal Court of Claims, the court is
set up to deal with exactly these kinds
of claims, has already ruled as a legal
matter, states of claim.
And we suggest that that is
quite different then what they talk
about in the conventional frivolous
shareholders -- they say this is a
frivolous lawsuit.
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It is a lawsuit primarily based
on Congressional reports, Inspector
General rep0l1s and their own admission.
The legal theory which has been
upheld by a court, I suggest that is not
a frivolous lawsuit.
They say this is just a
conventional issue, Board's decide all
the time how to pursue. Yes, that is
true, but Board's do not decide all the
time to give up the claim for billions
of dollars that it already sustained in
a motion to dismiss and on the critical
issue, which is whether or not the
taking of this equity was something that
was authorized.
The government has already
admitted that it was done for a punitive
purpose. And I challenge them, I ask
your lawyers to look at whether they can
find any justification in the statute of
the law for exactly 80 percent of a
company's equity for a punitive purpose.
Continental, Illinois had
Page 105 I
nothing to do with the situation which
had a fully secured loan, high interest
rate, and in addition to that you are
exacting 80 percent of the company's
equity for a punitive purpose.
The other statements are simply
inconsistent with what the government
has said both to Congress and in this
litigation.
Counsel says this was a very
risky loan. We don't know whether we
were going to get paid back or not. Not
only did they tell Congress at the time
that it was fully secured and taxpayers
were not at risk, they said so in this
litigation.
They admitted in this litigation
that it was fully secured, taxpayers
were not at risk.
For them to come in here and now
say that this Board should make a
decision to kill this lawsuit based on
counsel's arguing that this 80 percent
equity somehow had risk premium is
27 (Pages 102 to 105)
Page 106 Page 108
2 inconsistent with that and I think that 2 benefit ofthat deal in this case for
3 is the kind of decision that would 3 four years, and then at the end to say I
4 embarrass us. 4 would like to pay less for what I got.
5 So in summary, what we ask is at 5 The law doesn't allow that to
6 a minimum don't kill this lawsuit. 6 happen, because there is a fundamental
7 Don't kill the opportunity of AIO's 7 unfairness and there are lots of legal
8 current shareholders to participate in 8 reasons why that is the case; whether
9 this. 9 you say it's because you can't prove a
10 And the idea that this lawsuit 10 claim or legal exaction claim, based on
11 is going away, and they can come in and 11 a voluntary acceptance of a deal or
12 say we will never settle this case so 12 whether it is latches or whether you
13 kill it, is the kind of threat that I 13 point to the reformations provision of
14 suggest to you is simply not an 14 the contract, the fundamental principal
15 appropriate counter balance to the 15 is easy to understand and you don't have
16 issues of your duties and AIG 16 to be a lawyer to understand the
17 shareholders for a lawsuit that is 17 unfairness of that proposition.
18 there, that passed a motion to dismiss 18 I think that hearings on
19 and factually justified. 19 fairness in the claim partially explains
20 Our lawsuit is not going away. 20 the media impact that we saw yesterday,
21 The idea that somehow the Court of 21 and the public reaction that we saw
22 Claims and writing the opinions that 22 yesterday, and I think the public saw
23 they wrote is going to decide, well, 23 the inherent unfairness of the
24 because the AIG Board decided to kill 24 underlying claims that are being made in
case, I'm going to reconsider the
25 this case.
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Page 107 Page 109
direct claim. I think there is no 2 I think the rest of the
support. 3 explanation for that reaction is that
So if this case is going fOlward 4 there is an additional reaction to the
the question is whether you are going to 5 idea that AIG would be seeking billions
try to prevent AIG shareholders 6 of dollars or more from the government.
benefitting from this case. 7 And I respectfully disagree with
MS. BIVENS: I respectfully 8 Starr that the public will view AIG in
disagree with Starr's request and what 9 the same light that it views the victims
it means to this Board. 10 of Sandy.
I think the law is clear, you 11 MR. KIERNAN: Two points, first,
can consult with your lawyers about it, 12 Stan' says that AIG was singled out,
that a decision to remain neutral is 13 that is true. AIG is the only entity
viewed under the law as a decision to 14 that is not a bank or commercial bank
endorse the claim, and I believe it 15 that ever in history received a loan of
would be viewed by the public as well, 16 any kind from the Federal Reserve Bank.
because it allows the case to proceed in 17 That is how it was singled out.
the name of AIG. 18 It was the beneficiary of
The problem for AIG in this case 19 discriminatory -- the extraordinary
is that there is a fundamental flaw with 20 rescue provisions in Section 13(3) were
all of the claims that have been 21 used for the first and only time for
brought. 22 something that was not a bank.
The law simply doesn't allow a 23 I want and with apologies for
company to enter into a deal on day one 24 reading law to a group of non-lawyers, I
and agree to deal terms take the 25 want to read two sentences so YOU have
28 (Pages 106 to 109)
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Page 110 Page 112
no doubt about the proposition that I 2 are going to have some questions on the
suggested, which was voluntary and this 3 merits but do you agree that the Board
is in the case of an exaction claim. 4 may in considering the demand consider
The supreme court of the United 5 factors beyond the merits, the harm of
States wrote, "This court is succinctly 6 the company's brand and reputation,
and constantly recognized that the 7 regulatory concerns, distraction on
doctrine that monies voluntarily paid to 8 management in pursuing the claims and
the government cannot be recovered." 9 employee moral?
The Federal Circuit had a case 10 MR. BOIES: I think in abstract
called, Employees Insurance. 11 the answer is yes. I think in the
"A voluntary payment in response 12 context of this particular case where
to an illegal demand is not recoverable 13 the case is going to proceed any way and
unless notice is given in a suitable 14 where the Court of Federal Claims is
protest and Congress has waived the 15 going to sustain the motion to dismiss,
protest by the IRS." 16 I think that the scope of that will be
That is per obviously sensible 17 very limited.
reasons to prevent circumstance where a 18 MR. KIERNAN: I think our answer
private party negotiates a deal, agrees 19 would be shorter. Categorically, yes,
to a deal with the government, there is 20 the charge that the Board considered has
extensive performance of review of the 21 the best interest of AIG and all the
deal by the government and the end of 22 implications and merits are certainly --
the performance the private paIiy says 23 there is no question or matter oflaw or
now I decided I don't have to perform my 24 matter of common sense that the Board
side and I'm raising this claim of 25 should consider single-mindedly the
Page 111 Page 113
illegality. 2 overall question the best interest of
If you don't do it up front then 3 the company.
you have waived that, unless there is a 4 MS. BIVENS: I think it would
special statute of the kind that doesn't 5 actually be proper not to be considering
exist here. 6 those factors as well.
There is absolutely no question 7 MR. SEITZ: Thank you. Second
that voluntary of the Board's decision 8 question for both of you, under what
to agree to these terms by itself should 9 circumstances is a voluntary payment
be determined ifnot only of whether AIG 10 basis for an exaction claim as the
ultimately prevails, but also for this 11 circumstances apply here?
Board's decision to reject the demand 12 MR. BOIES: As the court claims
that is predicated and expressly 13 and ruled in a number of cases, I'm not
predicated on your involuntariness. 14 sure I will be able to identify them,
MR. SEITZ: Thank you for the 15 the elements essentially where the
presentations. 16 government demands consideration that is
(A short break is taken.) 17 not authorized as a part of the action
MR. SEITZ: Thank you all. We 18 that the government is otherwise taking.
have several questions for the parties 19 In the context of this case it
and I ask you not to assume any view by 20 would be the government demanding, for
virtue of us asking these questions, it 21 example, equity, if we are right the
is for our informational benefit. 22 government does not have the authority
First question to both parties, 23 to do that under Section 13(3), and does
and the first question is a lot of the 24 not have the right to do that in any
time is spent going on the merits and we 25 event if you demand for punitive
29 (Pages 110 to 113)
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Page 114 Page 116
purpose. 2 seeking recovery, but may not be
In the context of the Suwanee 3 required if enacted for the benefit of
case, the government did not have the 4 another.
right to demand a payment of money in 5 So you ask here, is there
order to authorize transfer of celiain 6 anything in the Federal Reserve Act that
shill hours. 7 makes clear that there was structure, as
I think the answer is where the 8 I said in my remarks, structured so that
government demands some form of 9 there could be a recovery to someone who
consideration that is not an authorized 10 paid too much.
element or component, actions that the 11 There is nothing like that in
government is otherwise asked to take 12 the Federal Reserve Act, and of course
and is taking, that constitutes 13 there was no protest and the protest
exaction. 14 point is really a critical point because
MR. KIERNAN: I fear that my 15 the protest not only was not then but
answer is that is not a correct 16 somewhat and continued for so long
statement of the law. 17 during the periods when the government
I will read to you again the 18 took detrimental alliance on its
rule of the Federal Circuit in the 19 understanding.
insurance case, the Appellate COUli to 20 MS. BIVENS: I will defer.
which COUli of Claims cases appeals. 21 MR. BOIES: First, I think it
"A voluntary payment in response 22 might be useful in context to just add
to an individual demand is not 23 the sentence that immediately follows.
recoverable unless notice is given in 24 I also think that it is relevant
s u ! ! ~ , : ! , ~ protest or Congress waived the 25 with respect to the Suwanee case to note
Page 115 Page 117
protest requirement as it is done by 2 that the analysis of the shipping is
now." 3 very similar to the analysis of Section
It's easy the application as 4 13(3), from -- what the court did in
there has been a protest requirement I 5 Suwanee, with respect to the shipping
have no problem with that. The most 6 act, is to say that Congress, that the
complicated issue has been when do you 7 prices are not to be different and that
find circumstances where Congress waived 8 was considered enough to constitute a
the protest requirement. 9 finding that there would be a dealing of
The Suwanee case that Mr. Boise 10 exaction, and a distant payment in the
refers to and the Sprague case explains 11 Section 13(3), it is clear as the Court
more of it, it pays to explain how the 12 of Federal Claims ruled that there is no
shipping act of 1916 expressly was one 13 authority to take stock and compensation
of those constants where Congress 14 is limited to interest rate determined
effectively waived the protest 15 by the Federal Reserve, both of which
requirement. 16 were violated here and the purpose is
So the cOUlis have rested with 17 very clear for 13(3) is to preserve
how do you think about what kind of 18 financial stability and is not to be
statute waves the protest requirement. 19 punitive.
The best statement I found of 20 So we think Congressional
how you analyze that is where the cOUli 21 purpose at least it is clear with
says, the line we have drawn is that a 22 respect to Section 13(3).
voluntary payment may be recovered if 23 MR. KIERNAN: The only thing I
the statute barring the payment was 24 would say, Mr. Boise correctly described
enacted for the benefit of the person 25 Section 13(3) which is stabilize the
30 (Pages 114 to 117)
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Page 118
economy. Absolutely no indication that
there is anything in there that is
intended to benefit a claim.
MR. SEITZ: Next question, if
the evidence showed that the intent was
Page 120
2 is what you have, ajudicial position
3 from the United States in this case.
4 You must conclude that it is a
5 legal exaction.
6 MS. BIVENS: The first palt of
punitive with regard to the loan, is 7 our answer is that it is actually no,
that enough to establish a legal 8 because we don't think it is enough to
exaction? 9 show that the terms were illegal in some
MR. BOIES: In our view, yes. 10 way, that there is a voluntariness
think both sides have just discussed the 11 element that has to be proven to prove
analysis if you can prove and determine 12 an exaction claim.
legal exaction claim, is to look at what 13 But addressing the piece on
has been demanded by the government, is 14 punitive and whether punitive purpose
something that -- is a permissible 15 would make the terms ofthe loan
component or element of the action being 16 illegal, I think it is important for us
required. 17 to talk about what we mean by punitive
That where Congress had set up a 18 because a core tenant of Central Banking
statutory provision that provides for 19 is that the Central Bank should not be
the government to do something under 20 lending at what our market rate is, it
certain circumstances, and the 21 should be lending at more advantageous
government does that, but then in 22 rates and a rate that actually deters a
addition tries to attach to that action 23 moral hazard that would be created by
an additional concession for exaction, 24 lending on terms that would promote
if that is not for in the ....... "_._._ ........ . on the ..____ 1
Page 119
statute it is a legal exaction, and I
think we are in agreement with the
purpose of 13(3) was to provide loans to
stabilize the economy.
There is a provision in there
that says what the Federal Reserve is
supposed to get for that is security,
adequate security, which they got, and
an interest rate detel111ined by the
Federal Reserve.
They got an interest rate but it
was not detel111ined by the Federal
Reserve. It was taken from the private
party term sheet.
There is no provision for the
taking of equity as the Court of Federal
Claims has already held, and there is no
provision for the imposition of punitive
sanctions, there is no -- punitive
conditions.
And as a result, if you conclude
the evidence is and I think you must
conclude with respect to the evidence
these were imposed punitive basis that
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Page 121
institutions, that would then know they
can go to the Central Bank and get money
at the back end of a risky endeavor.
That is recognized by the
Central Banks who were considering the
loan tel111s.
I think it is instructive to
look at the citations that Mr. Boise
pointed to today when he said in
depositions the representative of the
United States have already called these
terms punitive.
The two citations that he had in
his slide that accompanied his
statements were first a quote by
Mr. Millstein. He was asked a question,
"Did representatives of the United
States in 2008 describe the interest
rate provided in the September 16th telm
sheet as punitive?"
The answer that Mr. Millstein
gave was, "They may have and that would
have been consistent with the policy of
not creating a precedent that would
31 (Pages 118 to 121)
Page 122 Page 124
2 encourage people to borrow to so 2 with the government is entitled to get
3 miss-manage their business to have no 3 just -- that starting component is not
4 alternative but to bon'ow from the 4 here, there is no legal entitlement to
5 Federal Reserve Bank." 5 get a hope at all.
6 The other citation on the slide 6 To give Federal Reserve complete
7 is a question asked of Mr. Alvarez, and 7 authority to say you are not going to
8 the question was "Was there any other 8 get any loan at all and was there any
9 purpose of this equity participation 9 legal provision attached to it, and then
10 other than to provide value to the 10 the question is if there was a legal
11 Federal Reserve Bank?" 11 provision attached to it was it
12 Answer, "There -- the other 12 nevertheless voluntary.
13 purpose that I think is fairly intended 13 MR. BOIES: I would be very
14 is that it would help to ensure that the 14 brief, I think what you call ultimate
15 stakeholders of AIG didn't receive too 15 motivation or theft is less important
16 much of a windfall from the assistance 16 then the fact that the government has
17 of the -- that the federal government 17 agreed that this is punitive, and I
18 was providing to AIG at this time." 18 think ifthere is any disagreement among
19 The point here is that the core 19 counsel now, if this is an issue that is
20 principals of Central Banking are part 20 important to the Board, I think you
21 of and inherent in the statutory 21 ought to look at the whole record as
22 authority that the bank operates under 22 pretty small because depositions just
23 and recognized that the terms granted by 23 started, and I think the record makes
24 the bank shall not be mortgaged and in 24 absolutely clear that the taking of the
__ _____ ..
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Page 123 Page 125
I believe is not an American but is
British, actually used the term punitive
to describe the appropriate terms that
should be granted or used by Central
Bank and lending, because some times
that term is used by central bankers and
it is consistent and inherent and pati
of the authority.
MR. KIERNAN: As to whether the
motivation of the government is punitive
at all, as we know, as we recognize the
equity component of this transaction was
something that was just -- the priority
sector had that component, the
commercial term and the perspective as
general counsel testified, it would be
institutional for the Federal Reserve to
loan on terms more general then the
private sector found inadequate to
support a loan.
As to your legal question,
motivation of a demand is not factor, it
is an analysis. The question is is
there something that the party dealing
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punishing the AIG shareholders or
allowing their company to get into the
position they are in, and I think if
counsel in this proceeding for the Board
is going to take the position it wasn't
really punitive, I think that counsel
for the Board needs to investigate.
If they are taking the position
that it doesn't make any difference then
that is a legal conclusion.
MR. SEITZ: We heard a range of
damages and we would like a little more
specificity of how you arrived in
assessing the damage.
The first question, how do you
calculate it and at what point in time
do you calculate it is the second
question, and third is how do you
allocate that damage?
MR. BOIES: I think that the
damage analysis is something that you
define; however, I think a good starting
point is the $22 or $23 billion, with a
B amount that was estimated at the
32 (Pages 122 to 125)
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Page 126 Page 128
value of AIG stock at the time the 2 make that loan.
transfer of that stock to -- the timing 3 So once they had made that loan
issue has the following aspects to it. 4 the question is do they have a right in
If I'm giving more detail then 5 addition to a very high interest rate,
you want tell me and I will stop. 6 in addition to full security, have the
First you have an issue of 7 right to demand an equity.
whether you look at the timing of stock 8 And so you look at the company
taken as September 16th or 9 with that loan and determine the value
September 22nd, September 16th, the term 10 of the equity.
sheet, September 22nd, the term sheet is 11 You get there two ways, one is
explicitly stated beyond binding, the 12 by the legal analysis that I was just
Mr. Alvarez who was presented as a 13 talking about and the other is by the
30(b)6 witness for the United States, 14 factual analysis that by the time
general counsel of the Federal Reserve 15 September 22nd comes along the loan's
Board testified it was non binding, and 16 already been paid, so when the credit
they did not have any right to the stock 17 agreement is entered into, whieh is the
until September 22nd, that would say the 18 time that Mr. Alvarez admits the first
right timing, September 22nd, I think, 19 time they had any right to the stock,
whether it is September 16th or 20 the loan was already demand.
September 22nd does not make any 21 So either on a factual basis or
substantial difference in the amount 22 legal basis, you have to evaluate the
unless the government will argue that it 23 value on the stock on the premise that
ought to do a hypothetical analysis that 24 you have the loan in effect.
says not what -- what was the stock 25 Doing that I think people would
Page 127 Page 129
AI G Board of Directors 1 AIG Board of Directors
w0l1h when it was taken, but what would 2 differ as to whether it is $22, $25,
the stock have been worth if it was 3 $30 million, $22 or $23 million was the
still in the bank. 4 analysis that the company did.
If the company had gone into 5 MR. SEITZ: Before you finish,
bankruptcy, we think it is not the case 6 the last question was how would you
and the stock was worth zero, because 7 allocate the damages? I think the Board
the value of the insurance subsidiaries 8 is looking for something specific here.
excess of asset balance over 9 MR. BOIES: I don't think it is
liabilities. 10 possible to at this point say the direct
As well as the -- I don't think 11 claim is X percent and the derivative is
that the value of the stock in 12 Y percent.
bankruptcy would have been zero; 13 I think it is clear that both
however, we believe that it is not the 14 are significant. I think that the
right time to look at it because the 15 division is something that would have to
question for a legal exaction is not 16 be supervised by the court.
what is the value of what was taken if 17 MR. SEITZ: On what basis would
there had been no loan, the decision to 18 you make the division?
make a loan was a decision that the 19 MR. BOIES: I think that you
Federal Reserve Bank and the Treasury 20 would look at the relative contribution
Department made pursuant to Section 21 for the damages on what was taken from
13(3). 22 the company and what was taken from AIG.
They would not have made that 23 Now, with respect to ML III that
model unless they had determined that 24 because it is a derivative claim only,
under Section 13(3) was appropriate to 25 all of those damages but with respect
33 (Pages 126 to 129)
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to the equity, you would have to make a 2 the equity would not have been worth $23
determination as I say pursuant to 3 billion. It would have been worth zero,
cOUl1. 4 but for the rescue effort loan.
That is not something that in 5 As to whether there is any doubt
our view we can sit down and negotiate 6 on that I commend the Board to the
without cOUl1 approval. 7 minutes of its own September 16, 2008,
We can discuss it and provide a 8 Board meeting where several of its
recommendation that would then have to 9 advisors and at least one director who
go to court for approval on the amount. 10 remains on the Board today, during the
I think it is important to keep 11 course of the Board meeting advanced a
in mind that the division affects the 12 very strongly held view clearly right,
damages. It does not affect the legal 13 and it was discussed in great detail
exaction liability. 14 that equity would be wiped out in fact
What is important for a legal 15 because of the consequences and
exaction is how much does the government 16 bankruptcy and the probability of
have in its possession that it shouldn't 17 seizure of the insured's subsidiaries by
have. 18 the regulators, not only would there be
It is not limited to what is the 19 nothing left for the equity holders, but
conventional damages analysis, how much 20 this wasn't an issue about whether there
was the plaintiffinjured, it's how much 21 was any equity left.
does the government have in its 22 The question was how do we hold
possession that it shouldn't have, and 23 off the creditors. That was a very
that is defined, if you believe that the 24 strongly held view of the Board.
equity was taken without authorization 25 It is not a controversial
~ ~ V ~ ~ ~ ~ ~ ~ ~ ~ ~ _ ~ ~ ~ ~ _ _ ~ N _ ' A ~ ' ~ ~ V ~ ~ A
Page 131 Page 133
for punitive and improper purpose, the 2 proposition, that if you look at the
value ofthe equity as it is held by the 3 value of the loan without the $85
government, then define it if you have 4 billion -- the value ofthe equity
both claims, and have to make an 5 without the value ofthe value ofthe
allocation just as they are liable for 6 $85 rescue loan it would be zero.
the entire value of the stock they have, 7 There appeared to be some
they are only liable once. We cannot 8 suggestions in Mr. Boise' comments that
have duplicate recovery, so you have to 9 there had been authorization to make the
take that and you have to allocate it. 10 loan without the equity piece, that is
MR. KIERNAN: Let me take a stab 11 categorically not the case.
at the damages. A couple of conceptual 12 The only authorization from --
points. The first is that the damages 13 as you know, under Section 13(3) the
for the exaction are the same. 14 Federal Reserve Bank could not loan
This goes to how much did the 15 unless it was authorized statutorily by
government turn out to have is 16 the Board in Washington.
absolutely no where in this case. 17 The loan at the Federal Reserve
Second conceptual point and this 18 in Washington authorized was a loan that
is the key conceptual point, damages. 19 had the 79.9 percent equity piece in it
Mr. Boise said you look at what 20 as part of the Board's resolution, and
the value of the equity was at the time 21 indeed if there is any issue about
when the equity was transferred, and of 22 whether that was a required component,
course there is a criticality fact that 23 that issue became non hypothetical
$23 billion valuation came because there 24 during the September 16th Board meeting
was an $85 billion rescue loan to AIG 25 when the Board actually recessed so that
34 (Pages 130 to 133)
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a delegation could go at the last 2 In the view of Treasury,
minute, this wasn't an interim 3 certainly, I believe also on the part of
negotiation stage, this was last minute 4 the New York Fed, that is because there
to propose that less burdensome terms be 5 are actually no direct claims distinct
imposed. 6 here from the derivative claims.
The head of the New York Fed, 7 We actually think there are not
and as the minutes reflect, the Board 8 legitimate separate direct claims here.
was told these are the terms, these 9 We think it will ultimately get decided
terms were all packaged, without the 10 properly and that there will be a
equity piece there would not have been a 11 finding, but there are no separate
loan. 12 direct claims and that is why we can't
That was the end of the day, and 13 find an articulation for how to divide
so the right way to analyze the damages 14 those damages.
is what have -- what would have been the 15 All of these claims are
value of that equity interest, and it 16 derivative claims held by the company
simply would not be correct to 17 and the direct claims I believe will be
incorporate into that valuation the 18 dismissed.
positive value that was created by the 19 MR. SEITZ: Can you explain
Fed. 20 that?
MS. BIVENS: The only thing that 21 MS. BIVENS: The reason for
I would add to the damages piece and I 22 that, the underlying principal under
agree with Mr. Kiernan, the right 23 Delaware law about the difference
standard is absent rescue what would the 24 between a direct claim and derivative
stock be worth, the answer zero. 25 claims is simply asking the question of
Page 135 Page 137
We disagree about what the stock 2 whether there are particular
would be worth in a bankruptcy 3 shareholders that are hmmed differently
proceeding and we ask the Board to take 4 from one another, which would be
advice on bankruptcy counsel on that 5 suppOliive of a direct claim.
point. 6 Derivative claims exist when all
To the extent that it is 7 shareholders are affected in exactly the
relevant at all to the damages analysis, 8 same way, and we see here that all of
I also wanted to address the question of 9 the shareholders who were holding shares
whether the September 16th term sheet 10 of AIG at the time of the rescue were
was binding or not binding with respect 11 impacted in the same way, all together,
to the equity piece, and I would direct 12 on the same date, and because that is
you to that agreement which clearly 13 the case these claims are all derivative
states that the equity terms is a 14 and held by the company.
component of the consideration for the 15 MR. SEITZ: Anything to
loan, and as to whether it is binding, a 16 follow-up?
loan was made that day to AIG in the 17 MR. BOIES: Sure. I remind the
amount of$14 billion in reliance on 18 Board that Comi of Federal Claims
that agreement. 19 already ruled we had direct claims.
With respect to how the damages 20 Second, the reason for it is
were divided between the direct and 21 quite clear. If the government had said
derivative claimants, I think what we 22 to the shareholders you have to give us
are seeing is that there is actually not 23 four out of five of your shares, they
a principal way to divide the damages 24 would clearly have been exactly those
between those categories of claimants. 25 from the shareholders.
35 (Pages 134 to 137)
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Page 138 Page 140
If the government said to the 2 government would be the claimant who was
company give us 80 percent of the equity 3 recovering for 60 percent of the
that has exactly the same economic 4 recovery, and that is not true today and
affect on the shareholders as the 5 I think the facts have changed and I
shareholders handing over four out of 6 think Wheeler's view of the direct
five of their shares. 7 derivatives issue may have in fact
We can disagree whether the 8 changed as well as a result.
calculation of the value of those shares 9 The other point I wanted to make
assumes or does not assume the 10 that this issue of whether it is
following; I don't think -- I don't 11 Septem ber 16th or 22nd, I want to make
think we can fairly disagree that that 12 clear in either the instance the value
term sheet was not binding. 13 to the share price has to in either case
There seems to be an implication 14 you have to take away the value that the
here that maybe it was binding, it says 15 rest gave to those shares and we think
it is not binding, and they have 16 that is the entire balance. Either
admitted in this litigation that it was 17 circumstance we would say damages would
not binding and that they did not have a 18 be zero.
right to those shares until 19 MR. SEITZ: Next question,
September 22nd, and if this Board 20 January 2013, and how long do you expect
decides and tries to kill this lawsuit 21 it will take to conclude this
based on the assumption that this is no 22 litigation?
damages, I think the Board is going to 23 MR. BOIES: We have a discovery
be embarrassed because the record is 24 schedule already set. I think that we
going to be clear from the government in 25 will have a trial of this case I would
Page 139 Page 141
this case that they didn't have a right 2 say early in 2014, realistically.
to those shares until September 22nd and 3 Because we are in the claims and
the loan had already been made. 4 it is in appeals in the Federal Circuit
MR. SEITZ: Next question, 5 I think the appeal will be expeditious
January of2013 right now, how long do 6 and we will have it resolved some time
you expect -- 7 in 2014.
MS. BIVENS: I just wanted to 8 MR. SEITZ: Does the government
make the point, because Mr. Boies made 9 have a different view?
reference to the fact that the D.C. 10 MS. BIVENS: I think that the
couli found that the direct claims can 11 question of how long this case is going
proceed separately. 12 to take depends on pretty much entirely
I wanted to point out first of 13 what this Board does.
all, obviously from the perspective of 14 I think if the Board denies the
and I can't speak for the government but 15 derivatives there are steps that the
celiainly from the perspective of 16 government can take that would
Treasury, that decision was simply wrong 17 immediately accelerate a decision with
and so we expect that to get con-ected 18 respect to the merits of the direct
as it goes up on appeal, but it is WOlih 19 claims, both in front of Judge Wheeler
pointing out what was giving Judge 20 and I think there are steps to get some
Wheeler pause, and you can see from his 21 of the decisions of Judge Wheeler up on
decision that he was concerned at the 22 appeal.
time that the Treasury owned 60 percent 23 So I think the length of the
of AIG, and so if the claims were only 24 case will be dramatically shOliened if
proceeding in a derivative nature the 25 the derivative demand is denied.
36 (Pages 138 to 141)
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MR. KIERNAN: In the ordinary 2 before the meeting today to discuss
course I would say this case seems 3 them.
headed for trial in D.C. some time in 4 Thank you again for your
the second halfof20l4. In New York 5 presentations.
the dismissal is being appealed on an 6 (Board meeting concluded at
expedited basis. I don't know how long 7 12:23 p.m.)
it would take for Judge Wheeler to 8
decide, probably -- 9
MR. SEITZ: One concluding 10
question, and this is not an invitation 11
to keep us away from lunch, but is there 12
anything else that you would like to say 13
to the Board today or to consider that 14
you haven't had an opportunity to speak 15
to today? 16
MR. BOIES: I don't think there 17
is anything that we haven't said in 18
general terms that would be material. 19
There is a lot of detail and I 20
know that the Board will consider that 21
and also consider the stage that the 22
litigation is in. 23
I think you can see how 24
different it is from a conventional 25

__ ...... , .. __
Page 143 Page 145
shareholder litigation.
2 CERTIFICATE
We think, not only had they
3
gotten passed a motion to dismiss, but it
4 I, CAROLYN CHEV ANCE, a Notary
is wrong when you get it revoked on
5 Public of the State of New Jersey, do hereby
appeal. They are trying to kill both a
6 certify the foregoing is a true and accurate
7 transcript of the testimony as taken
billion dollar claim and it assumes that
8 stenographically by and before me at the
they are going to be successful on
9 time, place and on the date hereinbefore set
appeal.
10 forth.
MR. KIERNAN: Just on that 11
point, obviously as we said before there 12 I DO FURTHER CERTIFY that I am
are many facts that the judge took as a 13 neither a relative nor employee nor attorney
given in considering the actual and
14 nor counsel of any of the parties to this
required -- we will move to dismiss this
15 action, and that I am neither a relative nor
case.
16 employee of such attorney or counsel, and
Other than that, I would be
17 that I am not financially interested in the
delighted to say as long as anybody
18 action.
wants to answer questions.
19
MS. BIVENS: Nothing further.
20
MR. SEITZ: Thank you very much.
21 Notary Public of the State of New Jersey
We appreciate the presentations today.
Dated: January 10, 2013
The Board has had more 22
thorough submissions some time and has 23
reviewed them. 24
The Board did meet last night
25
37 (Pages 142 to 145)
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Page 169
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Page 170
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EXHIBIT C

Case 1:11-cv-00779-TCW Document 121-3 Filed 04/26/13 Page 1 of 65

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