On January 29th, the Court of Appeals for the Second Circuit dealt Hank Greenberg another blow in his challenge of the federal government's crisis-era AIG rescue. Greenberg's company, Starr International, a large AIG shareholder, alleged that the Federal Reserve Bank of New York had violated state fiduciary duty law at multiple points in the government's prolonged rescue effort. Starr objected to the government's initial intervention in September 2008, but the challenge focused on later events not barred by the statute of limitations. Starr alleged that the government, without regard for AIG's best interests, had used the company to funnel bailouts to other financial companies. The court affirmed the lower court's verdict and held that Delaware fiduciary duty law could not stand in the way of the actions that the Federal Reserve Bank of New York took to fulfill its public duty to stabilize the financial system. The district court hinted that there might be some remedy under federal law if Starr could show, for example, that the Federal Reserve Bank of New York, "having attained control of AIG in the course of an emergency rescue, then forced AIG to purchase a photocopying machine from a bank in Utah for $1 billion, solely to subsidize the Utah bank in the interested of the banking system." Even absent a billion dollar copier, the Federal Reserve is not completely off the hook; another case is proceeding at the Court of Federal Claims.
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