Federal judge rejects suit over AIG bailout

A federal judge yesterday dismissed Starr International Co's lawsuit against the Federal Bank of New York over the government's bailout of American International Group (AIG), Bloomberg New reported.

According to Starr, an AIG shareholder headed by the insurer's former chief executive officer, Hank Greenberg, the government's 2008 bailout of the New York-based company was used to channel money improperly to its trading partners, the report said.

US district judge Paul Engelmayer in Manhattan rejected the company's claims.

The New York Fed was sued by Starr last November, saying it breached its fiduciary to AIG shareholders with loans of $85 billion at 14.5 per cent interest even as it offered better terms to banks in a ''backdoor bailout.'' The insurance  company almost collapsed after bets tied to the housing market soured, with the bailout being revised at least four times before reaching $182 billion.

According to Starr, the bank coerced, induced and required AIG directors and officers to "violate their duties" to Starr International and AIG. Starting 2008 and continuing until at least January 2011, "a series of transactions" were imposed by the federal government that "resulted in depriving" AIG and its shareholders of tens of billions of dollars according to Starr.

In his decision, Engelmayer said that Starr could not use the law of Delaware, the state in which AIG was incorporated as it was pre-empted by federal law.