Who owns AIG’s MBS fraud claims? Billions ride on the answer

Amid the furor last week over whether AIG would thumb its nose at its federal rescuers and join former chairman Hank Greenberg’s $25 billion constitutional case against the United States, a curious side deal by AIG and Greenberg’s Starr International was mostly overlooked. Last year, as government lawyers prepared motions to dismiss Starr’s suits against both the United States and the Federal Reserve Bank of New York, AIG signed an agreement with Starr that kept the insurer out of the fray — even though one of the most powerful defenses against the claims Starr was asserting on behalf of AIG was that Greenberg’s lawyers had served the requisite presuit demand on the corporation’s board.

We still don’t know exactly why AIG agreed to the side deal with Greenberg and we probably won’t ever get a direct answer now that AIG is out of the case. (AIG’s board voted Wednesday to stay out of Starr’s Fifth Amendment “takings” case and Starr lawyer David Boies of Boies, Schiller & Flexner subsequently said Greenberg won’t sue the board for breach of duty.) But a filing Friday by AIG shows that the insurer has its own megabucks dispute under way with the Federal Reserve. That could be one of the reasons AIG didn’t help the government defend against Starr’s suits — and, more importantly, at this point, it could affect AIG’s $10 billion claims against Bank of America, as well as BofA’s proposed $8.5 billion breach-of-contract settlement with holders of Countrywide mortgage-backed securities.

AIG’s new filing, styled as a New York State Supreme Court complaint against the New York Federal Reserve’s Maiden Lane special purpose vehicle, requests a declaration that in 2008, when the Fed paid $20.8 billion to acquire AIG’s mortgage-backed portfolio through the Maiden Lane vehicle, Maiden Lane did not acquire AIG’s rights to sue MBS issuers for securities fraud. (The Fed has since sold off the Maiden Lane MBS portfolio, at a profit of more than $2 billion.) The complaint explains that the suit is a response to recent declarations by Fed officials in AIG’s case against Countrywide, which (as I’ve told you) Bank of America has moved to dismiss on the grounds that the Fed, and not AIG, owns the fraud claims AIG has asserted.

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