A.I.G. Trial Witnesses Will Be Central Cast From 2008 Crisis

WASHINGTON —€” Six years after the government rescued the American International Group from the brink of collapse, the bailout came under a new microscope on Monday, with the opening of an unusual trial that challenges the legality of the government’€™s actions.

At the heart of the case, unfolding here in the United States Court of Federal Claims, is a question that six years ago seemed unthinkable to the American conscience: Did A.I.G. get a raw deal?

Maurice R. Greenberg, the former A.I.G. chief executive who through his company Starr International continues to hold a major stake in the insurance company, argues that the answer is an unequivocal “yes.”€ Mr. Greenberg, who sued the government on behalf of fellow shareholders, is seeking more than $40 billion in compensation.

In opening arguments on Monday, Mr. Greenberg’€™s lawyer and longtime friend, David Boies, argued that A.I.G. was singled out for punishment while Wall Street banks were treated with kid gloves. Mr. Boies called the 14 percent interest rate that A.I.G. was charged “extortion,” compared with the 3 to 4 percent the major banks were charged. He also argued that the government lacked the legal authority to assume an 80 percent equity stake in A.I.G., including voting rights.

Mr. Boies is seeking to frame the case as one of protecting against unchecked government power. He said that, even under extraordinary circumstances, government officials had to act within the law, and that otherwise “€œagencies would be free to expand their power without limit.”

In turn, the government sought to paint Mr. Greenberg and the A.I.G. shareholders as ingrates with a sense of “€œentitlement” that knows no bounds. After all, the company ultimately received a $182 billion lifeline from the government, which reaped a $22 billion profit on the deal.

“€œIt’€™s like they’€™ve said thanks for the lifeboats, but they’€™re just not comfortable enough,”€ said a Justice Department lawyer, Kenneth M. Dintzer, who delivered the opening arguments.

A.I.G. had an alternative to the bailout, he noted, and that was bankruptcy.

Mr. Dintzer began his argument by showing a slide that contained a single number —€” 104,383, for the number of companies that declared bankruptcy in 2008 and 2009, the depths of the financial crisis. A.I.G., he said, wants to be compared to its peers? He pointed to the screen.

“These are its peers,”€ he said. “The goal was not to save A.I.G. The goal was to save the world from A.I.G.”€

The trial, no matter its outcome, is expected to pull back a curtain on what was one of the biggest and most secretive of bailouts. Even if Mr. Greenberg’€™s effort does not succeed, he may score a victory of sorts just in forcing the financial bailout’€™s major authors to defend themselves in open court.

Indeed, the witness lineup for next week reads like a who’s who of the financial crisis: former Treasury Secretary Henry M. Paulson Jr. is expected to take the stand next Monday, if all goes as planned. He will be followed by Timothy F. Geithner, the former president of the New York Federal Reserve Bank, and later a Treasury secretary himself. On Oct. 8, Ben S. Bernanke, the former Federal Reserve chairman, is expected to be sworn in.

On Monday, the small courtroom of Judge Thomas C. Wheeler grew so crowded that people were funneled into overflow rooms to watch the proceedings via closed-circuit television. The tables where the plaintiffs and defendants normally sit were turned sideways to accommodate a dozen lawyers crammed around each table, with more in the gallery. Enormous binders with trial exhibits flanked each side — more than 100 piled high on bookshelves brought in especially to hold them during the six-week trial.

After opening arguments, testimony began. The first witness called by Mr. Greenberg’€™s legal team Monday was Scott Alvarez, the Federal Reserve’€™s general counsel.

Mr. Alvarez was on the stand to answer questions about a number of emails, memos and other documents that centered around the crucial time frame in September 2008 when the fate of A.I.G. was being decided by Fed and Treasury officials. But his testimony Monday quickly became mired in seemingly legal minutiae.

Some audible groans, and at times laughter, could be heard in the courtroom as Mr. Alvarez sparred with Mr. Boies over the meaning of “€œmany”€ for nearly five minutes.

At another point, Mr. Alvarez refused to concede that noninvestment grade securities were “less desirable”€ than investment-grade.

“Less desirable might be true for some people, it might not be true for others,”€ Mr. Alvarez said.

Mr. Boies, of the law firm Boies, Schiller Flexner, still managed to introduce a number of documents, including Mr. Alvarez’s handwritten notes of meetings and conference calls at important moments in September 2008. One note from a Sept. 15, 2008, recounted a call between the Federal Reserve and Treasury Department about what the government needed to do in the wake of the collapse of Lehman Brothers.

“Prevent contagion,” it said.

Ben Protess contributed reporting from New York.

Related: Wall St. Bankrolls Ex-Executive as He Sues Over A.I.G. Bailout

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