American International Group, Inc. (AIG)

[Porgie Tirebiter]

The lawsuit is hanging heavy over AIG's share price, that's a certainty.

The basis of the suit requires Starr to prove that the government acted criminally in violation of the US Constitution by seizing private property. But that claim is balanced by the fact that the AIG board voted to accept the bailout terms.

The government didn't "seize" anything, the government took an 80% ownership stake in the form of shares which obviously diluted shareholders. But those shares weren't "seized". They were held as collateral for a line of credit. Requiring collateral for a loan is a well established business practice.

The problem for AIG is that should Starr win his case against the government, there was an indemnification clause in the bail out terms that lets the government off the hook for any payouts that might be required due to litigation. So any payout Starr International might win would have to be covered by AIG's shareholders. But some legal experts say that proving the government guilty of criminality would cancel any such provision and it would be the taxpayers, not AIG, who would be on the hook.

Me, I don't have an answer.