Transcript of Meeting Before Aig Bd

7/30/2019 Transcript of Meeting Before Aig Bd

1/65

EXHIBIT C

Case 1:11-cv-00779-TCW Document 121-3 Filed 04/26/13 Page 1 of 65


2/65

CONFIDENTIAL AIGD 00014


AIG Board ofDirec tor ' s Meeting

TRANSCRIPT of the s tenographic notesof the proceedings in the above-ent i t ledmat te r , as taken by and before

Page 1

CAROLYN CHEVANCE, a Shorthand Reporter , andNotary Publ ic of th e Sta te of New Je rsey , helda t the of f ice of AIG, 180 Maiden Lane, NewYork, New York, on January 9, 2013, commencinga t 8:00 a.m.

El i sa Dreier Report ing Corp. (212) 557-5558950 Third Avenue, New York, NY 10022


3/65



123456789

10111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 2 Page 4AIG Board of Directors 1 AIG Board of DirectorsMR. SEITZ: I call this meeting 2 MR. BOIES: Thank you very much.to order. I would thank you all for 3 Let me begin by expressing ourcoming at this early hour. 4 appreciation for the opportunity to beThis is a historic meeting, but 5 here.it's one of many that this Board has 6 This is an oppOliunity not onlygone through in fulling its fiduciary 7 for the Board and for the AIGduties considering important actions 8 shareholders, but for Starrsuch as the matter before us today. 9 International.Tom Russo, if you could tell us 10 I want to begin just remindingprocedure here? 11 everybody about the contents of whatMR. RUSSO: Thank you all. 12 happened in 2008.We've spent a lot of ime all of us at 13 I know this is all somethingthe table for the past months, and we 14 that you have gone through probably manyhave taken our fiduciary duties very, 15 times, but I want to just be sure thatvery seriously, some believe that we 16 you have the contents.should dismiss everything, and we don't 17 Because in September of2008believe that is necessary. 18 there was a global financial crisis,We have a protocol that everyone 19 Lehman had just been brought down, Bearknows. We are going to stick very 20 Stearns had fallen earlier. The Fed hadstrictly to the time limits. We are 21 taken extraordinary action earlier instaliing the meeting exactly at 22 the year in opening the discount window8 o'clock. 23 to primary dealers.The master of ceremonies will be 24 It was about to open the Fed

CJ, h e m ~ i . ! } ~ , ? _ ~ k e sll}'e of that, and 25 discount window to JP ~ o r g a n Chase, _ ~Page 3 Page 5

AIG Board of Directors 1 AIG Board of Directorsthen after everyone has an opportunity 2 Morgan Stanley and Goldman Sachs, alongto say something and we hear rebuttals 3 with holding companies. It was a timewe will take a break, discuss and at 4 of financial turmoil.that time ifthere is any questions that 5 And the government was providingwe have we will figure them out at that 6 financial assistance many times. One oftime. CJ will stand in as the 7 those companies that the governmentquestioner for the Board, 8 provided financial assistance to was, ofSo if you have questions, and 9 course, AIG.then after that there will be an 10 And AIG financial assistanceopportunity to answer those questions in 11 came in the form of loan, pursuant toa transparent way so everybody can hear 12 Section 13(3). I'm sure you probablywhat everyone else is saying. 13 had a look or discussion about 13(3),At that point in time we will 14 and it was a statute that in the pastthen spend time with the Board by 15 in the aftermath of the depression, itourselves. So that is basically the 16 was designed to give the Fed paliicularprocedure. CJ? 17 authority to make certain loans underMR. SEITZ: Thank you, Tom. 18 particular circumstances.Just to be clear, the Board will not be 19 And this loan was providedrebutting the presentations. 20 because the government recognized at theLikewise we would ask if you 21 time two things: First, if AIG werehave questions of the Board we are here 22 permitted payment it would haveto listen to the question and answer 23 catastrophic affects on the economy.session. 24 Second, AIG had a liquidityThank, 25 problem not a solvency problem. The

2 (Pages 2 to 5)El i sa Dreier Report ing Corp. (212) 557-5558

950 Third Avenue, New York, NY 10022


4/65



12345678910111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 6 Page 8AIG Board of Directors 1 AIG Board of Directorsloan was fully secured. The government 2 way that was not permitted by federalsaid so at the time. 3 law.The government had most recently 4 The Board of course right nowsaid it again in this litigation. The 5 has three options; one, the Board couldloan is fully secured, the taxpayers 6 take over the claims that we havewere not at risk. 7 brought on behalfofAIG and itsIn that context the financial 8 shareholders and prosecute themassistance to AIG, while obviously to 9 themselves, and you could pick a lawyerthe benefit of AIG at the time, was 10 of your choice to prosecute it.financial assistance that was not given 11 We could help you prosecute itout of charity. 12 if that were your choice, but that isIt was given because that was 13 entirely within the Board's discretion.the mandate of Section 13(3), to try to 14 You take over the lawsuit andprotect the economy against systematic 15 decide to prosecute it, you can selectproblems that would result from the 16 whatever lawyers you want and we willfailure of the particular financial 17 make everything we have done availableinstitutions. 18 to them.And the loan that was provided 19 Second, you can remain neutralwas provided under the terms it was 20 and thereby permit Starr to attempt tosupposed to be the telms specified in 21 recover money from AIG and its currentSection 13(3). 22 shareholders.Now, there were many other 23 That is you can simply say asalternatives that the govemment had to 24 you have at various times in the pastprovide financial assistance to AIG. 25 when shareholder ~ ~ ! . ! . ~ _ w e r e b r o u ~ ~ ~ ~ , ~ ~

Page 7 Page 9AIG Board of Directors 1 AIG Board of DirectorsIt could have Qrovided loan 2 behalf of AIG, you could say we are notguarantees, could have applied access 3 going to take this case over andthe to federal window, bridge loan, 4 prosecute it, but we are not going tocould have tried to get other 5 stop the private shareholders fromparticipations from foreign wealth funds 6 prosecuting on behalfof AIG.

which were some of the suggestions that 7 We will take the benefit ifwere made. I'm sure the Board is aware. 8 there is a benefit, the privateBut what they chose to do in 9 shareholders will bear the cost ofSection 13(3), and with respect to our 10 proceeding and let it go forward.lawsuit, what we are doing is not 11 Third, you could actchallenging the fact that they chose to 12 affirmatively to prevent Starr's claimsassist AIG through 13(3), as opposed to 13 on behalf of AIG from proceeding. Thatsome of the other mechanisms that they 14 is you can act affirmatively and try tomade available to other companies; 15 take over Starr's claims and kill them,although that is part of the tax rule 16 that is, prevent us from continuing tobackground in the context, that I think 17 bring these actions on behalf of AIG andis important for the Board to evaluate 18 its shareholders and prevent us fromwhen evaluating the nature ofwhat the 19 recovering.claims are. 20 Because Starr's claim, directBut what we are saying is the 21 claim, with respect to the taking of theterms that the government exacted were 22 80 percent equity. I know it'sinconsistent with requirements of 13(3) 23 79.9 percent but I will use 80 percentand those terms were to the severe 24 to round it off.disadvantage of AIG shareholders in a 25 Because those claims are going




5/65



12345678910111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 10 Page 12AIG Board of Directors 1 AIG Board of Directorsto proceed in any event, the judge has 2 They said, AIG would bealready ruled that Starr International 3 ungrateful. AIG was rescued. AIGhas the right to pursue the government 4 should simply thank the government andfor direct claims and taking that 5 go on its way. AIG shouldn't challenge80 percent equity. This lawsuit is 6 what the government did.going to go forward. 7 The court said no. The courtThe consequence of the Board 8 said that the government did not havetaking the action in the third choice, 9 the right to exact equity as a conditionthat is, of taking over Starr's 10 of making that loan.derivative claims and attempting to kill 11 The court said the governmentthem, is that -- it's not that the case 12 did not have the right to use AIG'sis going to go away, it's not that you 13 assets, for example the ML IIIare not going to be involved in 14 transaction, as a back door bailout tolitigation, it is simply that you will 15 benefit other companies.deprive the shareholders ofthe ability 16 The court rejected thoseto paliicipate in whatever recovery 17 arguments as a matter oflaw. The courtultimately comes. 18 did not rule on the facts because thereStarr has agreed to pay the cost 19 was a motion to dismiss, but what the

of this litigation if it continues to go 20 court said was that the legal claimsforward as a shareholders derivative 21 that we stated were valid legal claims.suit, that is the company decides not to 22 And it's particularly importanttake over the case but allows Starr to 23 in evaluating the contents of what thatgo forward. 24 ruling means, to understand that theStarr is going to pay the cost 25 facts that we are relying on areN ~ ~ " " " _ ~

Page 11 Page 13AIG Board of Directors 1 AIG Board of Directorsoflitigation. If there is any recovery 2 essentially all facts drawn from theattorney's fees will come out of that, 3 government's own documents, own

ifthere is no recovery there is no cost 4 admissions, Congressional Committeeto the company at all. 5 reports and Inspector General repOlis.So that this litigation can go 6 We are not making any of theseforward without any expense to the 7 facts up. These are not facts that wecompany, without the company being 8 tind in many shareholders derivativerequired to pay. 9 suits that I know a lot of you areRejecting the case, trying to 10 familiar with.kill it, will simply deprive AIG and the 11 The plaintiffs come in and makeshareholders of the ability to 12 allegations that there is serious doubtparticipate in what is potentially tens 13 as to whether they are going to be ableof billions of dollars from the 14 to prove those facts when they go togovernment. 15 trial.We think it is critical that the 16 This is a situation in which theBoard in considering its decision 17 essential facts that we are relying onremember that the Court of Federal 18 are facts that already have been foundClaims has already ruled that Starr has 19 by Congressional Committee, already beenstated valid legal claims against the 20 found by Inspector General and alreadyUnited States. 21 admitted in the context of this

The United States moved to 22 litigation both by admission that thedismiss. They made to the court 23 government has given us in depositions,essentially precisely the arguments they 24 and in their own documents.are making to this Board. 25 A second point that I think is4 (Pages 10 to 13)



6/65



123456789

10111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 14 Page 16AIG Board of Directors 1 AIG Board of Directorsvery impOliant to keep in mind, in 2 Now there is no mention ofevaluating the meaning of the Court of 3 punitive purpose in 13(3). There is noClaims decision of the valid legal 4 authorization to give the Department ofclaims is that the government's loan to 5 the Treasury or the Federal Reserve BankAIG was fully secured by AIG's assets. 6 a roving commission to go out and try toIt's a liquidity problem not a 7 punish people that they think have notsolvency problem. Government said so 8 run the company or permitted the Boardthen, the government says so now. 9 and management of the company to run theThe government admitted that the 10 company in the way that the Fed and theloan was fully secured. They admitted 11 Treasury later decided they should beit then, they told the Congressional 12 run.Committee that later and they now 13 A punitive purpose is byadmitted it again in this litigation. 14 definition outside the scope of 13(3),With a fully secured loan that 15 and it is a punitive purpose that thethey charged initially 14-and-a-half 16 government has now admitted was thepercent interest on, even if 13(3) had 17 rationale for what they did with AIG.given the government the ability to take 18 And they've admitted that it wasequity, there would have been no 19 the rationale not merely for thejustitication, because they already had 20 interest rate but for the taking of thea fully secured loan, they already had a 21 80 percent of the company's equity.high unprecedented discriminatory, in 22 Again, I asked the government,our view, interest rate. 23 these representatives of the government,The government is admitting to 24 whose testimony binds the government inall the companies that they have gave 25 this litigation, why_did you take the

Page 15 Page 17AIG Board of Directors 1 AIG Board of Directorsfinancial assistance to, none of them 2 80 percent of equity? Did you need itwere charged an interest rate 3 for collateral? Were you trying to makeapproaching 14-and-a-hal f percent. 4 a profit? And the representative saidAnd when I asked the 5 no, that wouldn't be appropriate. Thegovernment's witness and for non-lawyers 6 government is not a speculator. The

there is a Rule of Civil Procedure 7 government is not in this to take make acalled Rule 30(b)6 and that requires the 8 profit. We did it to be punitive.party to put forward a witness that is 9 We did it to send a message andgoing to represent the views of the 10 make an example of AIG. Unanswered wasparty, and the paliy is bound by what 11 why they wanted to make an example outthat witness says. 12 of AIG and not one of the hundreds ofSo that when that witness speaks 13 other companies that were in this spot.that witness is making admissions that 14 But regardless of the answer towe can rely on in the litigation. 15 that question, what stands out is theAnd when I asked the 30(b)6 16 admission that what was being done hererepresentative of the United States why 17 was being done for punitive purpose.did you have a 14-and-a-half percent 18 And there is no punitiveinterest rate? Why did you have this 19 authorization in 13(3). Indeed it isuniquely high interest rate? This 20 the contrary, Section 13(3) saysdiscriminatorily high interest rate? 21 interest rate and the terms will be setThe answer was we wanted to be 22 in order to compensate for the loan.punitive. We wanted to punish the 23 It is not designed for any othershareholders for allowing their company 24 purpose and what the Court of Claims hasto get into this problem. 25 already held is the fact that the




7/65



12345678910111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 18 Page 20AIG Board of Directors 1 AIG Board of Directorsgovernment set out to use this lending 2 has been produced in discovery in whichauthority to exact not merely full 3 the General Counsel of the Federalsecurity for the loan, not merely an 4 Reserve is admitting that the taking ofunprecedentedly high interest rate, but 5 the ownership of the stock along the80 percent of the company's equity, 6 lines in this term sheet, that isconstitutes a complete legal exaction 7 specifically relating to the term sheetand a taking under the Constitution. 8 that the government imposed, will notNow, it is also worth 9 work for the Fed, trust or no trust.remembering that the court has held that 10 Those are not my words. Thoseeven if the purpose had been non 11 are the contemporaneous words of thepunitive of taking this equity, the 12 General Counsel of he Fed.government didn't have the authority 13 So even if contrary to fact, theunder Section 13(3) to take the equity. 14 taking of the equity had not been aTo quote the Court of Claims, 15 punitive taking, which by itself makeswhere it says the only consideration 16 it illegal, it would have been illegalprescribed by Section 13(3) is an 17 because it was something that was notinterest rate subject to the 18 authorized by Section 13(3).determination of the Board of Governors. 19 I already made the point thatThere are lots of subsidiary 20 the government lacked the authority toissues here that I am passing over in 21 impose the terms of the private sectorthe interest of time, one of them for 22 term sheet and yet that is exactly whatexample being that it has now been 23 they did. Exactly what the Board of theadmitted by the United States that they 24 Federal Reserve system stated the mergerdid not make a detelmination by the 25 bank making loans f O ~ " p r o f i t s , for all

, , - - ~

Page 19 Page 21AIG Board of Directors 1 AIG Board of DirectorsBoard of Governors as to the appropriate 2 conceivable purposes, the loans made byinterest rate. 3 the Federal Reserve in their interestWhat they did was simply take 4 they are made not-for-profit but for athe private sector telm sheet. The 5 public purpose.private sector term sheet as we 6 I think you are going to come

understand it, AIG had never approved 7 back time and again to the fact thatand indeed may never have been aware of 8 this was not an act of charity. Thethe terms of it. 9 government now tries to embarrass Starr,Private telm sheets are drafted 10 trying to embarrass this Board and AIGby private parties, they never asked 11 by saying you are a charity case.from AIG and imposed it on AIG. Now 12 You took this charity and nowthey made changes, something that 13(3) 13 you are suing the charity that saveddoes not give them the ability to do. 14 your life.When I asked the representative 15 Now in fact, this was not aof the government, how did you determine 16 charitable undel1aking at any time.what the right interest rate was? The 17 This was providing a fully secured loananswer was we just took what was in the 18 and a very high interest rate pursuantprivate term, we took that and imposed 19 to a public policy set decades earlierit. 20 to provide exactly this kind ofThe Chairman of the Fed admitted 21 assistance, in exactly this kind ofin 2008 that the Federal Reserve was not 22 situation.authorized to purchase equity securities 23 The fact that they have nowand we now have -- this is one of the 24 admitted repeatedly that what they weredocuments we now have a document that 25 doing was being done for punitive




8/65



12345678910111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 22 Page 24AIG Board of Directors 1 AIG Board of Directorspurposes underscores what the Court of 2 from seeking compensation for actionsClaims previously held; which is that 3 that the Court of Claims has alreadythere is no basis for the action that 4 held are on their face, if you can provethey took. There is no legal basis, 5 the facts, a violation of law.there is in our view no basis in 6 And as I say, the facts that wefairness, but fairness is not the 7 have to prove are facts that are alreadyprimary issue here. 8 admitted in depositions, in documents,We think that what the 9 in Congressional reports, and Inspectorgovernment did was unfair and 10 General reports.discriminatory. It singled AIG out from 11 Let me turn to Maiden Lane.hundreds of other companies to charge 12 There is, I think, widethe highest interest rate. It singled 13 recognition that there were a number ofAIG out from hundreds of companies to 14 different alternatives available to dealtake equity without consideration. 15 with the issue that ML III addressed.It was trying to make an example 16 The Department of Treasury and

of AIG, and at the same time what it was 17 the Federal Reserve Bank's own documentstrying to do was use AIG for its own 18 reveal that they considered a series ofpublic purposes. 19 different alternative ways of dealingNow we don't dispute the public 20 with the CEO issue.purpose. It's not necessary for us to 21 They picked to present to thedo that. 22 Board the alternative that became MLWhat we do dispute, however, is 23 III, that was the most disadvantageousthat if you are going to take something 24 to AI G and its shareholders of all thefor a public P l ! E ~ " ~ , ~ ? ~ t , ~ ~ ~ ~ ! has to_"."m","__ 25 ' " " " " , m _ ~ l t e r n a t . i v e s that they considered, and

Page 23 Page 25AIG Board of Directors 1 AIG Board of Directorsbe born not by the shareholders of the 2 the documents that we've already gottenparticular company, but by the public 3 in discovery and discovery is justitself, and that issue is well 4 beginning, demonstrates that the ML IIIillustrated by ML III. 5 transaction was the transaction of theThere is really two different 6 alternative transaction considered that

basis derivative claims here, one 7 was the least advantageous to AIG.relating to taking 80 percent equity, 8 And as Sara Dahlgren admitted,and the other relating to the ML III 9 "It seems to me that the special purposetransaction. 10 vehicle", that is the ML III, "benefitThe Board is already aware 11 everybody but AIG", and she goes on tobecause it is publicly announced, that 12 explain why.as a result of the ML III transaction 13 The SIGTARP report concludedand as a result of the equity that was 14 that ML III was a "back-door bailout" oftaken, the government has already made a 15 AIG's counterparties in that, and here Iprofit of between $20 and $30 billion on 16 am quoting the report, "!JTespective ofthe so-called AIG rescue. 17 their stated intent, however, there isThis is not a matter of dispute. 18 no question that the effect ofFRBNY'sThis is a matter of admission. All of 19 decision, indeed, the very design of thetheir loans have been repaid, with 20 federal assistance to AIG was the tensinterest, with high interest. And they 21 of billions of dollars of governmenthave made between $20 and $30 billion in 22 money was funneled inextricably andprofits. 23 directly to AIG's counterparties.The question is whether or not 24 That is the government tookAIG's shareholders should be prevented 25 money put it into ML III and charged AIG

7 (Pages 22 to 25)El i sa Dreier Report ing Corp. (212) 557-5558950 Third Avenue, New York, NY 10022


9/65



Page 26 Page 281 AIG Board of Directors 1 AIG Board of Directors2 for it, and then funneled it 2 government decided to pay all the3 inextricably and directly to AIG 3 counterpali ies at par, hundred cents on4 counterparties. 4 the dollar. Now the government said5 It may very well have been 5 well, they were owed a hundred cents on6 appropriate government policy at the 6 the dollar. Well, no they weren't owed7 time to try to stabilize and assist 7 hundred cents on the dollar right then.8 these counterparties, but the law is 8 That is the maximum that they would ever9 clear that if the government wants to 9 be able to recover.

10 assist these counterpmiies they have to 10 Every other company in this11 assist it with public funds, not with 11 situation negotiated significant12 funds that AIG is going to have to pay 12 haircuts, every other company except13 back. 13 AIG, and when the government presented14 And the problem with ML III was 14 this to the Board and one of the things15 not that there was a back-door bailout, 15 that they asked for was what Board16 although that raised a certain public 16 approval, if any, is there of the ML III17 policy issue. 17 transaction, and we were told there was18 The problem from AIG's 18 only one Board meeting at which it was19 standpoint wasn't that the back-door 19 considered or approved, we got the20 bailout was accomplished, but used in 20 minutes of that Board meeting, and if21 large part AIG assets, and the 21 you look at those minutes there is22 government then for months, perhaps more 22 nothing in there that says -- where the23 than a year, concealed the nature of 23 government says we are going to pay24 this back-door bailout until it was 24 these people, all the people, a hundred25 revealed in Congressional 25 cents on the dollar.~ , ~ ~ ~ ~ ~ ~ - - ~ ~ ~ ~ ~ ~ ~ ~ ~ " ~ ~ ~ - - - - - - ,

123456789

10111213141516171819202122232425

AIG Board of Directorsinvestigations.The reason that they did was

Page 27

because they wanted these bailouts to bein the SIGTARP repOli back door becausethey were concerned about whether therewould be public support for theiractivity and stabilizing.Now, again, we don't need todebate whether that is good governmentpolicy or not. We don't need to debatewhether the Federal Reserve and theTreasury were right or wrong in tryingto stabilize these counterpmiieswithout the public being aware ofexactly what was happening.All we need to establish forpurposes of our litigation is that thatstabilization, that assistance wascoming from AIG.AIG was bearing a part of theburden, a large part of the burden ofwhat was being done, and you see that intwo aspects of the ML IIJ transaction.The first is where the

123456789

10111213141516171819202122232425

Page 29AIG Board of DirectorsSomething that would have beencontrary to what every other company inthis situation was doing at the time orhas done at any time in the past.The amount of financial

experience sitting around this table isgreatest, and I ask you to think aboutof when in this type of crisis, in thiskind of illiquidity situation, where youhave all these counterparties thatcannot afford to have a default, howmany times have creditors been paid alhundred cents on the dollar withouttaking any haircut, without getting anydiscount.In this particular case of ahandful of counterpm1ies we contacted,some even indicated they were preparedto get discounts, but the governmentdecided, the government not AIG.

There is nothing in the recordthat the Board approved this, and Idon't think this Board ever would haveapproved it. That they would not -- the8 (Pages 26 to 29)



10/65



12345678910111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 30 Page 32AIG Board of Directors 1 AIG Board of Directorsgovernment would not take the haircut 2 admitted now, were subject toand negotiate a discount from one 3 litigation.counterpat1y unless every counterparty 4 Subject to a variety of claimswas treated equally. 5 that allowed their role in creating theThe government may want to do 6 liability that exists. Every otherthat for public policy or governmental 7 major company in AIG's position haspurposes, but the principal is the 8 asserted those claims. Every othergovernment can't use its control over 9 company believes those are valuableprivate enterprise and make that private 10 claims.enterprise serve public purposes without 11 I believe AIG would have hadproviding conversation, and yet that is 12 those claims, would have had valuableexactly what happened, and exactly what 13 claims, and recognizes those arehappened when they took the 14 valuable claims and that they were givenshareholders' equity, that is exactly 15 up for no consideration, and they werewhat happened with respect to ML Ill. 16 given up again because what theOf course the ML III documents 17 government was trying to do waswere drafted not by AIG, but by counsel 18 stabilize the counterparties.for the government. They were presented 19 These counterparties were otherto the Board, the Board was not at any 20 financial institutions the government

of the presentations that had been 21 wanted to protect and assist, and maybepresented. We were told we got all of 22 for legitimate reasons.them. 23 Again, we don't have toI was told that the 24 challenge the government public policycounterpat1ies were going to be given 25 determination that they wanted to assistPage 31 Page 33

AIG Board of Directors 1 AIG Board of Directorspar, and indeed the documentation that 2 these counterparties, wanted to insulatethe Board was given indicated that the 3 them from the litigation, wanted to givecounterparties would be getting a 4 them a hundred cents on the dollar sopercentage of par. The implication is 5 they would have more liquiditythat there would be negotiation there. 6 themselves.In addition to paying a hundred 7 The principle that we are makingcents on the dollar, the government gave 8 and the principle the Court of Claimsthe ML III counterpat1ies releases. 9 adopts is when the government does thatI want to stop for a second, and 10 it can't put that burden just on AIG andmake sure everybody understands how 11 the shareholders.important it is. 12 I want to spend just a couple ofThey weren't given the benefit, 13 moments on the government's allegedAIG. AIG was already paying these 14 affirmative defenses.people a hundred cents on the dollar, so 15 They say Starr waited too long,they couldn't have any claims ag"inst 16 they say indemnification clauses, IAIG. 17 don't know how much emphasis they areSo when you exchange these 18 going to put on that today. I don'tmutual releases, AIG doesn't get 19 think any of these terms are serious,anything because AIG already paid the 20 certainly the coul1 has not -- Court ofpeople a hundred cents on the dollar, 21 Claims, these have not even been

but the counterpat1ies are getting 22 seriously pushed by the government,something very valuable. 23 indemnification clauses that seek toBecause the counterparties were 24 relieve the government's accountabilityas the government knew then and has 25 for unconstitutional acts9 (Pages 30 to 33)



11/65



12345678910111213141516171819202122232425

v ~ " , _ ~ , ~

123456789

10111213141516171819202122232425

Page 34 Page 36AIG Board of Directors 1 AIG Board of Directorsconventionally, repeatedly, uniformly 2 justified by the statute pursuant toheld before public policy, we cited 3 which the loan is made.

cases on that. 4 The idea that AIG was so weakThere is no doubt that this case 5 that the government could do anything itwas brought within the statute of 6 wanted to with AIG at that point islimitations period. The idea that we 7 inconsistent with what the law requires.should have brought it even earlier than 8 It is I think also inconsistentthe statute of limitations is in our 9 and sort of common sense in fairness, ifview paIiicularly inappropriate given 10 the time of Hurricane Sandy, if somebodythe fact that many of the facts that we 11 was driving by the place on the Jerseyare relying on here are facts that only 12 Shore or Staten Island, certain placescame to light as a result of the 13 in Long Island, and there was a shopCongressional investigations, and 14 owner whose shop was about to beInspector General reports. 15 destroyed by the water, had a lot ofFacts that if there had not been 16 valuable paintings in it and the shopthose reports maybe the public wouldn't 17 owner said give me some help, get theseknow about them now. 18 paintings out ofhere to safety, and theSome of what happened and you 19 van driver said, I will take it out butare aware, but much of what happened, 20 you have to pay me for doing that.much of the aspects of the punitive 21 Okay, I'll pay you, and he sayscharacter, the punitive intent of what 22 in addition you have to give methe government was doing, aspects of the 23 80 percent of the value of thoseback-door bailout, use of the ML III 24 paintings.transaction, are facts that only come to 25 I don't think we would think

Page 35 Page 37AIG Board of Directors 1 AIG Board of DirectorsI ght as a result either of these 2 that was fair, and I don't think weCongressional investigations and the 3 would think that was legal. ImagineInspector General repOIis or have come 4 it's not a van owner, it's a fire andto light because of discovery. 5 rescue department vehicle that has beenAt the end I want to address a 6 sent there for the express purpose of

conceptual point that I avelied to and 7 rescuing people and the fire departmentthat is not really a legal argument, but 8 chief says, you know, this guy shouldn'tit is an argument that the government 9 have put a valuable painting store sohas pushed strongly in the Court of 10 close to the water, he should have hadClaims, pushed strongly to this Board, 11 insurance, he should have moved earlier,and in the last few days I have been 12 he wasn't -- he was reckless and so I'mpushing strongly to various members of 13 going to punish him by saying if I savethe press; and that is that there is a 14 him, if ! rescue him, if ! do what thelack of gratitude on the part of AIG, 15 government told me my job is to do, I'mand that somehow standing up for AIG 16 going to require him to tum overshareholders' rights demonstrates a 17 80 percent of the paintings to the firedisloyalty, a lack of gratitude for the 18 department.government rescue of AIG. 19 We would know that is illegalNow, as the COUli of Claims has 20 and we would know that that is wrong,held that sentiment, if even true, is 21 and yet that is what happened here.legally irrelevant, because when the 22 The government had a power togovernment comes in and makes a rule, 23 loan that was given to the Federaleven if it has all the power in the 24 Reserve Bank for a paIiicular purpose,world it cannot exact more than is 25 to deal with exactly the kind of




12/65



123456789

10111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 38 Page 40AIG Board of Directors 1 AIG Board of Directorssituation that AIG found itself in. 2 Treasury and the decisions made by itsIt was not given to punish, it 3 leaders in that very difficult time.

was not given to make a profit, it was 4 The Treasury urges this Boardnot given to justifY illegal actions. 5 not to endorse those claims.Even leaving aside the question 6 Four years ago AIG tookof why should AIG shareholders be 7 unprecedented financial support from thesingled out, most of the AIG 8 U.S. taxpayers for a total ofshareholders who are out there didn't 9 $182 billion, and despite this manyhave any idea there even was AIG FD. 10 thought that the company would notThese are not the people that were 11 recover.responsible for the problem. 12 Yet in one of the mostWhat was happening was AIG, like 13 remarkable corporate turn around's ofhundreds of companies, was swamped with 14 all time AIG has repaid those funds andthe hurricane not named Sandy, but the 15 has even returned a profit offinancial liquidity crisis, global 16 $22 billion to the U.S. taxpayers.financial liquidity crisis of2008. 17 This achievement is due to theThey were victims as much of 18 leadership, to the management in thethat disaster as the people of Hurricane 19 room, and to the hard work of AIGSandy. 20 employees.You don't have to accept that. 21 The rescue was by the governmentEven if you think they were 22 but the recovery has been by AIG.responsible, the government, this 23 Now AIG is a company that isgovernment, this Treasury Department, 24 built on promises. For AIG now to allowthis Federal Reserve Bank has no power 25 a lawsuit to proceed in the name of the

~ ~ ~ " ~ " " " , , , , _____ _ A ~ " ~Page 39 Page 41

AIG Board of Directors 1 AIG Board of Directorsto use its lending authority to punish, 2 company demanding that the U.S.and yet that is what they did, that is 3 taxpayers return $50 billion of thatwhat they admitted they did, and we are 4 repaid money, which is a profit and thennot even asking you to decide that. 5 some more would undermine all oftheAll we are saying is let the 6 good work that AIG has done.cOUlis decide, let the AIG shareholders 7 It could be perceived as AIGhave their day in cOUli. Let a neutral 8 going back on its promises.judge make those decisions. Thank you. 9 Now, in the interest of avoidingMS. BIVENS: Thank you very much 10 repetition here today John Kiernan, whofor the opportunity to address the Board 11 is here on behalf of the New York Fedtoday. 12 and I have split the subjects that weI'm Francis Bivens of Davis Polk 13 will address to the Board today, as weand Wardell, and I am here representing 14 have done in our written submissions.the institutional interests of the 15 I will address the claims thatUnited States Department of the TREASURY 16 relate to the equity grant that wasin this process. 17 given to the U.S. taxpayers in SeptemberAIG and the Treasury worked 18 of2008.together throughout the rescue and the 19 Mr. Kiernan will address issuesrestructuring of AIG, standing shoulder 20 related to Maiden Lane III and he alsoto shoulder in the face of extreme 21 will address some of the questions thatcriticism of the rescue. 22 the Board has presented to us aboutThe Board is being asked in this 23 damages and other related issues.process to endorse a complaint that 24 Treasury understands that thisattacks the very policies of the 25 is a business decision for the Board.




13/65



Page 42 Page 441 AIG Board of Directors 1 AIG Board of Directors2 And that the Board will need to weigh 2 derivative demand it cannot remain3 the costs and benefits of the options 3 neutral and if it does the law will4 presented to it. 4 interpret that neutrality as a proven5 I'm going to cover a number of 5 endorsement of the claims, and what that6 issues this morning that go to that 6 means for AIG is that the admissions7 analysis, but I would like to make four 7 that are made in the course of that8 principal points. 8 litigation will be admissions of the9 First, there is no passive 9 company.

10 option for this Board. The Board either 10 That any findings of fact or11 needs to decide to endorse these claims, 11 conclusions of law that are made by the12 to reject the demand, it cannot remain 12 court will be legally binding on AIG,13 neutral. 13 and they will bind the company not just14 Second, the decision to allow 14 in this litigation, but in every other15 claims to proceed in the company's name 15 litigation related to the rescue.16 is not costless. 16 So as a practical matter you17 Third, a decision to end the 17 will own this litigation for legal18 derivative claims will help to put an 18 purposes, for public relations purposes19 end to the direct claims brought by 19 and representational purposes.20 Starr. 20 The decision of whether the case21 And fourth, and I added this 21 proceeds in the company's name is in22 point only to respond to something in 22 your hands, and it will be the company's23 the New York Times m1icle yesterday, 23 lawsuit if it goes forward.24 which is that this case will not be 24 So what is this case that you25 settled. 25 will own if you allow these claims to

'w , 'V'UU'''__ A ' _ ' ~ ' ' ' N ' ' M ' ' ' ' ' ' ' ' ' ' ' ~ ' _ ' ' ' ~ - - ' W ~ ' ~ ' ' ~ ~ ' ~ ' ~ ~ = ' ' ~ N ~ ' ~ m = ~ ' ' ' ' ' ' ' ~ ~ _ ~ ' ' ' ~ ' ' ' ' ~ ~ ' _

123456789

10111213141516171819202122232425

Page 43 Page 45AIG Board of Directors 1 AIG Board of DirectorsMr. Kiernan and I are authorized 2 proceed? I think it is important forto say one thing and one thing only on 3 the Board to hear the allegations thatbehalf of the United States today, and 4 have been brought in Starr's complaintthat is that it will not settle the 5 and compare them to facts that are knowncase. 6 today to the Board.I can tell you on behalf ofthe 7 Because I think if you see theDepat1ment of the Treasury, the Treasury 8 juxtaposition of the two you will seewould not offer a settlement on any 9 how difficult it would be for theterms. 10 company to support these claims.Now to start with my first point 11 And supp0l1ing the case is notthat there is no passive option for this 12 an academic exercise. If the case goesBoard; one of your questions today asked 13 forward in the company's name there willwhether there is any legal significance 14 be AIG employees who have to testifY,between the Board authorizing AIG to 15 there will be briefs submitted on behalfpursue the claim or the Board simply 16 of the company supporting the claims,allowing Starr to pursue the claims on 17 and in all likelihood if there is abehalf of the company. 18 derivatives case brought here it willAnd the short answer is that 19 likely be determined in a public trial.there is no difference between those two 20 So the testimony of the AIGoptions. 21 employees will not take place in someAs a legal matter, the Delaware 22 deposition in a closed conference room.Supreme Court, which is the highest 23 The AIG employees will becourt on these issues, has made clear 24 testifYing in a public proceeding inthat when a Board is presented with the 25 open court in a proceeding that will be




14/65



Page 461 AIG Board of Directors2 followed very intently by the media.3 So let's take the key4 allegations one at a time. The first of5 which is that the rescue was forced on6 the Board.7 Now, you heard from Starr this8 morning that all of the essentially9 facts for Starr's case have already been

10 proven, and I respectfully disagree with11 that because the central factual12 proposition must be proven to support13 any of Starr's claim, whether it is a14 legal exaction, is that Starr must show15 that the rescue was forced on the Board16 and that the decision to accept the17 rescue was not voluntary.18 Now the Board knows that the19 decision was in fact voluntary. Some of20 the members ofthe AIG Board from21 settlement of 2008 sit here today, other22 members are at your disposal, several of23 the company's lawyers who were in the24 room on that day are also present here

123456789

101112131415161718192021222324255 today, Robert Willumstad testified~ - ~ ~ ~ ~ ~ ~ - ~ ~ ~ ~ ~ ~ ~ . ~ ~ " - " ~ ~ ~ . - -

123456789

10111213141516171819202122232425

Page 47AIG Board of Directorsbefore Congress that the Board'sdecision to accept the government rescuewas voluntary, and if this case proceeds

Mr. William's undoubtedly will be calledas a witness at trial.Mr. William's testimony isentirely consistent with theSeptem ber 16th Board minutes. Theminutes make clear that the Board wastold of the New York Fed offer, that itwas told that there was no privatesector solution.It was given the clear choicebetween accepting the rescue andbankruptcy, the Board deliberated,consulted with advisors, it was clear atthat point in time from the term sheetthat the rescue package included the79.9 percent equity telm, and afterdeliberations the Board made a clearly

unanimous vote to support the rescue butthere was one dissenting vote, and Ithink that dissent in and of itselfdemonstrates that the Board had a

123456789

10111213141516171819202122232425

Page 48AIG Board of Directorsvoluntary choice, it knew it had achoice and did not feel compelled toaccept the rescue.Now, Starr, although not infront ofthe Board today, has arguedthat in fact it wasn't on September 16ththat the equity term was transferredover.He argues in his papers that itwas in fact on September 22nd andSeptember 22nd credit agreement that theequity term was granted to thetaxpayers.But I would posit that itdoesn't matter which of those two datesthat in fact happened on, because theBoard also approved the September 22ndcredit agreement, and Starr has gone togreat lengths to try to demonstrate thatthe government had taken control of AIGbetween the 16th and 22nd, and put forththe argument that in fact the governmentordered Mr. Liddy to sign the creditagreement on e p t e _ m _ b _ e _ r _ 2 _ 2 _ n d _ . ~ ~ _ ~ ~ . _

Page 49AIG Board of DirectorsBut in fact because the Boardalso approved the credit agreement, forStarr to be able to establish that pointhe would have to prove that thegovernment also controlled the Board on

September 22nd, and I think that is aproposition that this Board cannotaccept.The next allegation of Starr isthat the government discouraged aprivate sector exclusion.Now, I believe that the Board isaware that it was in fact a real andvery serious potential private sectorsolution preceding the governmentrescue.There was a private sectorconsortium that went so far to draftterm sheets for a $70 billion creditfacility for the company, and thenLehman failed.And then AIG could not get a fixon the amount of money it would need fora rescue and could not get a fix on its



15/65



12345678910111213141516171819202122232425

N ~ = ' ~ ~ ~ N ' N

123456789

10111213141516171819202122232425

Page 50 Page 52AIG Board of Directors 1 AIG Board of Directorsassets, and the private sector option 2 transaction to suppOli that group ofdisappeared. 3 institutions.At the end of the day there was 4 The problem with that theory isno private sector solution and at that 5 that those institutions were the onepoint the New York Fed had to step in. 6 constituency that actually would haveNow, Starr talks about private 7 been all right in a bankruptcy, in anwealth funds that were available and 8 AIG bankruptcy.specifically points to a consOliium that 9 That group of counterpaliiesJC Flowers put together that included 10 could not be negotiated with, as AIGthe China Sovereign Wealth CIC, but that 11 well knows. AIG employees actuallyconsortium was offering a $10 billion 12 conducted the whole first round ofcredit facility, which would not have 13 negotiations with those counterpaliies.satisfied the very first day of lending. 14 No counterpaliies would conceiveAIG threw down $14 billion on 15 anything in those negotiations becausethe first day of the rescue and had 16 in a bankruptcy they were first in linethrown down $37 billion at the end of 17 for 100 percent recovery, and the ideathe first week. 18 that they would have been the reasonThere was no private sector 19 that the government stepped in to AIGsolution of that magnitude. 20 doesn't make any sense at all.AIG has in fact made a number of 21 All of this is to say that thepublic statements acknowledging that 22 facts simply don't support Starr'sthere was no private sector solution at 23 claims.the time. 24 The next allegation is that the

... . _ ~ ! G h ~ a l r e a d y s t ~ e d i ~ J ? ! . : ! . ? ! ~ _ 25 w.w __ ? _ v e r n m e n t discrin;!nated against A ~ 9 L . ~ _ ~ .Page 51 Page 53

AIG Board of Directors 1 AIG Board of Directorslitigation about the rescue that the 2 putting aside the fact that therescue offer "credit markets were shut 3 discrimination is actually not relevantdown and no private sector solution was 4 here for a legal matter; AIG needed theavailable". 5 most money and got the most money of anyAIG has also stated in its 2008 6 institution that was rescued during the10K that by the time of the rescue AIG 7 financial crisis.had no viable private sector solution to 8 Many different -- many of heits liquidity issues. 9 different rescue packages that StarrAnd finally, I ask you to think 10 points to when he is making theseabout whether it makes any sense at all 11 allegations of discrimination can bethat the government would want to lend 12 explained by the existence of Tarp,to AIG in September of2008. 13 which gave the government lucrativeLending to AIG at that point in 14 rescue options that were not availabletime was an extremely risky venture. 15 in September of2008 before Tarp wasThe size of the rescue that would be 16 passed.needed was unknown at that point in 17 But beyond that, every situationtime, and the outcome of the company was 18 during the financial crisis was unique,equally uncertain. 19 and for example, I'm sure that LehmanThe only theory that Starr can 20 wishes that it had been rescued.come up with as to why the government 21 The next allegation is that thewould want to step in is that it wanted 22 government improperly delayed offering ato step in in order to support the 23 rescue package to AIG.Maiden Lane III counterparties, and to 24 Mr. Willumstad has testifiedbe in a position to execute that 25 before the Congressional Oversight




16/65



Page 54 Page 561 AIG Board of Directors 1 AIG Board of Directors2 Communal that when he met with Tim 2 of AIG subsidiaries, and at the time the3 Geithn er in July of2008 he down played 3 financial condition of AIG was largely4 the severity of AIG's financial 4 unknown, and the government at the time5 condition and did not make a real plea 5 viewed this loan as quite risky.6 for assistance at that time. 6 The equity term and the interest7 That fact alone blows a hole in 7 that was charged was charged for the8 the theory that the government 8 purpose of compensation for taking the9 intentionally delayed in presenting a 9 loan at risk.

10 rescue package to AIG for seven weeks to 10 Starr claims that the equity11 force it into a precarious financial 11 term punitive, I believe, ignores the12 state. That is simply not the case. 12 fact that it was part of the private13 The next allegation is that the 13 sector term sheet.14 rescue tel1TIS were punitive. You just 14 Starr did acknowledge that that15 heard Starr claim that the government 15 term was developed by the private16 made $30 billion from the rescue, and he 16 sector, but I think that fact alone17 argues that the size of that return is 17 demonstrates that it was in fact18 somehow improper or punitive. And in 18 compensation for the loan, that was what19 considering that claim it is instructive 19 the private sector was charging or20 to look at the rate of return that the 20 planning to charge AIG for a $50 billion21 government got from the rescue. 21 facility.22 And while the overall recovery 22 The government stepped in at a23 is a big number, the loan itsel f was 23 greater loan amount and charged24 massive, $182 billion and it was 24 compensation that was equivalent to what

~ w ~ 5 ~ . __ w _ w ~ x t e n d e d over quite a long period 0 f _ ~ ~ ~ ' f _ ~ 2 ~ 5 _ ...... ~ ~ b e i n ~ ~ ~ k e d ~ ~ ~ h e private sector .._._...._..

123456789

10111213141516171819202122232425

Page 55 Page 57AIG Board of Directorstime.And if you look at the annualrate of return earned by the governmentfor that loan it is somewhere in therange of 4 to 5 percent.The 14.5 percent interest ratethat Starr made reference to earlier wasan initial rate that dropped almostimmediately after the loan was made.The five percent return isactually quite modest, especially inlight of the risk that the governmentwas taking in extending the loan andalso in the context of the time period.In 2008 and 2009 credit wasn'tavailable at any price and so the fivepercent return is again in that contextmodest and certainly in no way punitive.I want to pause on the concept

of risk for a moment, because Starr hasmade the claim that the loans were fullysecured and that the taxpayers were notat risk.The loans were secured by assets

123456789

10111213141516171819202122232425

AIG Board of DirectorsIn fact, when the Fed stepped inthey simply took over the private sectorterm sheet and they certainly were notgoing to ask for less compensation thenthe private sector had demanded for theloan.The equity term is also in linewith the consideration that has beengiven historically in other governmentrescues.And for example, when thegovernment stepped into Continental,Illinois in 1984 the government receiveda 79.9 percent equity term ascompensation for that rescue.Starr also alleges, although wedid not hear it today, that the equitystake was not consideration for the loanand that the only consideration paid forthe equity stake was $500,000 in cash.

AIG's 2009 10K shows that theequity stake was in fact considerationfor the $85 billion loan.Once again Starr's claims would15 (Pages 54 to 57)



17/65



12345678910111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 58 Page 60AIG Board of Directors 1 AIG Board of Directorsbe vety difficult for this Board to 2 rescue.support. 3 And in that complaint BoiesFinally, Stan' in his claims is 4 Schiller recognizes that the 79.9 equityarguing that the rescue harmed AIG and 5 stake was consideration for the $85harmed AIG's shareholders. 6 billion loan, that AIG would have beenAIG has repeatedly acknowledged 7 bankrupt without the rescue.that it has received untold benefit from 8 It also acknowledges that nothe government rescue. I don't think 9 private investors could come to theanyone would dispute the fact that AIG 10 rescue because of the enormous amount ofowes its very survival to the rescue. 11 capital that AIG needed and theAIG's shareholders were not 12 difficulty AIG had in valuating itsharmed either. The AIG equity holders 13 assets.like Starr retained $5 billion of value 14 If AIG endorses Starr's claim itin their equity shares the day after the 15 will find itself in the same awkwardrescue, and if that is compared to what 16 position as Boies Schiller. AIG alreadywould have been achieved in bankruptcy, 17 having committed to a version of thewhich is a zero value for those shares, 18 rescue that is at odds with Starr's

it is vety hard to argue that those 19 claims.shareholders were hatmed. 20 Timely, Starr would have youFutiher evidence that Starr 21 believe that there might be some unknownclaims have no merits can be found in 22 facts that could come to light inthe fact that these allegations are made 23 discovety that would suppOli Starr'sonly by Stan'. 24 claims, but we are not operating here onIn the four years that have gone 25 a blank slate., , " ' ~ - ~ ~ , ~ ~ , , ~ " " " ' ~ - ~ - , , - - -

Page 59 Page 61AIG Board of Directors 1 AIG Board of Directorsby since the rescue there have been 2 After the intense scrutiny thatcountless congressional investigations, 3 this rescue has received the facts areinquiries, hearings, reams of documents 4 known and they do not support Starr.have been produced by Treasury, by the 5 Now, my second point today isNew York Fed, by other patiicipants in 6 that the decision to suppOli Starr's

the financial crisis, hours and hours of 7 claims and allow these claims to proceedtestimony has been taken from the 8 in the company name is not costless.leaders of the institutions that 9 Starr has taken the positionparticipated in the rescue. 10 here today that the derivativeNot one of those investigations 11 litigation could be pursued wi thout anyor public sources concluded that the 12 expense, and Mr. Boies has gone so fargovernment somehow forced AIG to accept 13 to say in court this is the kind ofthe rescue. 14 litigation that cannot be contrary toNot one of them stated that the 15 the interest of the company, and thatterms of the rescue were punitive, and 16 simply is not the case.none ofthem has found that AIG was 17 The Board has asked somesingled out with unfair treatment. 18 questions about legal fees, but fi'anklyEven Boies, Schiller has 19 the legal fees are inconsequentialendorsed a version of the rescue that is 20 compared to the substantial cost to theentirely at odds with Starr's claim. 21 company in pursuing the claims.Boies Schiller represents KIA, 22 First, the government will bean investment authority in a securities 23 your adversaty by signing onto thefraud case brought against Al IG for 24 litigation, AIG will be terminated, thestatements made by AIG prior to the 25 cooperative relationship that it had



18/65



12345678910111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 62 Page 64AIG Board of Directors 1 AIG Board of Directorswith the Department of Treasury and the 2 Every day AIG makes promises toNew York Fed and will instead be 3 businesses, homeowners and families and

positioning itself in direct opposition 4 they expect AIG to live up to theto those institutions. 5 promises, that is what AIG sells.AlG will in fact be attacking 6 Allowing this lawsuit to proceedthe very institutions and the public 7 would run counter to that message.servants that paliici pated in the 8 It would also mean supporting arescue. 9 government conspiracy that AIG knows notA decision could also lead to 10 to be true. And as a matter of businessanother wave of congressional 11 program and business ethics, that isinvestigations, and AIG employees and 12 just not right.AIG Board members could be called to 13 For a company so focused on itstestifY before Congress and justifY the 14 reputation, especially right now, itdecision to pursue a lawsuit asking the 15 cannot be the right choice to proceedU.S. taxpayers to return billions of 16 with this litigation.dollars to AIG. 17 My last point is that a decisionThe public backlash and 18 to dismiss the derivative claims willreputational risk of this lawsuit is 19 help put an end to the direct claims.also real. 20 Ask yourself why Starr isThe lawsuit could very easily be 21 pushing so hard to have this Boardperceived as "another example of 22 suppOli its claims. Why is this incorporate America thinking it doesn't 23 StalT's interest?have to play by the rules or that it can 24 From the standpoint of ago back on its knees." 25 " _ ~ ~ ~ ; : e r y , ~ t a r r benef,!s substantially

Page 63 Page 65AIG Board of Directors 1 AIG Board of DirectorsWhat that does for the company 2 more from the direct claims then fromis it takes you backward. AIG has 3 the derivative claims.emerged from the financial crisis a 4 The direct claimants or thestrong and profitable business thanks to 5 shareholders at the time of the rescue,the remarkable and bold management team 6 the beneficiaries of the derivative

and the leadership of this Board. 7 litigation or the present shareholdersAIG once again has a brand name 8 and they would be fighting over the samethat it can proudly stand behind. AIG 9 recovery, so why does Starr want AIG atis back, bring on tomorrow. 10 all and the answer is is that Starr

In 2010 Mr. Benmosche promised 11 wants your endorsement with the backingthe American taxpayers that AIG would 12 of the AIG Board.return all of the rescue funds and give 13 Starr's claims gain weight andthe taxpayers a profit. 14 credibility that they do not have today,And I don't have to tell you 15 and the converse is also true.that that promise was made with 16 A decision by the Board toskepticism as to whether AIG could in 17 refuse Starr's demand will be a blow tofact keep the promise, but it has. 18 StaiT'S direct claims.And the benefit to AIG and its 19 Number one, your decision not toreputation and franchises has been 20 allow the case to proceed will send asubstantial. Supporting this lawsuit 21 message to the D.C. court that Starr'scould unravel all of that. 22 claims lack merit.At the same time AIG is running 23 Number two, it will createits thank you America ads, AIG would be 24 procedure opportunities to challenge thedemanding the profit back and then some. 25 direct claims and to cause more




19/65



Page 66 Page 681 AIG Board of Directors 1 AIG Board of Directors2 immediate appellate review of those 2 Bank is the only defendant in the New3 claims, which we believe will help end 3 York action which the judge has rejected4 the case. 4 as a matter of law.5 Despite what Starr says it 5 It is not a defendant in the6 simply isn't the case that the direct 6 D.C. action where the United States is7 claims will go on regardless of what the 7 the only defendant, but the D.C. action8 Board does. 8 is about the same conduct, the New York9 In conclusion, rejecting Starr's 9 Fed is obviously tremendously interested

10 suit is in the best interest of the 10 in the D.C. action. So I'm here11 company because Stan"s claims are 11 speaking on behalf of the Fed in those12 meritless. 12 capacities.13 AIG has turned the page. The 13 Of course our purpose in being14 financial crisis is behind you, you have 14 here today is to help the Board make its15 returned AIG to what it was for decades. 15 decision with respect to this demand, so16 A strong respected leader of 16 I'm going to try to focus my remarks on17 corporate America. To decide today to 17 both the themes and the particulars and18 sue your rescuer based on a version of 18 the questions that the Board has asked.19 events that you know did not happen 19 One of the questions that -- one20 would take the company backward. 20 of the points that was clearly on the21 Do not be tempted to support a 21 Board's mind and appropriately so, is22 lawsuit you know to be wrong based on 22 how to weigh what I would call Starr's23 the promise of creative lawyering or the 23 free option.24 elusory comments of a cost-free option. 24 That is the proposition that25 Lawyers do not act alone. They only act 25 says why not, since Starr is prepared to, - " ~ , , , , - , ~ ~ " - , ~ - - ~ , - ~ - - - - - - , , ~ - , - , - - - , - - , - " " - ~ ~ - - - - ~ I

123456789

101112l3141516171819202122232425

Page 67 Page 69AIG Board of Directorsat the behest of their clients.A frivolous lawsuit allowed toproceed in AIG's name would do a world

of damage before it's dismissed to youand to us.As an institution the Treasuryfirmly believes that it and the Fed andthe New York Fed acted together legallywithin the statutorily granted powersand in the public interest in rescuingAIG.Treasury will stand up for whatit believes to be right here in thepublic realm and in court if it has to.This Board has no reasonablebasis to believe that Starr's claimshave merit. Rejecting them is both inAIG's interest and it's the right thingto do. Thank you very much.Thank you. Good morning. My

name John Kiernan from Debevoise &Plimpton for the Federal Reserve Bank ofNew York.As you know the Federal Reserve

123456789

10111213141516171819202122232425

AIG Board of Directorspay the legal fees and carry the waterhere, let Starr speak for AIG and can)'this case forward and see if it cancollect back the 80 percent equityinterest per AIG and its shareholderswhile making sure that AIG keeps all thebenefits that it already has obtained,and why not just let us take release ofit so you can lie low enough so if thecase loses it's Starr's loss and thatway you protect yourself against therisk of embarrassment if it turns outthat Starr is able to actually winsomething. That is obviously a seriousproposition.

It is w0l1h noting that thatkind of option is absolutelyconventional in cases where anindividual shareholder is trying topersuade a company to let it take overand bring a derivative action on behalfof the company against third parties.The proposition is jus t asconditionally rejected as a matter of




20/65



Page 701 AIG Board ofDirectors2 course, by Board's because Board's have3 the view it is not individual4 shareholders but they who actually have5 the responsibility to decide what claims6 are made by the company, and the free7 option argument simply misses that8 fundamental point.9 Apmi from that basis

10 shOlicoming of Starr trying to take over11 your function on deciding what should be12 done by AIG, the three main propositions13 that emerge from your questions is that14 we believe are provided powerful reasons15 that you should reject Starr's demand.16 The first proposition is that17 Starr's claims are losers and are18 ultimately going to be found to be19 losers if the AIG Board -- there is20 going to be a loss that is recognized to21 be AI G's loss too and there are also22 substantial impediments of recovery.23 The second proposition is one24 that unsurprisingly is one that was soft

~ _ ~ m m p e d " ~ " ~ ~ ~ ~ ! remarks by Starr today, but

123456789

10111213141516171819202122232425

Page 71AIG Board of Directors

is the essential practical predicate andwas repeatedly in Judge Wheeler'sdecision the central reason why hedenied the motion to dismiss.By the way, he did not find thatthe claims had legal merit. Yourlawyers will be able to advise you whata court does in a motion to dismiss, itis required to accept all of theallegations in the complaint as true.And the central predicate, thejudge said I have to accept this as trueat this point, is that AIG is entitledto repudiate the terms of the deal towhich it agreed, because it enteredthose deals involuntarily.The reason it did that was thatthe Federal Reserve Bank ofNew York socontrolled the Board's decision-makingthat the Board was incapable of actingas independent fiduciaries in thebusiness interest ofAIG and theshareholders.That is the factual predicate

123456789

10111213141516171819202122232425

123456789

101112l3141516171819202122232425

Page 72AIG Board ofDirectorswhich is pivotal to the case, pivotal tothe judge's decision not to grant themotion to dismiss is false. You knowit's false. You know it is false withrespect to the claims that are directedlat your own decisions, because you knowthat you have acted independently and asfiduciaries, as directors, that is trueeven though as Starr has alleged youcan't possibly be elected by trust forthe Treasury shareholders.You all are people ofextraordinary statutory representation,and it is simply inconceivable that youwould have agreed to serve or continuedto serve as members of this Board if youhad believed at any time that you wereincapable of acting as fiduciaries forthe benefit ofAIG and its constituents.Yet StaJT has even reserved thecapacity to order explicitly that thisBoard is incapable because it is notindependent of even deciding this demandissue, bmecause you are -- you don't h a v ~ ~ ~

AIG Board of Directorsthe capacity as fiduciaries.Not only do you know that is

Page 73

true about yourself, the three of youwho are here on the Board in 2008 wesubmit also know that you were equallyable to make the kind of decisions anddo the best for AIG.In fact, it was a difficultperiod in 2008 when it was one of thehardest decisions you made as a Board.Our submission that the rest ofyou know or strongly from yourexperience that your predecessorsequally acted as fiduciaries and wereindependent decision makers during thosetimes.You know they were esteem ablepeople, and you know that those peopledevote pmiicular attention toexercising their fiduciary dutyresponsibly during those criticalmoments ofBoard decisions, where theyknew their decision was going to beunder a microscope.



21/65



Page 74 Page 761 AIG Board of Directors 1 AIG Board ofDirectors2 The third proposition, which is 2 submission is the beliefyou should hold3 linked to these two propositions, is 3 that the AIG Board made voluntary4 that a deal is a deal even it is 4 decisions to agree to the terms that5 difficult. 5 Starr is now asking to seek to6 As the judge said in his opinion 6 repudiate, and should by itself be7 a choice between a rock and a hard place 7 dispositive about your views of the8 is still a choice , and it is the kind of 8 claims and should lead to reject Starr's9 choice that the Board is sometimes 9 demand.

10 called upon to make. 10 Starting in reverse11 Here the decision to the rescue 11 chronological order, Starr is12 agreement in 2008 was not just a 12 challenging the January 2011 action in13 decision the Board made but one that 13 which Starr's 80 percent of preferred14 should be proud of. 14 shared interest was converted into a 8015 It was a decision that averted 15 percent promissory share and it16 bankruptcy and saved the company and 16 challenged the March 2009 reverse17 started AIG on the long road to where it 17 stocks, and unless you have questions18 has become today. 18 about what the challenges are, I will19 There is nothing inherently 19 pass over them quickly except to note20 suspect or wrongful about a rescue, 20 that Starr's predicate to both of those21 obtaining an interest as part of the 21 claims that these were government22 consideration for a loan. It's so 22 initiated actions in which the Board23 common as to be conventional for a 23 lacked any independent capacity to make24 rescue lenders in private commercial 24 any decisions; therefore, abandoning its

~ ~ ~ _ ~ __ " , y a n s a c t i o ~ ~ and the Fed of ~ _ u . ~ r s _ e '____ r-2_5___i ~ d ~ u ~ c i ~ a " " , r y ~ r ~ e ~ s p , - ( 0 ~ n ~ s ~ i b ~ i _ I i . _ t i _ e s - , " , ~ s _ h o : . . u ~ l ~ d ~ b ~ e ____ "__123456789

10111213141516171819202122232425

Page 75AIG Board of Directorsdidn't invent that concept for thisdeal. It simply inherited it from theprivate rescue folks who were looking atpotential rescues.The proposition that a voluntary

entered deal is a deal, is linked toissues of business integrity and publicrepresentation. That we discussedalready with respect to the decision.Our submission is that when youweigh the three options against theabsence of merits, the voluntariness ofthe Board's actions, and the issuesposed by trying to get out of a dealthat was entered into by a Board actingas independent fiduciaries by bringing alawsuit against taxpayers, thoseconsiderations, the balance of thoseconsiderations should weigh in the favorof you rejecting the demand.

Let me turn briefly to themerits. Now you will want to considerthe advice of your own lawyers,including their analysis but our

123456789

10111213141516171819202122232425

AIG Board of Directorsrejected.The record also -- instead

Page 77

suggests that you thought the exchangewas a good deal for AIG. Getting thepreferred shares transformed into commonshares was an important step toward thevery important AIG goal of eliminatinggovernment ownership, by making themmore salable and that AIG had notinitiated the reverse stock spl it, anddid so for the reasons stated in theproxy statement.Now, let me turn next on themerits to ML III. One of the aspects ofthe ML III claim is that it is purelyderivative and agreed to be such, thisis not one that is perceived if youreject this claim it is -- Starr seemsto be looking at this transaction forthe manner that is fi'ankly the worstfrom the reality of those.As AIG executives testifiedconsistently with the testimony byFederal Reserve executives and others at




22/65



Page 78 Page 801 AIG Board of Directors 1 AIG Board of Directors2 the time, the fundamental realities that 2 guaranteed instead of discounts is both3 was being focused on until November of 3 factually and as a matter of perspective4 2009, the second liquidity crisis that 4 given these emergent circumstances at5 had a very significant and specific 5 the time, it's just missing.6 deadline. 6 Mr. Habya -- Starr talks about7 November 10th, which was the 7 how easy it would have been and should8 date when the quarterly earnings 8 have been to contain concessions from9 announcement -- sorry, November '08, you 9 the counterpaliies.

10 have a November 10th deadline, because 10 It is striking that there is no11 that is the date that you report 11 identification of any source that they12 earnings, and meetings with the rating 12 compiled to force these counterpmiies13 agcncies made absolutely clear unless 13 to agree to concessions, particularly as14 AIG got a hold of its liquidity problems 14 the circumstances became more emergent.15 and got them under control, that 15 Mr. Habya testified that he on16 quarterly earnings repOli was going to 16 behalfof AIG negotiated ferociously for17 result in significant down grades which 17 over a month and was unable to obtain18 under the contracts for the 18 any concessions at all on taking the19 counterparties and other counterparties 19 entitlement at any number less than par.20 was going to necessitate tens of 20 Instead it was handed and asked21 millions of dollars. 21 if they could solve this problcm and22 There was an emerging crisis and 22 negotiate with the counterparties only23 it needed to be -- it was AIG who came 23 days before the November 10th deadline,24 up with the solution that it was to 24 these negotiations took place intensely25 create a special purpose vehicle into 25 and under very short time demands.~ " " " - ' - ' ~ " " " - ' - ' ~ " ' - " " " ,

123456789

10111213141516171819202122232425

Page 79 Page 81AI G Board of Directors 1 AIG Board of Directorswhich the CDO's would be bought and 2 All of those counterparties wereCDS's would be torn up, and by moving 3 asked to provide concessions, contrarythe CDO's off the balance sheet you 4 to what was told to us this morning,would eliminate the downside risk of the 5 only one of the counterpmiies have anyCDO, and also eliminate the liquidity 6 interest in talking about a possible

risk associated with the CDS and then go 7 concession.forward. 8 That was UBS, as to whether itThis would be funded by a 9 is -- they said we are willing to talkcombination of contribution by the 10 to you about a possibility of a twogovernment, $25 million loan and 11 percent recession, that is what we arecontribution by AIG, and AIG surrendered 12 talking about.that it had been contractually required 13 But only if every otherto pledge -- to post to the CDS holders. 14 counterparty agrees and of course otherThose of you who were on the 15 counterparties did not agree.Board at the time it ended up being a 16 This is not something whereSunday evening, November 9th Board 17 there was a reason for the Fed that theymeeting before the earnings announcement 18 would move -- the national economy orthe following day, after a marathon 19 anybody else to buyout thesession of negotiations over that 20 counterparties at par instead of someweekend. 21 number fi'om par. That was the deal.Now, Starr's perspective that 22 And most importantly of course the Boardthis deal was an unconstitutional taking 23 agreed to this deal.

of AIG's properties were brought out at 24 Now, Judge Wheeler in histhe par values that A IG practically 25 decision to dismiss specifically said21 (Pages 78 to 81)



23/65



12345678910

111213141516171819202122232425

12345678910

111213141516171819202122232425

Page 82 Page 84AIG Board of Directors 1 AIG Board of Directorsthat he was required at that stage of 2 written by Mr. Greenberg and those arethe case to accept Starr's claims that 3 Mr. Greenberg's Board notes.

the Board has control, but you aren't 4 The Judge Engelmayer explainedrequired, and you know that that is not 5 in detail in his opinion why it wasthe case. 6 entirely legally acceptable for the FedIt was suggested that the Board 7 to make pati of the consideration fordidn't know the issues, if you read the 8 its provision of$85 billion in rescueminutes of that meeting you know that 9 funds, that the provision by AI G of anthe Board new the issues, had lots of 10 80 percent equity interest to a trustlegal financial advisors at that meeting 11 could benefit the public, particularlyand approved the advance action. 12 given that the Fed took the extra stepAs to whether it was told 13 in ensuring it never had any economic orspecifically that the counterparties 14 voting interest at all in any ofthiswould be bought out at a hundred cents 15 equity by virtue of having created thison the dollar, Board minutes are not 16 independent trust, and where Mr. Boiesalways -- there is a lot of discussion 17 pointed to a comment by a Fed officialand statements in the minutes saying 18 saying the terms as they exist doesn't

there was an extensive discussion about 19 work, that is because the term sheet asthe terms of the agreement and 20 existed called for this money to comediscussions with the counterparty. 21 directly from the Fed.We do know if you look at the ML 22 The next sentence in the memoIII term sheet, at the back of those 23 that Mr. Boise quoted, it would be fineBoard materials it explicitly says the 24 if this went to Treasury, which isnotional amount, and we have given you 25 u l t i m a t e ! ~ ~ ~ ~ t in fact happened."Page 83 Page 85

AIG Board of Directors 1 AIG Board of Directorsin tab five e-mails from the prior 2 Now, Judge Engelmayer's reasonevening showing that AIG people in the 3 for saying it was entirely legitimate toroom, including their lawyers and 4 obtain this equity interest was notgeneral counsel, knew that notional 5 complicated, there is an enormous bodyamount corresponded with no convention, 6 of authority that says it is within thewe discussed this in the e-mail traffic 7 powers of the National Banks to obtainthe night before. 8 equity as part ofthe consideration forAs for the release point, it's 9 their loans, and there is an expressremarkable that this point is still 10 provision in the Federal Reserve actionbeing made because tab seven shows me 11 that says in addition to whatever elsethe request for Board release came from 12 is incidental powers are necessary tothe AIG and not from the Fed, it was 13 engage in the business of banking, andAIG's words and they wanted it and they 14 so the notion that you are limited towanted to be done with the counterpatiy 15 exclusively what is specified in Sectiontransaction. 16 13(3) doesn't add up legally, and thatLet me turn to the 17 is what the judge found.September 2008 transaction briefly. 18 Judge Wheeler has not yetFactual merits. 19 endorsed that, but in denying dismissalI do want to pause and say that 20 he explicitly relied on his obligationthe memo that attributed in the slides 21 to accept as true Starr's claim that thewas a memo from Sara, is a memo that was 22 trust was an alter ego ofthe Fed, hadin Sara's files, the language in that 23 no separate existence or any independentmemo results from the fact that that 24 decision-making, which is simply notmemo was not written by Sara and it was 25 true.

22 (Pages 82 to 85)El i sa Dre ie r Repor t ing Corp. (212) 557-5558950 Third Avenue, New York, NY 10022


24/65



123456789

101112l3141516171819202122232425_ ' ~ ~ " N N _

123456789

101112l3141516171819202122232425

Page 86 Page 88AIG Board of Directors 1 AIG Board of DirectorsWe are confident that the United 2 What the courts have done isStates is ultimately going to win on 3 they made absolutely clear that a

this point and obviously your lawyers 4 voluntary agreement, they have carvedwill advise you on that. 5 out very narrow exceptions and the casesBut let's suppose just for the 6 they cite fall within those narrowsake of discussion, that after 7 exceptions.consulting with your lawyers you are 8 Those narrow exceptions are thestill not sure, your question four asked 9 parties who enter the deal enters theus that question, and that question 10 deal under protest stated at the timeessentially is if we as a Board believe 11 when the deal was entered, and second,that we and our predecessor Board's, 12 in some circumstances Congress hasdirectors of AIG, voluntary and freely 13 waived effectively the protestentered into the transactions containing 14 requirement by providing in the statutethat Starr is now asking to repudiate 15 that this is for the benefit of a partythe deal terms, does that end Stan"s 16 to be able to seek to recover funds thatclaim? The answer to that question is 17 was improperly paid in a later action.categorically yes. 18 Judge Wheeler recognized in hisLet me explain why. If you look 19 own decision that involuntary component.at the two claims, a transaction cannot 20 He went out of his way to expresslybe as matter of common sense an 21 predicate the denial of the motion tounconstitutional of taking without just 22 dismiss in the action claim on thecompensation unless he is compelled, 23 obligation to accept once again Starr'sthat a contractual exchange of 24 contention that the Board did notconsideration where one party gives up 25 voluntarily agree to the deal.

Page 87 Page 89AIG Board of Directors 1 AIG Board of Directors$85 billion loan and another party gives 2 Here, AIG was not -- had a legalup consideration including sayan 3 entitlement to receive the rescue loan80 percent equity interest, are not -- 4 at all or any particular -- AIG did notwhat happened in September 2008 was a 5 protest the deal at the time, and thedeal the Board corrected and wisely 6 Federal Reserve Act contains no

concluded that the borrowing terms 7 provision having the purpose of lettingthough tough, the borrowing terms that 8 borrowers recover from funds that theythe Board did not like, were better then 9 agreed to pay.bankruptcy, and it agreed to a 10 Now, AIG not only made notransaction similarly by definition 11 protest at the time, but it made nocompel the action from a private party 12 protest for years thereafter, whilewith money that the government had no 13 enjoying the benefits of the Fed'spower to require that party to pay, but 14 performance, and ofthe Fed's furthermade it pay to get something it was 15 rescue loans, restructuring the rescueentitled to get. 16 loans and such gestures that the FedInvoluntarily, unquestionably 17 unilaterally reducing the interest ratemade clear that they are not going to 18 by 550 basis points one month afterlet private parties who enter a contract 19 initially issuing its loan, when therewith the government simply go in and let 20 was no reason that they needed to dothe government perform its side of the 21 that.contract and then later on after the 22performance of the contract say wait a 23 Now, there are many things thatminute, it is illegal and I get to get 24 the government could and would have doneout of our side of the deal. 25 differently to protect American




25/65



123456789

10111213141516171819202122232425

123456789

10111213141516171819202122232425

Page 90 Page 92AIG Board of Directors 1 AIG Board of Directorstaxpayers during the course of its many 2 argument is not that they arefurther loans and dealings with AIG, if 3 unavailable for any constitutional

AIG had raised a protest at any time 4 violations, but unavailable foralong the line with the equity fees was 5 intentional or willful violations ofillegal or improper, but AIG never did 6 Constitution rights and your lawyers canthat. 7 provide that. That is a tremendouslyThere is nothing reasonable 8 high bar. The prospect that they are --about the proposition that AIG would 9 that AIG or Starr is going tojust sit silently why the government 10 demonstrate that there was a willfulperformed its side of the deal and 11 violation is extremely difficult.waited until it no longer needed the 12 You also asked about the creditgovernment and then and only then say 13 agreement and substitution provision,now we decided we don't have to perform 14 that is the provision that isour side of the deal because the terms 15 conventional provision.are illegal. It's simply not 16 It says if any provision ispermissible as a matter of law. 17 invalid you replace it with the closestI'm not talking about statute of 18 substitution. How do you respond tolimitations issues. 19 Starr's argument that no substitute isNow, if this case goes forward 20 available. What I say is recognize howevery director who was asked to testify 21 the bar is, how high the bar is.-- celiainly will be asked to did you 22 In order to prevail you not onlyexercise your independent judgment and 23 have to demonstrate an 80 percent equitydid you have the capacity to protest and 24 interest, but no other economicthe answer to both of those questions 25 a V . ~ i ~ ~ l ~ , _ ~ u b s 0 ~ ~ s , ~ ~ ~ ~ ~ h e r ' ~ m " ' ' ' ' ~ ~ M

Page 91 Page 93AIG Board of Directors 1 AIG Board of Directorswould be yes. 2 interest telm, not

Transcript of Meeting Before Aig Bd

Documents

Transcript of Transcript of Meeting Before Aig Bd