One of AIG’s largest shareholders, Starr International Company, Inc. (“Starr”) sued the United States, alleging that the Government’s acquisition of AIG equity in connection with its bailout of the firm and subsequent actions relating to a reverse stock split were unlawful. The U.S. Court of Federal Claims (“Claims Court”) held a trial on Starr’s direct claims, for which Starr sought over $40 billion in relief on behalf of itself and other shareholders. The Claims Court ultimately held that the Government’s acquisition of AIG equity constituted an illegal exaction in violation of Section 13(3) of the Federal Reserve Act, 12 U.S.C. Section 343, but declined to grant relief for either that illegal exaction or for Starr’s reverse stock split claims holding that Starr suffered no damages.

In its conclusion, the Court of Appeals acknowledged and affirmed the opinions and factual basis for those opinions as expressed in the testimony of Dr. Mordecai, President of Risk Economics, which addressed market evidence of no economic loss, and hence zero damages to AIG shareholders from the transaction, as well as opinions which addressed matters of generally-accepted industry custom and practice involving corporate restructuring transactions, and the corresponding economic valuation of credit and equity.

Starr appealed the denial of direct relief for its claims. The Government cross-appealed, arguing that Starr lacked standing to pursue its equity acquisition claims directly or, alternatively, that the Government’s acquisition of equity did not constitute an illegal exaction.

On May 9, 2017, a Federal Circuit panel concluded that Starr and the shareholders represented by Starr lacked standing to pursue the equity acquisition claims directly, as those claims belonged exclusively to AIG. The panel therefore vacated the Claims Court’s judgment that the Government committed an illegal exaction and remanded with instructions to dismiss the equity acquisition claims that seek direct relief. The panel also concluded that the Claims Court did not err in denying relief for Starr’s reverse stock split claims, and affirmed the Claims Court’s judgment as to the denial of direct relief for the reverse stock split claims.

As the damages expert for the Government, cited prominently by Federal Court of Claims Judge Thomas C. Wheeler in his decision, Dr. Mordecai had previously summarized his testimony at trial according to four primary points:

• First, he provided an opinion on the initial rescue, asserting that it “did not result in an economic loss to AIG’s shareholders.”
• Second, Dr. Mordecai addressed the need for the Government to obtain an equity component in AIG. Dr. Mordecai opined that “[w]ithout the equity component, the Revolving Credit Facility (“RCF”) [would] not [have] provide[d] a return to adequately compensate for the significant risk of lending to AIG.”
• In his third opinion, he critiqued as economically irrelevant and flawed, Dr. Cragg’s attempts to compare the AIG rescue to other government interventions.
• Finally, he critiqued Dr. Kothari’s estimate of the alleged harm suffered by both the Credit Agreement Class and the Reverse Stock Split Class as being fundamentally flawed. According to Dr. Mordecai, Dr. Kothari’s estimates of the alleged harm suffered by both classes was flawed because share dilution does not equal economic loss, Dr. Kothari ignored that AIG’s stock price actually increased as a result of the initial rescue, and Dr. Kothari did not estimate a value for the losses to shareholders.

Among his other opinions, Dr. Mordecai had testified at trial that AIG’s shareholders did not suffer economic loss from the Government’s rescue and that Plaintiffs’ expert’s damage calculations were fundamentally flawed because AIG’s stock price actually increased as a result of the rescue. He had also opined that, based on a study of large bankruptcies, it was unlikely that AIG’s shareholders would recover anything if the company had filed for bankruptcy protection.



Testimony by Compass Lexecon affiliated corporate governance expert Robert Daines rebutting plaintiff allegations of effective corporate control acknowledged and closely tracked facts and opinions as testified by Dr. Mordecai regarding no economic loss and hence no damages from share dilution.

Dr. Mordecai worked closely with a team of attorneys at the United States Department of Justice including Kenneth Dintzer, Scott Austin, Brian Mizoguchi, John Roberson, Mariana Acevedo, Renee Gerber and Vince Phillips; John Sturc of the U.S. Treasury Department; Kit Wheatley of the Federal Reserve Board of Governors; and outside counsel including John Kiernan and Nick Tompkins of Debevoise & Plimpton LLP and Lynn Earl Busath, Jonathan Martin, Matt Kelly and Alan Tabak of Davis Polk & Wardwell LLP.

Dr. Mordecai was principally supported by a team in the Compass Lexecon New York office led by Michael Kwak, which included Tristram Worth, Mihir Gokhale, Nick Fasano and Chris Fiore, in addition to other teams in the Chicago and Pasadena offices of Compass Lexecon.

About Risk Economics, Inc.

Risk Economics specializes in economic analysis of risk and liability. It provides advisory services at the intersection of commercial business-process engineering and risk engineering with a particular focus on coupling commercial reinsurance and financial technology, through the rigorous application of agent-based, demographic, and statistical methodologies to microeconomic and macroeconomic analytics.The Risk Economics^® client roster is diverse and includes governmental and quasi-governmental agencies, global insurance and reinsurance firms, leading law firms, technology firms, global banking institutions, asset management firms, multinational corporations with interests in natural resources, commodities, and energy, as well as government agencies and regulators.