Judge says Bernanke should testify in AIG bailout lawsuit

By Jonathan Stempel

(Reuters) - A U.S. judge said Federal Reserve Chairman Ben Bernanke should be required to testify in the lawsuit by the former chief of American International Group Inc , Maurice "Hank" Greenberg, against the United States over the insurer's 2008 bailout.

Judge Thomas Wheeler of the U.S. Court of Federal Claims on Monday rejected the government's effort to keep Bernanke from being subjected to a deposition by Greenberg's Starr International Co.

Wheeler called Bernanke a "key witness" who can provide highly relevant testimony, given that he was a "central figure" in the decision to bail out AIG.

"Indeed, the court cannot fathom having to decide this multi-billion dollar claim without the testimony of such a key government decision maker," Wheeler wrote. "These facts constitute 'extraordinary circumstances' for the taking of Mr. Bernanke's deposition," which Wheeler said he plans to attend.

The Fed was not immediately available for comment. A lawyer for Greenberg could not immediately be reached for comment.

Starr International, which once had a 12 percent stake in AIG, filed suit in 2011, contending that shareholders were shortchanged out of tens of billions of dollars when the government took a 79.9 percent stake in AIG in September 2008.

Starr is also suing over a separate 1-for-20 reverse stock split in June 2009, claiming the action was an illegal taking that violated the 5th Amendment of the U.S. Constitution.

The government had argued that details about Bernanke's role could be obtained elsewhere, and that high-ranking government officials in general should not be deposed over their official actions. It also said a deposition would distract Bernanke from overseeing the nation's economy and fiscal policy.

Wheeler, however, said it is "relatively routine" for top government officials to testify in Court of Federal Claims cases when they have personal knowledge of relevant information. The court handles lawsuits seeking money from the government.

According to Wheeler, officials who have testified have included Dick Cheney, then secretary of defense; Andrew Cuomo, then secretary of housing and urban development; and General Colin Powell, then chairman of the Joint Chiefs of Staff.

Wheeler asked both sides to schedule a deposition. He said the August 16 date proposed by Starr is acceptable to him.

The AIG bailout eventually totaled $182.3 million, and the government eliminated its last financial stake on March 1.

Greenberg, 88, led AIG for nearly four decades before his 2005 ouster. Starr is appealing another judge's dismissal of a related lawsuit against the Federal Reserve Bank of New York.

The case is Starr International Co v. U.S., U.S. Court of Federal Claims, No. 11-00779. (Reporting by Jonathan Stempel in New York; Editing by Gerald E. McCormick and Leslie Adler)