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Fed’s Bernanke Can’t Be Forced to Testify in AIG Lawsuit

Oct. 17 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke can’t be forced to testify in a lawsuit against the U.S. brought by Maurice “Hank” Greenberg over the government’s bailout of American International Group Inc., a federal appeals court ruled.

Greenberg, the former AIG chairman and chief executive officer who sued through his firm, Starr International Co., “has not established the extraordinary circumstances necessary to justify the deposition of Chairman Bernanke at all while he holds the position of Federal Reserve Board chairman, much less to inquire into the Federal Reserve’s deliberative processes or the chairman’s mental processes,” Circuit Judge Timothy Dyk said in yesterday’s order.

Starr’s efforts to question Bernanke “have all the appearances, and vices, of a fishing expedition rather than an effort to establish legally material facts,” Dyk wrote for a three-judge panel in Washington

Starr’s lawyer, David Boies of Boies, Schiller & Flexner LLP, said he will seek to depose Bernanke after he leaves office early next year.

“Based on Chairman Bernanke’s documents and public statements, and on the sworn testimony of other government officials who have already been deposed, we are confident that we can make the showing of the importance of this testimony that the court requires,” Boies said in an e-mailed statement.

Constitutional Rights

Closely-held Starr International seeks $25 billion from the U.S. for allegedly violating the constitutional rights of the shareholders of New York-based AIG.

Starr claims that the assumption of 80 percent of the AIG’s stock by the Federal Reserve Bank of New York in September 2008 was a taking of property that violated shareholders’ rights to due process and equal protection of the law.

Judge Thomas Wheeler, of the U.S. Court of Federal Claims, ruled on July 29 that Bernanke would have to testify in the case -- something Starr has contended is necessary because of his role in the transaction.

Wheeler said obtaining testimony from high-level U.S. officials has been a “relatively routine practice” in the federal claims court when the individual has personal knowledge of relevant information.

In the ruling, Dyk suggested that deposing Bernanke might be difficult even after he steps down as Fed chairman because the lofty legal standard that must be met in order to question a high government official about his decision-making “hardly becomes inapplicable upon an official’s departure from his office.”

The government’s request to block Bernanke’s testimony is In Re U.S., 13-163, U.S. Court of Appeals for the Federal Circuit (Washington). The Starr case is Starr International Co. v. U.S., 11-cv-00779, U.S. Court of Federal Claims (Washington).

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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