U.S. lawyers on Friday urged an appeals court to bless the federal government’s $85 billion bailout of American International Group Inc. At the same time, attorneys for Maurice “Hank” Greenberg are asking the same court to rule that he and other AIG investors deserve billions of dollars because terms of the 2008 rescue made it illegal.

A trial judge ruled last year that while the U.S. acted improperly and treated AIG more harshly than other firms in peril during the financial crisis, its investors were owed nothing because government inaction would have spelled doom for the insurer. Both asked the Washington-based U.S. Court Appeals for the Federal Circuit to reverse the parts of the case they lost.

The dispute centers on the government’s actions in September 2008, when AIG said it needed an infusion of cash to avoid bankruptcy. The U.S. stepped in with an $85 billion loan after private bankers determined it was too risky to lend the insurer money. The loan came with the same provisions that the bankers had rejected as insufficient protection — an 80 percent stake in the company and a 12 percent interest rate.

Representing Greenberg’s Starr International Co. before the three-judge panel, attorney David Boies said the U.S. had “wanted to punish” AIG’s shareholders.

“If the government had wanted to punish AIG,” Justice Department lawyer Mark Stern said minutes later, “all it needed to do was nothing. That would have been it,” for the company.

Future Rescues

The appellate ruling, which likely won’t come for months, could influence how the U.S. handles future rescues.

It “will set some precedent that will help shape the response the next time there’s a crisis,” said Cliff Rossi, a finance professor at the University of Maryland and a risk-management specialist. “We continue, to this day, to allow institutions that are so large and complex to take risk because there’s a fighting chance they’ll be bailed out again.”

Federal Circuit Chief Judge Sharon Prost, a 2001 nominee of Republican President George W. Bush, presided over the hour-long hearing. Flanking her were two Obama appointees Judges Jimmie Reyna and Evan Wallach, both of whom joined the bench in 2011.

Onerous Demands

Starr sued the U.S. five years ago, claiming the government broke the law by demanding those onerous requirements, which weren’t imposed on other distressed financial firms. Court of Federal Claims Judge Thomas C. Wheeler agreed, ruling that the Federal Reserve had authority to make an emergency loan to AIG but didn’t have the authority to take shares in exchange for it.

But Starr lost in its bid for damages. The company said the value of the shares was as much as $38.7 billion, which the government later sold for $18.3 billion. At a minimum, Starr argues, shareholders should get the $18.3 billion the government pocketed. Even if the U.S. turns over that money, the government still comes out ahead, Starr said, because AIG repaid the loan along with $6.7 billion in interest and fees.

“If not for the government’s intervention, AIG would have filed for bankruptcy,” Wheeler wrote in his 2015 ruling. “In a bankruptcy proceeding, AIG’s shareholders would most likely have lost 100 percent of their stock value.”

AIG Worthless?

On appeal, Starr attacked Wheeler’s finding that AIG would be “worthless” in bankruptcy. Greenberg has said AIG was worth $80 billion at the time.

In court, Boies argued that the government had seized control of the company, an assertion met by skepticism from Reyna, who noted AIG’s board voted to accept the terms in a bid for survival.

“The stock was almost worth noting,” the judge said.

Even that initial infusion was insufficient to stabilize the insurer, Wallach added.

While the government maintains taxpayer assistance to AIG totaled $182.3 billion, Boies told the court that he does not believe there was any time the government was owed more than the value of the initial $85 billion infusion.

The government wants the panel to reverse Wheeler’s finding that the bailout terms were too onerous, asserting Starr’s argument is based on a “fictional world” where the U.S. would bail out the company without asking anything in return. AIG rejected Starr’s proposal to sue, the government said.

In court, Stern disputed the notion the U.S. sought to nationalize the insurer, telling the court, “the last thing they wanted to do was get involved with AIG,” and only did so as a last resort when efforts to find private financing failed.

5.7% Return

Still, when the government lawyer said the U.S. profit amounted to just a 5.7 percent annual return on investment, Reyna tersely noted that return-on-investment wasn’t the point of the rescue.

The arguments come during a break in a trial in which Greenberg is accused by New York state of orchestrating two 2005 transactions designed to deceive shareholders. Greenberg, 91, and former AIG Chief Financial Officer Howard Smith, who is also on trial, deny wrongdoing.

AIG’s rescue came amid the biggest economic crisis since the 1930s, when the failure of Lehman Brothers Holdings Inc. froze credit markets and threatened a cascade of other financial-firm collapses.

“We came a whisker from another Great Depression,” said Rossi. “The government had to take action. We can all debate who they saved and who they didn’t.”

The case is Starr International Co. v. U.S., 15-5103, U.S. Court of Appeals for the Federal Circuit (Washington).