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Supreme Court rejects taxpayer challenge to AIG bailout

The logo of American International Group (AIG) is seen at their offices in New York September 18, 2008. REUTERS/Eric Thayer
The logo of American International Group (AIG) is seen at their offices in New York September 18, 2008. REUTERS/Eric Thayer

(Reuters) - The Supreme Court on Monday refused to hear an appeal by a taxpayer who claimed the government's 2008 bailout of the insurer American International Group Inc violated the constitutional separation of church and state.

Without comment, the court let stand a June 1 ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati that Kevin Murray lacked standing to challenge the $182.3 billion bailout, including its use of taxpayer funds from the Troubled Asset Relief Program ("TARP").

The bailout left the government with a controlling stake in New York-based AIG, which it has since reduced.

Murray, a Michigan resident and Marine veteran of Operation Iraqi Freedom, said the bailout violated the First Amendment's establishment clause because AIG has units that market and sell financing products compliant with Sharia, Islamic law based on teachings of the Koran.

He contended that the sale of such products was a basis for a "global jihadist war against the West and the United States," and sent a message that non-adherents to Islam were outsiders.

But the 6th Circuit said nothing in the law authorizing TARP suggested that Congress knew or intended that TARP funds might support the sale of the Sharia-compliant products.

"It was only through executive discretion that TARP funds were transferred to AIG and, in turn, its subsidiaries," it wrote. "Because the (law) does not contemplate the use of federal funds to support religious activities, plaintiff lacks standing."

Other defendants included the Federal Reserve System and the Board of Governors of the Federal Reserve.

The case is Murray v. U.S. Department of Treasury, U.S. Supreme Court, No. 12-452.

(Reporting by Jonathan Stempel and Terry Baynes in New York; Editing by Howard Goller and Nick Zieminski)

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