Will AIG Sue the Government?

American International Group (NYSE:AIG) has once again found itself between a rock and a hard place. The New York Times reports that the insurance company is thinking about joining a $25 billion lawsuit filed by former CEO Maurice Greenberg, who accuses the government of constructing an illegal and inequitable bailout.

Sounds like there’s some bad blood here. What’s the scoop?AIG-001

Once the world’s largest insurer, AIG received what has become one of the most controversial bailout packages of the financial crisis — $182.3 billion from the New York Fed and U.S. Treasury in return for a nearly 80 percent stake.

Save time and make money with our LOWEST ADVERTISED PRICE EVER to help you achieve your financial goals in 2013. This is a LIMITED TIME OFFER, so get your Stock Picker Newsletter now!

After the collapse of Lehman Brothers and accumulating losses from bad mortgage debt at a frightening rate, the company’s management had no choice but to accept the bailout on whatever terms the government offered, or face bankruptcy. With every passing minute fueling the financial collapse, the entire process was rushed and, as a result, different stakeholders and creditors received different treatment. For example,  JPMorgan Chase (NYSE:JPM) was fully reimbursed for nearly $10 billion in debt, while unwinding billions in credit default swaps left many others in the dust.

Among those who received the short end of the stick is the very-same Maurice Greenberg, who headed AIG for nearly 40 years before his alleged involvement in an accounting scandal led to his removal. He remains chairman and managing director of a financial services company called Starr International, which with a 12 percent stake was once AIG’s largest shareholder.

By nearly any definition, the bailout of AIG was distressed, and Greenberg argues that the Fed’s conditions were not only inequitable, but relative to the bailouts of other companies such as General Motors (NYSE:GM), the government behaved like a loan shark…