The board of American International Group will consider on Wednesday joining a lawsuit filed by former chairman Maurice "Hank" Greenberg that argues that the government was unfair to AIG shareholders when it bailed out the insurance giant in 2008.

Lawyers for Greenberg at Boies, Schiller & Flexner LLP, in New York, lawyers for the Federal Reserve Bank of New York at Debevoise & Plimpton, and lawyers for the Treasury Department will make presentations on both sides of the issue.

Officials at AIG and the New York Fed confirmed that they will appear at the meeting,

Alison Preece, communications coordinator for Boies, Schiller & Flexner, confirms that Greenberg himself will be there as well.

Someone close to the AIG board cautioned that AIG is unlikely to make a decision on the issue instantly, but should make a determination by the end of January.

The lawsuit in question was filed by Starr International, a company controlled by Greenberg that owned 12 percent of AIG at the time of the bailout.

Starr filed two suits, one in New York federal court, and the other at the Federal Court of Claims, based in Washington. 

The suits claim that the nature of the rescue was punitive because the federal government ultimately took control of 92 percent of AIG, although the original bailout, for legal reasons according to Fed lawyers at the time, was 79.9 percent.

Other allegations contend that the takeover cost was punitive because the Fed originally charged AIG an interest rate of 14 percent on its original $85 billion loan, and that the Fed unfairly paid counterparties to credit-default swaps issued by AIG's Financial Products subsidiary 100 cents on the dollar when it was possible that the counterparties would have accepted less.

The government's huge stake in the company also diluted the holdings of existing shareholders like Starr, which at the time was AIG's largest investor, the suit alleges.

The first lawsuit, in New York, was dismissed out of hand by Judge Paul A. Engelmayer of the Federal Court for the Southern District of New York in a scathing decision filed Nov. 11.

David Wood, a partner at Anderson, Kill in Ventura, Calif., which specializes in representing claimants against insurers, says he was "staggered" that AIG would be considering joining a suit against the federal government as requested by Greenberg. He notes that "the government—the U.S. taxpayer—took a tremendous risk with our hard-earned dollars to bail out AIG and keep it from declaring bankruptcy."

Wood, in a 2009 article in The New York Times was the first to publicly raise the issue that AIG policyholders might be at risk because AIG's insurance subsidiaries were being used to cross-guarantee the speculative trading at the AIG Financial Products subsidiary that was the source of most of its problems.

On the current lawsuit, Wood notes, "AIG always had the option of reorganizing through the courts" rather than accepting the government's terms.

"When AIG talks about a 'superior duty to shareholders,' what its board means is that it has a superior duty to Greenberg," he says.

Robert Hunter, director of insurance for the Consumer Federation of America, agreed.

Hunter says, "AIG should do the right thing Wednesday morning and toss Greenberg and his lackeys out the door when they arrive to make their pitch for AIG to join this ugly lawsuit. The courts should quickly do likewise."

He charged that Greenberg was a "man who has, for decades, put profit ahead of policyholders and is now trying to turn the federal taxpayer into his next victim." 

He called the litigation "outrageous."

"That Hank Greenberg is a very greedy man is hardly news," Hunter says. "But, you have to give him credit for a new high in world-class chutzpah for this.

"Hank uses the court system to sue the people of the United States for the 'crime' of having saved his AIG stockholdings from bankruptcy and, if that were not enough, he adds to that the delicious step of asking AIG to make a small change in the first few letters of its new, 'Thank you America' ad campaign by joining him in the suit."