Maurice "Hank" Greenberg, 83, claimed in papers filed in federal court in Manhattan on Monday that the company, once the world's largest insurer, has ruined his fortune by lying about its financial health.
The lawsuit says Greenberg, who served as AIG's chief executive from 1967 until he retired in March 2005, was the New York-based company's largest non-institutional shareholder.
Christina Pretto, a company spokeswoman, said: "We believe the suit is without merit and we will defend ourselves vigorously."
AIG's stock fell to 42 cents Monday as the government threw a stunning new $30 billion lifeline to the insurance giant, which confirmed it lost more than twice that much, $62 billion, in the last quarter.
The source of trouble for AIG, which has 74 million customers worldwide and operations in more than 130 countries, is its business insuring mortgage-backed securities and other debt against default. That business imploded when the credit crisis struck with force.
The government has now made four separate efforts to save the company, totaling more than $170 billion.
Greenberg was forced out of AIG amid a controversy in spring 2005 when the company restated its financial statements for the previous five years, acknowledging accounting improprieties, including "improper or inappropriate transactions."
New York regulators later accused AIG, Greenberg and the company's former chief financial officer of orchestrating an accounting scheme that made AIG's financial picture appear brighter than it was, misleading both investors and regulators.