WASHINGTON (The Deal) -- The trial in a $40 billion lawsuit claiming the federal government illegally confiscated property of American International Group  (AIG)  shareholders got underway Monday -- with dueling perspectives emerging on day one of a much anticipated hearing that is providing a window into how regulators sought to stem a growing financial crisis in 2008.

At the core of the dispute in federal claims court in Washington is a 79.9% equity stake in AIG the U.S. government received in September 2008 in exchange for an $85 billion taxpayer-funded emergency loan made to the embattled insurer. The lawsuit was spearheaded by Maurice "Hank" Greenberg, former chairman and CEO of AIG, in 2011. Greenberg's investment firm, Starr International, was the insurer's largest shareholder - with an 11% stake - at the time of the bailout.

AIG, considered the poster child for the financial crisis, eventually needed further assistance and ultimately received a whopping $182 billion -- a sum that gave the government a 92% stake at the peak and one that the insurer eventually repaid. AIG's notorious financial products group made the company massively interconnected internationally. The firm also did not have sufficient capital or adequate oversight during the years leading up to the crisis. Its primary regulator in the U.S. during the build up to the crisis, the Office of Thrift Supervision, was dissolved by Congress after the crisis due to its oversight failures.

Many regulatory observers are skeptical about Greenberg's chances of success. However, Federal Claims Court Judge Thomas Wheeler gave the Starr International chief's top lawyer, David Boies, a partner at Boies Schiller & Flexner, additional time to wrap up his opening argument beyond the time that was allotted, indicating that he may think it has some merit. The lawsuit will likely take roughly six weeks to run its course. High-profile ex-regulators from the crisis era, including former Treasury Secretaries Hank Paulson and Timothy Geithner as well as ex-Fed chief Ben Bernanke, are tentatively scheduled to testify. Bernanke could testify as soon as next Monday but both sides said they haven't nailed down a specific time for his testimony.

In their opening arguments, both sides were at odds over whether AIG shareholders got a raw deal.

Boies argued that the U.S. was not authorized to require AIG to "surrender" its private company equity as compensation for receiving a specific taxpayer-backed loan through the Federal Reserve's so-called 13 (3) "lender of last resort" authority.

"Over 200 private companies received 13 (3) credit and no other private company other than AIG ever provided equity in exchange for access to credit under 13 (3)," Boies said, defending his point.

He also argued that the federal government has never accused AIG of committing a crime, as part of his argument that AIG received a particularly unusual punishment through the loan. In addition, Boies suggested that the company only had liquidity problems - not core capital buffer issues - and that the Fed had coerced AIG into accepting the terms of the contract, at a high interest rate when compared to other beneficiaries of Fed assistance. He also argued that the U.S. was discouraging foreign sovereign wealth funds from providing private assistance to the insurer, which could have come in tandem with government assistance.

However, Government attorney Kenneth Dintzer, in defending the government's actions, repeatedly pointed to a comment made by an AIG advisor who had argued that getting 20% of something is better than receiving 100% of nothing. "The plaintiffs cannot argue that shareholders would be better off without the loan," he said.

Dintzer insisted that AIG wasn't "entitled" to the loan, which he said was an "enormous benefit" to the firm and one that it didn't apparently "appreciate."

He also disputed assertions that AIG was pressured to accepting the government's terms, arguing that AIG came to the U.S. seeking the loan and that its independent board accepted it and the U.S. government's 79.9% equity stake "voluntarily." He contended that AIG's board, which evaluated and eventually accepted the deal in September 2008, was independent with no connection to the U.S. government. "No AIG director has said the corporation was coerced by the government to take the loan," Dintzer said.

Finally, Dintzer took issue with Boies suggestion that there were sovereign wealth funds ready to provide private financing to assist AIG as the firm was contemplating a government bailout. He pointed out that the plaintiffs had not listed the name of a single sovereign wealth fund that was considering coming to "save" AIG. Dintzer concluded that the loan was legal under the Fed's 13 (3) lending authority and that any deadline was set based on the need of AIG to pay its creditors.

Boies disputed that AIG shareholders weren't hurt, arguing that the government was never going to let AIG go into bankruptcy. "If they are going to use the argument that AIG shareholders weren't hurt because it would have gone into bankruptcy without the aid, that's wrong - they never were going to let AIG go bankrupt," he said.

In the afternoon, Federal Reserve General Counsel Scott Alvarez was the first to testify, in what was at times a heated exchange between himself and Boies, who sought to demonstrate that AIG shareholders were treated unfairly when compared to other bailout deals with banks on the verge of collapse. Alvarez, the Fed's general counsel since 2004, was a key actor in the central bank's financial crisis response.

Boies and Alvarez first squabbled over the Federal Reserve Bank of New York's March 2008 loans to Bear Stearns, which were facilitated as part of an acquisition of the institution's assets by JPMorgan Chase  (JPM) . Boies sought to point out that, unlike with AIG, the Fed did not receive an equity stake in JPMorgan as part of that bailout.

"Did the [Fed] board receive equity in JPMorgan?" asked Boies. "Not that I'm aware of," said Alvarez.

They also were at odds over Boies assertions that AIG's loan carried a high interest rate while so-called primary dealer banks could borrower from the Fed's crisis-era Primary Dealer Credit Facility, at a much lower interest rate. Alvarez repeatedly said he could not recall what rate primary dealer banks received.

The two sides also squabbled about whether AIG "inquired about" or "asked for" assistance from that primary dealer credit facility, with Alvarez noting that AIG never filled out a formal application to register as a primary dealer.

Boies and Alvarez also disagreed over the circumstances around which Morgan Stanley  (MS) was approved by the central bank - with a waiting period waiver - to become a Fed holding company, making it eligible to receive billions in taxpayer infused loans. Boies also asserted that Morgan Stanley received over $100 billion in one Fed loan in September 2008, an amount that Alvarez said he could not recall.

Pace University Business School's John James, a business professor at Pace University, suggested that the government may soon try to settle the case because otherwise it could become quite embarrassing for the Treasury Department, the Federal Reserve and individual high profile regulators. He added that Greenberg wouldn't have been able to mobilize the funds for the lawsuit unless he was able to convince other investors that he was correct or at least that it was an "incredible cause."

James argued that the trial will expose questions of governance and transparency, adding that even if AIG didn't have a choice about whether or not to accept the government's offer, that didn't mean the offer was fair and equitable. "I think it is worthy of a close examination," James said.