AMERICAN International Group Inc (AIG) has agreed to settle all legal disputes with its former chairman, Maurice Greenberg.

AIG, which is owned by US taxpayers, said it will pay up to $150 million in past legal costs for Greenberg as well as former chief financial officer Howard Smith.

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Greenberg was ousted from New York-based AIG during an accounting scandal in 2005. Both Greenberg and Smith were charged with misrepresentation of the company's earnings.

AIG said late Wednesday that a Greenberg-controlled investment firm owed it $4.3 billion to cover stock taken from a retirement fund. Greenberg had argued he could sell the shares because they were controlled by his company, Starr International.