The federal government acted illegally in the conditions it set for rescuing American International Group Inc. in 2008, a federal judge ruled Monday.

But Judge Thomas Wheeler of the U.S. Court of Federal Claims in Washington also ruled that despite the illegality, a group of AIG shareholders including former AIG CEO Maurice R. Greenberg were not entitled to monetary damages because of the government's action.

In Starr International Co. Inc. v. United States, Mr. Greenberg — who now heads Starr — and others in the suit held that the “government's actions in acquiring control of AIG constituted a taking without just compensation and an illegal exaction” that violated the Constitution, wrote Judge Wheeler.

In return for an initial $85 billion in financial assistance to AIG, the government took a nearly 80% share in the insurance giant. Further assistance followed, but AIG eventually repaid all of the assistance, with the government making a profit of more than $22 billion, Judge Wheeler noted.

Mr. Greenberg and the other shareholders sought billions of dollars in compensation for the lost value of their stock.

“The weight of the evidence demonstrates that the government treated AIG much more harshly than other institutions in need of financial assistance,” wrote Judge Wheeler. “While the government publicly singled out AIG as the poster child for causing the September 2008 economic crisis, the evidence supports a conclusion that AIG actually was less responsible for the crisis than other major institutions.”

“The government's justification for taking control of AIG's ownership and running its business operations appears to have been entirely misplaced,” he wrote. He called the government's treatment of AIG in comparison to other troubled financial institutions “unduly harsh.”

But Judge Wheeler wrote that the question wasn't whether the treatment was “inequitable or unfair, but whether the government's actions created a legal right of recovery for AIG's shareholders.”

He said that it did not.

“In the end, the Achilles' heel of Starr's case is that, if not for the government's intervention, AIG would have filed for bankruptcy,” he wrote. “In a bankruptcy proceeding, AIG's shareholders would most likely have lost 100% of their stock value.”