(Reuters) — An American International Group Inc. unit sued a company headed by Philadelphia philanthropist Alan Buerger, accusing it of a $150 million fraud involving life insurance policies sold by elderly individuals in exchange for a quick payment.

The lawsuit, filed on Friday in Manhattan federal court, said AIG's Lavastone Capital had paid Coventry First of Fort Washington, Pennsylvania, more than $1 billion since 2006 to help it acquire the policies, known as “life settlements.”

Coventry is the “leader and creator” of the life settlement industry, according to its website. Investors who acquire a policy cover the premiums until the individual's death and then collect the payout.

Rather than identifying appropriate policies and selling them to Lavastone at the elderly individuals' asking price, the lawsuit claimed, Coventry used a network of shell companies to artificially inflate the prices to Lavastone.

“Thus, defendants' behavior is no different than an auction house that knows a bidder's maximum price ceiling and then uses 'shill bidders' associated with the auction house to fraudulently inflate the price to that bidder's maximum bid,” the lawsuit said. It called Coventry and Chief Executive Officer Buerger “scam artists.”

Mr. Buerger said he could not comment on the lawsuit because he had not yet read it.

Lavastone lost more than $150 million as a result of the arrangement, according to the lawsuit, which said that figure was “likely just the tip of the iceberg.” Lavastone accused Coventry of engaging in racketeering, fraud, conspiracy, breach of contract and other violations.

The lawsuit also noted two previous civil fraud actions against Coventry brought by the New York Attorney General's office and Florida's insurance regulator, both of which were settled.

Besides Coventry, the lawsuit names a number of other business entities as well as Mr. Buerger and several family members.

Lavastone spent approximately $6.5 billion over a decade to acquire nearly 7,000 life settlements with a face value of $20 billion, according to the lawsuit. AIG has since wound down its life settlement business, the lawsuit said.

The Buergers are well-known philanthropists in Philadelphia. Last year they donated $50 million to the Children's Hospital of Philadelphia.