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(Reuters) — Former American International Group Inc. CEO Maurice R. Greenberg failed to persuade New York state's highest court to dismiss a lawsuit seeking to hold him accountable for sham transactions at the insurer.
The decision by the state's Court of Appeals is a victory for New York Attorney General Eric Schneiderman, who has been pursuing a case first brought in 2005.
Mr. Greenberg, 88, has argued that there was no admissible evidence that he orchestrated a $500 million transaction with the reinsurer General Re Corp. that misled AIG shareholders, and that the case should have ended when the state in April dropped a claim for as much as $6 billion in damages.
But in a 7-0 decision on Tuesday, the Court of Appeals said there was easily enough evidence that Mr. Greenberg and his co-defendant, former AIG Chief Financial Officer Howard Smith, knew the AIG-GenRe transaction was fraudulent to proceed to trial.
"We have no difficulty in concluding that ... there is evidence sufficient for trial that both Greenberg and Smith participated in a fraud," Judge Robert Smith wrote for the court.
The court also ruled that the attorney general could seek to ban Messrs. Greenberg and Smith from participating in the securities industry and serving as officers and directors of public companies.
Mr. Greenberg led AIG for nearly four decades before he was ousted in 2005. The following year, AIG paid $1.64 billion to settle federal and state probes into its business practices.
The Greenberg case was brought by former state Attorney General Eliot Spitzer and was later pursued by his successors Andrew Cuomo, now New York's governor, and Mr. Schneiderman.
The appeal originally included a much-anticipated challenge to New York's Martin Act, a powerful 1921 securities fraud statute that Mr. Spitzer used aggressively to fight Wall Street. That issue become moot after Mr. Schneiderman withdrew the damages claim.
The case is New York v. Greenberg et al., New York State Court of Appeals, No. 63.