AIG, Starr International set for court battle

NEW YORK, Feb 2 (Reuters) - American International Group Inc AIG.N on Monday filed court papers laying out its case for seeking to reclaim a long-contested block of AIG stock from privately held Starr International Co, a company controlled by AIG's former CEO, Maurice Greenberg.

AIG is pursuing its claim for shares held by Starr, claiming breach of fiduciary duty, at the same time as it deals with the more pressing matter of repaying a $60 billion taxpayer loan after the U.S. government stepped in to save it from collapse under bad mortgage bets.

Starr’s ownership of AIG stock has been in contention since early 2005 when Greenberg left AIG. The firm held about 290 million shares at the time. It has sold about 80 million shares since, according to Reuters data.

A trial to settle the matter is scheduled to begin in Manhattan on Mar. 2.

“The trial will decide who is entitled to the large block of AIG stock ... Maurice Greenberg, the former AIG chief executive who misappropriated the stock when he left AIG four years ago under investigation for accounting fraud; or the current and future employees of AIG for whom the stock was put in trust nearly 40 years ago,” said AIG’s pretrial brief, prepared by law firm Paul, Weiss, Rifkind, and filed in Manhattan federal court late on Monday.

Starr International is the original plaintiff, after filing a 2005 lawsuit against AIG to reclaim items that remained behind when Greenberg quit, including a collection of paintings by artists such as Vincent Van Gogh. AIG made a counterclaim for the stock.

Starr International had held a sizable stake in AIG since 1970 when Greenberg structured the firm as a vehicle to both protect the insurer from hostile takeover and fund incentive compensation for AIG’s best-performing employees.

The value of the shares held by Starr International was about $20 billion in 2005, when it ceased to be a compensation vehicle for AIG executives. It is now run by Greenberg as a private investment vehicle and for charity.

AIG’s lawyers are to argue that Starr International had a long-standing, irrevocable obligation to fund deferred compensation for AIG employees, something it says is even more acutely needed now that it has fallen on hard times.

AIG is seeking to wrest back unsold shares worth about $270 million at AIG’s current stock price, as well as proceeds from stock sales since 2005.

Boies, Schiller & Flexner, the law firm representing Starr International, is expected to shortly file its own pretrial memorandum.

“AIG, having dissipated its assets, now seeks to divert assets committed to charity so its top executives can take more undeserved bonuses,” said Starr’s lawyer Robert Silver, in an email responding to AIG’s claims.

Greenberg left AIG amid a broad investigation into the insurer’s accounting practices and use of offshore vehicles led by then-New York Attorney General Eliot Spitzer. AIG settled the probes, which included the U.S. Securities and Exchange Commission and Department of Justice, for $1.6 billion in 2006.

Greenberg continues to fight the charges. (Reporting by Lilla Zuill; Editing by Gary Hill)