New York drops damages claim in suit against ex-AIG chief

New York's attorney general is dropping a claim for damages in a high-profile civil lawsuit accusing the former chief executive of American International Group Inc, Maurice "Hank" Greenberg, of defrauding investors, according to a letter sent by the attorney general's office on Thursday.

The 2005 lawsuit filed by then-Attorney General Eliot Spitzer against Greenberg and former AIG chief financial officer Howard Smith sought as much as $6 billion in damages.

In an April 25 letter to the New York Court of Appeals, New York Solicitor General Barbara Underwood wrote that the state would still be pursuing the civil fraud case against the defendants but would not be seeking damages, in order "to avoid further delay and expedite the trial of the state action."

The office will continue to pursue other remedies against the defendants, including a potential ban on working in the securities industry or serving as an officer or director of a public company, the letter said.

"Attorney General (Eric) Schneiderman feels strongly that individuals in the financial services industry who perpetrate fraud, no matter how wealthy or powerful, must be held publicly accountable, and that is why we believe justice will best be served by proceeding to a long overdue trial of Mr. Greenberg as quickly as possible," New York attorney general spokesman Damien LaVera said in a statement.

A lawyer for Greenberg, David Boies of Boies Schiller & Flexner, said in a statement that the action "finally brings down the curtain on a series of issues of claims that were never justified and should never have been brought in the first place."

The decision to withdraw the claim for damages in state courts follows an April 10 order approving a $115 million settlement reached by AIG shareholders with Greenberg and other defendants over alleged accounting improprieties at the insurance giant.

Lawyers for Greenberg argued that the $115 million settlement in federal court would effectively preclude Schneiderman from seeking "duplicative damages" from Greenberg in state court.

The attorney general's lawsuit centered around two reinsurance transactions in 1999 and 2000. It was brought under the Martin Act, a law that allows New York's top state prosecutor to pursue criminal or civil fraud cases involving suspected corporate wrongdoing.

The case is currently pending before the New York Court of Appeals, the state's highest court.

The case is People v. Greenberg et al, Supreme Court of the State of New York, New York County, No. 401720/05.

(Reporting by Jessica Dye; Editing by Edmund Klamann)