New York can't object to $115 million AIG shareholder deal: judge

New York Attorney General Eric Schneiderman cannot stop a $115 million settlement between American International Group Inc shareholders and the insurer's former chief executive and others, a U.S. judge ruled on Monday.

The New York Attorney General lacks standing to object to the settlement, U.S. District Court Judge Deborah Batts in Manhattan wrote in her decision. She also denied Schneiderman's request to intervene.

Batts must approve the accord reached in 2009 between shareholders and former AIG Chief Executive Maurice "Hank" Greenberg, former Chief Executive Howard Smith, other executives and Greenberg's companies C.V. Starr & Co and Starr International Co.

The judge set a fairness hearing for April 10 and could approve the settlement afterward. If she does, it could effectively end a high-profile civil fraud case against Greenberg and Smith brought by the Attorney General's office in 2005.

A spokesman for Schneiderman did not immediately return a call for comment. A spokeswoman for Boies, Schiller & Flexner, which represents Greenberg and his companies, had no immediate comment. Lawyers for the shareholders and Smith also did not immediately return calls for comment.

The New York Attorney General's plea for the parties to re- negotiate raises concerns of "undue delay" and demands court action based on "sheer speculation and hotly contested expert evaluations," the judge wrote in her ruling.

In August, Schneiderman urged Batts to reject the accord, saying an expert for shareholders made a math error that caused the payout to be too low. Lawyers for the shareholders responded the error had no significant effect.

They also said it was "entirely speculative" to expect the shareholders to fare better in new talks.

Lawyers for Greenberg, Smith and the Starr entities had also urged approval of the settlement.

At issue is a 2000 transaction with General Re Corp, a unit of Warren Buffett's Berkshire Hathaway Inc , which various government investigators have said allowed AIG to inflate loss reserves by $500 million without transferring risk.

Schneiderman argued a math error by the expert caused the transaction to get no weight in the calculation of damages.

The case was brought by former New York Attorney General Eliot Spitzer. Greenberg and Smith appealed to the state's highest court.

The case is In re American International Group Inc Securities Litigation, U.S. District Court, Southern District of New York, No. 04-08141.

(Reporting By Karen Freifeld. Editing by Andre Grenon)