AIG Agrees To Arbitrate Disputes With Greenberg

NEW YORK_A judge on Monday dealt a setback to American International Group Inc. in its legal fight with former CEO Maurice "Hank" Greenberg, ruling that a company he ran did not improperly seize AIG stock from an executive retirement plan.

Separately, AIG signaled it is looking to mend ties with its former CEO, agreeing to settle their disputes through arbitration. A private settlement could head off the need for AIG to appeal the ruling, laying aside at least one distraction for the struggling insurer.

U.S. District Judge Jed S. Rakoff in Manhattan upheld an advisory jury decision from July, ruling the Greenberg-controlled investment firm Starr International Co. does not owe AIG $4.3 billion to cover stock taken from the retirement fund after Greenberg's ouster from AIG in 2005.

New York-based AIG claimed that the fund was held in an oral trust for use by company employees. Greenberg has argued he could sell the shares because they were controlled by Starr International.

"The law will not recognize such an oral trust unless the evidence of its creation is unequivocal," Judge Rakoff wrote Monday. "This is a burden that AIG has not come close to shouldering."

The company said Monday that its arbitration proceedings with Greenberg and former Chief Financial Officer Howard Smith will begin no later than Oct. 15 and conclude by March 31. Among the disputes to be settled is AIG's claim that Greenberg and Smith owe part of the $1.6 billion AIG has paid to settle a range of issues with regulators including the Securities and Exchange Commission, Justice Department and New York Attorney General. The company will consider whether to arbitrate its claims against Starr International after rulings on any final appeals are made.

AIG said the arbitration won't include any pending claims by AIG shareholders against Greenberg and Smith.

Greenberg was ousted from New York-based AIG amid an accounting scandal in 2005. The Securities and Exchange Commission charged both Greenberg and Smith with misstating the company's earnings.

But Greenberg, instrumental in AIG's rise from a small firm to the world's biggest insurer, could have more to offer AIG as an ally. Rumors of improving relations sent AIG shares surging last week.

"It does seem to be consistent with some recent signals we've had that the company and Mr. Greenberg are trying to settle their past differences," said Bill Bergman, senior stock analyst for Morningstar Inc. "I think underneath, once they come to some terms, Greenberg brings a network of business opportunities and capital sources that can be help for AIG right now."

The company, with former MetLife Inc. CEO Robert Benmosche newly installed at its helm, is trying to sell off assets to pay back the $182.5 billion in government loans it has received since the financial markets collapsed last September.