UPDATE 1-Judge narrows Greenberg lawsuit vs U.S. over AIG bailout
* Ex-AIG CEO's Starr Int'l may pursue direct claims
* US, AIG win dismissal of derivative claim
* Size of lawsuit grew in March to $55.5 billion
June 26 (Reuters) - A federal judge has allowed former American International Group Inc Chief Executive Maurice "Hank" Greenberg to continue his multi-billion dollar lawsuit against the United States over the insurer's bailout, but took away some of his claims.
Greenberg's Starr International Co may pursue claims over the government's taking of a 79.9 percent stake in AIG in September 2008 and a separate 1-for-20 reverse stock split in June 2009, Judge Thomas Wheeler of the U.S. Court of Federal Claims said on Wednesday.
The judge nonetheless granted motions by the government and AIG to dismiss "derivative claims" that Starr had asserted on behalf of AIG shareholders, including over the insurer's refusal to help him pursue the lawsuit.
AIG's board decided in January not to join Starr's case, after a public backlash at the idea that it would effectively be asking taxpayers whose money helped save it from collapse during the 2008 financial crisis to return billions of dollars.
While saying he was "troubled" that Treasury Department lawyers may have pressured AIG to stay out of the lawsuit, Wheeler said the board exercised its business judgment in an "informed, transparent, rational, and exemplary fashion."
The judge ruled one day after New York's highest state court said state attorney general Eric Schneiderman may pursue an unrelated case against Greenberg, 88, over an alleged accounting fraud at AIG more than eight years ago.
Starr once held a 12 percent stake in AIG, which had been the world's largest insurer by market value prior to the financial crisis and a $182.3 billion federal bailout.
Its lawsuit grew in March to roughly $55.5 billion in size. This comprised $23 billion related to the 79.9 percent stake, plus $32.5 billion of collateral that Starr said the government gave away to help rid banks that dealt with AIG of toxic debt.
Starr has alleged that the bailout and related government actions constituted an illegal taking that violated the 5th Amendment of the U.S. Constitution.
David Boies, a lawyer for Starr, in a statement said he was pleased that Wheeler let stand claims for "tens of billions of dollars that the government took without just compensation and/or illegally exacted."
AIG spokesman Jon Diat said the New York-based insurer is pleased with the decision. U.S. Department of Justice spokeswoman Allison Price declined to comment.
A trial could begin late next year.
Starr is separately appealing another judge's dismissal of its related lawsuit against the Federal Reserve Bank of New York. Wheeler, meanwhile, has previously awarded class-action status to two groups of shareholders challenging the bailout.
Greenberg led AIG for nearly four decades before his 2005 ouster. On March 1, AIG eliminated the government's last financial stake by repurchasing warrants.
The case is Starr International Co. v. U.S., U.S. Court of Federal Claims, No. 11-00779.