NEW YORK, May 28 (Reuters) - A New York state judge has rejected a request by Maurice "Hank" Greenberg, the former American International Group Inc chief executive officer, to dismiss a long-running civil lawsuit by the state's attorney general.
Greenberg, now 89, and former AIG Chief Financial Officer Howard Smith were accused in the 2005 case of engineering sham transactions, including with the General Re Corp reinsurance unit of Warren Buffett's Berkshire Hathaway Inc, to make AIG's financial health look better.
This alleged accounting fraud led to a $3.9 billion restatement, which predated the insurer's $182.3 billion federal bailout stemming from the 2008 financial crisis.
David Boies, a lawyer for Greenberg, said his client plans to appeal. Vincent Sama, a lawyer for Smith, did not immediately respond to a request for comment.
Justice Charles Ramos of the Manhattan state supreme court on Wednesday rejected the defendants' arguments that state law barred Attorney General Eric Schneiderman from seeking to recoup some of their pay, and ban them from the securities industry and from serving as officers or directors of public companies.
The judge also said arguments that the defendants "pose no threat to the New York public" because they do not lead public companies or plan to publicly sell securities involve issues of fact to be resolved at a trial, which would not have a jury.
"The issues remaining in this action must be tried," Ramos wrote.
The lawsuit was first brought by Eliot Spitzer, then the state's attorney general, and has been continued by his successors, Andrew Cuomo and now Schneiderman.
Matt Mittenthal, a spokesman for Schneiderman, said: "We look forward to moving toward a trial that will finally offer the opportunity to hold Mr. Greenberg accountable for his alleged role in a massive fraud."
Last June, New York's Court of Appeals, the state's highest court, also let the case go forward, even though Schneiderman had earlier in the year dropped damages claims worth a potential $6 billion.
"We have no difficulty in concluding that, in this civil case, there is evidence sufficient for trial that both Greenberg and Smith participated in a fraud," the appeals court wrote.
Greenberg now runs privately held C.V. Starr & Co. Buffett was not implicated in wrongdoing.
The case is People v Greenberg, et al, New York State Supreme Court, New York County, No. 401720/2005.
(Reporting by Jonathan Stempel in New York; Editing by Tom Brown)