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NY State appeals denial of objection to AIG shareholder deal

By Karen Freifeld

NEW YORK (Reuters) - New York Attorney General Eric Schneiderman is seeking to overturn a federal judge's decision denying him the right to derail a $115 million settlement between American International Group Inc shareholders and the insurer's former chief executive.

Schneiderman filed a notice of appeal Wednesday in federal court in Manhattan, saying he was taking the case to the 2nd U.S. Circuit Court of Appeals.

U.S. District Court Judge Deborah Batts in Manhattan ruled January 7 that Schneiderman lacked standing to object to the settlement and could not intervene in the case.

The settlement is intended to resolve claims of improper accounting and other fraudulent practices at New York-based AIG dating to 1999.

Schneiderman claims the deal is unfair and inadequate. He says it doesn't account for market fallout from 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 transaction is part of a lawsuit the New York attorney general's office brought against AIG former chief executive Maurice "Hank" Greenberg and Howard Smith, AIG's former chief financial officer, in 2005.

If the deal is approved, it would effectively end the New York attorney general's case against Greenberg and Smith.

The "broad terms of the releases" would preclude New York pursuing its case on behalf of AIG shareholders, Schneiderman said in court papers.

Batts must approve the agreement between shareholders and Greenberg, Smith, other executives, and Greenberg's companies C.V. Starr & Co and Starr International Co.

The judge set a fairness hearing for April 10.

A spokeswoman for Boies, Schiller & Flexner, which represents Greenberg and his companies, declined comment on the appeal.

Lawyers for the shareholders and Smith did not immediately return calls for comment.

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 Leslie Adler)

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