A lawyer for the New York Attorney General's Office pepperedMaurice "Hank" Greenberg with hours of questions on Tuesday,attempting to show he had played an intense, "hands on" role intrying to control losses from a failing auto-warranty insurancesegment at American InternationalGroup, Inc.

In the first day of Greenberg's direct testimony in thelong-awaited civil fraud trial against him, David Nachman, a seniorenforcement lawyer for the state, worked to paint Greenberg as aheavily involved CEO and chairman who considered the millions ofdollars in losses hemorrhaging from AIG's auto-warranty line to bea "debacle."

"You thought the business was a debacle?" Nachman askedGreenberg at one point, his voice rising.

Speaking softly, Greenberg answered, "The way it was beingconducted."

2 central allegations

The daylong questions were an attempt to lay the groundwork for oneof Attorney General Eric Schneiderman's two central allegationsagainst Greenberg: That he orchestrated a sham financialtransaction in 2000 that wrongfully converted underwriting lossesfrom the auto-warranty segment into capital losses, to giveinvestors a false picture of AIG's financial health.

Greenberg, now 91, took a pair of silver-rimmed glass from hisdark suit jacket and dug into document after document placed beforehim by Nachman, reading the court exhibits carefully and thenverbally jousting with Nachman over his actions, his trueintentions in 1999 and 2000, and just how concerned he really wasabout the auto-warranty segment of the giant insurance company.

"I think what you're not covering here," he told Nachman fromthe stand at one point, "is that this [auto-warranty line] was onlya small part of our business. Our business was huge. … This wasinsignificant."

Stressing repeatedly that AIG, which under Greenberg's directiongrew to become the world's largest insurance company, operating in137 countries, Greenberg also said that a major reason why he keptup his interest in the auto-warranty segment was to teach hissubordinates a lesson about not entering into a bad business in thefuture.

"I wanted to teach people a lesson," he said. "I thought theirjudgment going into that [auto-warranty program] was bad."

But Nachman gave no quarter. Throughout the day, he read fromand entered into evidence memo after memo sent directly from seniordeputies throughout 1999 and 2000 to Greenberg.

Trying to contain auto-warranty losses

The memos and reports sought to detail the progress they weremaking in trying to contain the auto-warranty losses, which anactuary had told Greenberg and senior AIG management would run intohundreds of millions of dollars.

Reading from the correspondence of one senior deputy, Nachmanhad Greenberg confirm that he had called the deputy on weekendsabout the problem. Early in the day, Nachman pointed out thatGreenberg's son, Evan, who was a chief operating officer at AIG,had supported the idea of the auto-warranty business.

It all raised the spectre of why Greenberg did become sointimately involved in the failing segment, even as he testifiedthat the millions in losses would only add up to a "half point" ofthe massive company's combined ratio, which measured the company'sunderwriting profitability.

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Sham financial transaction

Late in the day, Nachman moved more directly into tying Greenbergto the sham financial transaction — referred to as CAPCO — in whicha deputy at AIG specializing in reinsurance allegedly created atransaction that would convert underwriting losses into investmentlosses.

Nachman read from the deposition of Greenberg's co-defendant,former AIG chief financial officer Howard Smith, recalling a 1999meeting at which Smith, Greenberg and others at AIG discussed apotential reinsurance vehicle meant to reclassify the losses.

Greenberg pushed back. He said that "there may be a method ofconverting underwriting losses to investment losses, that was whatI was interested in." He said it was hypothetical, was not toinvolve reinsurance, and "it may come in the future." He did notsay or hint that he ordered any wrongful transactions, but ratherthat they were looking into a potential legal maneuver.

Bench trial

The bench trial is being held before state SupremeCourt Justice Charles Ramos, who hasbeen presiding over the lawsuit since its 2005 inception. Helistened intently on Tuesday, asking Greenberg or Nachman tofurther explain aspects of the auto warranty insurance business,and at other times making light of the complicated testimony.

"This is a great college course in business management," hequipped at one point, not long after Nachman had spent the betterpart of an hour asking Greenberg to testify about the centralimportance of underwriting to the property and casualty insuranceline's success.

Nachman read from a book Greenberg had co-authored in 2013,called "The AIG Story," to help make the point aboutthe emphasis Greenberg had placed on underwriting profits.

The civil fraud trial of Greenberg has been coming for 11 years,winding its way through seven pretrial appeals and narrowing inscope as government lawyers abandoned parts of their case againstthe prominent insurance executive.

Former New York Attorney General Eliot Spitzer brought the casein 2005, alleging nine different wrongful financial acts.

Today, the lawsuit focuses on just two alleged sham transactionsand seeks disgorgement of $52 million in total from Greenberg andSmith. David Boies of Boies Schiller & Flexner is representingGreenberg; Vincent Sama, a partner at Kaye Scholer, is leadingSmith's defense.

Fraudulent reinsurance deal

In the second alleged transaction — which was not part of Tuesday'squestioning — Schneiderman's office claims Greenberg and Smithhelped orchestrate a fraudulent reinsurance deal between AIG andGeneral Reinsurance Corp. The transaction allegedly pumped up AIG'sreserves by $500 million in 2000 and 2001, deceiving Wall Streetanalysts and investors about the level of losses AIG couldhandle.

Under state law, Greenberg and Smith are not afforded a jurytrial because the government is not asking for damages but rather aforfeit of past bonuses from Greenberg and Smith.

Six billion dollars in damages were once sought in thelong-running case. But in 2013, both Greenberg and Smith wereincluded as parties in a $115 million settlement in a federal classaction suit brought by former AIG stockholders that includedsimilar allegations as those made in this case. Under res judicatalegal principles, the government cannot seek damages already paidout in the class action.

Related: Ex-AIG chairman Greenberg ordered to fact trial inN.Y. suit