To say that American International Group is having a tough monthwould be an understatement, seeing its claim rejected by a jury ina dramatic legal showdown with former CEO Maurice Greenberg, itsstock dismissed by an analyst as potentially worthless, and itsinsurance pricing practices probed by regulators.

A federal jury in Manhattan rejected a claim by AIG that StarrInternational Company (SICO), headed by Mr. Greenberg, wasobligated to hold shares of AIG stock in trust for retiring AIGemployees, and owed the company $4.3 billion in damages.

Mr. Greenberg was forced to leave as chair and chief executiveofficer of AIG in 2005 amid allegations that the firm has misusedfinite reinsurance to artificially bolster its balancesheet–eventually resulting in the convictions of one AIG and fourGeneral Reinsurance executives.

Shortly after Mr. Greenberg left AIG, SICO terminated thedeferred compensation retirement program, which had beendistributing a portion of the dividends SICO gained as a majorshareholder of AIG stock.

AIG attorney Theodore Wells hammered away at Mr. Greenbergduring his seven days of testimony, accusing him of lying while onthe witness stand. AIG relied on memos that discussed the deferredcompensation program and speeches made by Mr. Greenberg toparticipants in the SICO plan as evidence that a trust existed.

But SICO attorney David Boies argued that there was nodocumentation to back up AIG's claim and nothing to show that thecompany ever created a trust within SICO.

AIG had maintained there was a trust set through SICO to rewardkey executives with extra compensation that would be delayed untilafter retirement. However, Mr. Greenberg's attorney told the jurythat the company made up its claim after SICO sued AIG over somedisputed art work.

The jury, which heard evidence for three weeks, was handed thecase on July 7, yet took less than a few hours to decide in favorof SICO, ruling that the company owed no liability to AIG.

Still to be decided by U.S. District Judge Jed S. Rakoff iswhether there was an express breach of trust or fiduciary duty bySICO. He said in an order prior to the trial he will take thejury's decision into account but make his “own independent findingsof law and of fact on the equitable claims.”

A representative for the court said Judge Rakoff would issue hisdecision in August.

“We are disappointed by the jury's verdict and we await thecourt's final ruling. We continue to believe in the merits of ourcase,” AIG said in a statement.

A SICO representative, Liz Bowyer, said that “we are gratifiedby the jury's quick and complete vindication of Starr Internationaland Mr. Greenberg, and the jurors' quick and complete rejection ofthe outrageous personal attacks on Mr. Greenberg's character by AIGand its counsel.”

In an interview shortly after the verdict with Maria Bartiromoof CNBC, Mr. Greenberg called the seven days he was on the witnessstand “grueling,” but said he was glad he did it because it was theturning point in the case. He welcomed the jury verdict but notedthat the final decision is up to Judge Rakoff.

In the interview, Mr. Greenberg revealed that at the time heleft AIG in 2005, SICO's AIG stock holdings were worth $20 billion.But today, following AIG's flirtation with bankruptcy last fall andits subsequent and ongoing federal bailout, the stock's value isdown to only $200 million.

Standard & Poor's downgraded its view of AIG stock after theverdict, changing its recommendation from “hold” to “sell.”

“We still view AIG's underlying fundamentals as weak and underpressure, and believe AIG's loss in its lawsuit versus former [AIG]CEO Hank Greenberg is another negative for the shares,” saidCatherine Seifert, insurance analyst with S&P's equity researchunit.

She said the recent 1-for-20 stock split by AIG “may ease themechanics of shorting AIG shares,” but S&P's opinion “reflectsour view of AIG's weak fundamentals and high degree of executionrisk.”

AIG absorbed more negative publicity after a stock analystpredicted the company's shares could be worthless.

Citigroup analyst Joshua Shanker, in his own note to investors,cited “a 70 percent chance that the equity at AIG is zero” afterthe company's 20-to-1 reverse stock split on July 1. He said hisassessment reflected further possible losses from credit defaultswaps and “management's increased openness to disposing ofbusinesses at low valuations.”

The company may be able to pay back the investment by the U.S.government, as well as some other debt as it sells off core assets,but the remaining company may generate low return on equity and behandicapped by a high debt burden, he said.

The analyst also questioned the ability of current CEO Ed Liddyto lead the company as he transitions out of his role once asuccessor is found.

Citigroup said there was a 20 percent probability that AIG wouldcontinue as a property and casualty insurer, but the expectation isthat the p&c business will be carved out in an initial publicoffering in 2010. There is also a 10 percent probability ofinsolvency, Citigroup said.

Andrew J. Barile, an industry consultant based in Rancho SantaFe, Calif., said the loss of the compensation plan could cost AIG abig competitive edge to keep qualified executives from movingelsewhere–with some going to SICO.

“[Mr. Greenberg] was a genius in using the concept to build andretain AIG executives,” Mr. Barile said in an e-mail. “Now thependulum switches to building Starr using his same expertise.”

He added that “AIG executives need to be freed up to buildvalue, not spend their time on costly litigation.”

In an interview with National Underwriter, Mr. Barilesaid finding a way for AIG to replace the incentive plan would“take more work than they [AIG] ever dreamed of.”

The brilliance of the plan, he said, was that being a privatecompany, SICO never had to report how much the executive incentivepayments amounted to. The competitive advantage, he explained, wasthat other companies found it difficult to lure executives awayfrom AIG because they would never know how much to pay them inincentives to make it worth their while.

He noted, too, with the federal government owning a large shareof AIG now, it is doubtful such an incentive program would beallowed to continue.

Adding to the negative press, in an interview with BloombergTelevision, New York's acting insurance superintendent, Kermitt J.Brooks, said both his department and regulators in Pennsylvaniawere conducting examinations into the pricing practices of AIG'sp&c units.

The probe follows complaints from several carriers that AIG'sinsurers benefit from an unfair advantage in pricing their accountsbecause their parent company is backed by the federalgovernment.

Representatives of both state insurance departments confirmed toNU that they do have ongoing exams but refused to give anyadditional information. AIG did not return a request forcomment.

In March, the U.S. General Accountability Office andPennsylvania Insurance Commissioner Joel Ario told Congress therewas no evidence of predatory pricing by AIG. Orice Williams, GAO'sdirector of financial markets and community investment, toldCongress that while pricing is aggressive, it is not out of linewith the company's previous practices.

Meanwhile, Kenneth Feinberg, the Obama administrationcompensation czar, would not answer questions after widespreadreports that AIG will pay millions more in controversialbonuses.

Mr. Feinberg said by e-mail he was sorry but would have nocomment concerning articles reporting that the company had spokento him concerning the bonuses. AIG did not respond to a request forcomment.

The payments of bonuses has been a hot-button issue since March,when it was revealed AIG was paying $165 million in retentionbonuses to executives at the Financial Products unit that broughtit to the brink of failure.

Mr. Feinberg was appointed last month by the Treasury Departmentto oversee compensation to executives at seven companies nowreceiving federal assistance.

According to published reports, AIG is seeking governmentapproval for $2.4 billion in performance bonus payments to 43executives. The money is part of a larger bonus pool, most of itpaid out in March.

When the storm broke in March over the bonuses, the company saidthat it had a contractual obligation to pay them and they were aneeded tool to retain top talent.

Eventually the company reported that at least $50 million of the$165 million distributed was returned by U.S. citizens, and thatforeign employees gave back money as well.

(Additional reporting by Daniel Hays.)