New York's highest court will hear arguments on Tuesday onwhether to dismiss a lawsuit accusing Hank Greenberg oforchestrating sham transactions when he was head of insurancecompany American International Group Inc.

New York Attorney General Eric Schneiderman dropped damagesclaims in the case last month, but he is still trying to haveGreenberg, 88, banned from the securities industry and from being adirector or officer of a public company.

David Boies, a prominent lawyer who represents Greenberg, saidhe would argue at Tuesday's hearing for a dismissal of thelawsuit.

“The case is over,” Boies told Reuters on Friday.

Schneiderman disagreed. “Three consecutive attorneys generalhave pursued this case,” said his spokesman, Damien Lavera.“Justice demands personal accountability for people who commitfraud, no matter how rich or well-connected they may be.”

Eliot Spitzer, the New York attorney general at the time,brought the lawsuit in 2005. Andrew Cuomo, Spitzer's successor andnow New York's governor, later oversaw the case.

It centers on two transactions in which AIG misled itsshareholders. One, with General Re Corp, a unit of Warren Buffett'sBerkshire Hathaway Inc, raised AIG's loss reserves by $500 millionwithout transferring risk. Another, with Capco Reinsurance Co, hida $210 million underwriting loss in an auto-warranty program.

At Tuesday's hearing, New York's Court of Appeals will hearGreenberg's effort to reverse lower court rulings that allowed thecase against him and former AIG Chief Financial Officer HowardSmith to go forward.

MARTIN ACT

The appeal originally included a much-anticipated challenge toNew York's Martin Act, the 1921 securities fraud statute thatattorneys general Spitzer, Cuomo and Schneiderman have wieldedagainst Wall Street since the early 2000s.

Boies was set to argue that the state attorney general lacksauthority to recover damages on behalf of private entities. Thosearguments became moot on April 25, when Schneiderman dropped hisdamages claims against Greenberg and Smith.

“I'm disappointed, but I'm not going to complain,” Boies said onFriday. “I think the Martin Act issue is an important issue.”

Regarding the state's remaining claim, Boies said he would tellthe judges that the state could not seek injunctive relief nowbecause it did not push for it in the lower courts.

“They have now abandoned the only claim they made in the trialcourt, which was a claim for damages,” Boies said. “Their attemptto keep the case alive by adding a new claim for injunctive reliefshould fail.”

He said he might also argue that the state had wrongly relied onhearsay evidence to support the Gen Re claim.

“There is no admissible evidence … of any knowledge orparticipation by Mr. Greenberg or Mr. Smith in the activity that isalleged to be improper,” Boies said.

HISTORICAL RECORD

Solicitor General Barbara Underwood, who will present theattorney general's case on Tuesday, is expected to argue that thestate is not making a new claim and that the trial shouldproceed.

In court papers, the state has said Greenberg “initiated,negotiated and approved” the transaction with Gen Re “withknowledge of its fraudulent terms.” Smith helped implement the dealand also knew of the sham, the state said.

A seven-member panel of the court will hear the arguments inAlbany. A decision could come in June.

Spitzer, who went on to become New York governor beforeresigning in 2008, applauded Schneiderman's resolve in bringing thecase to trial. “Money is no longer what matters in thislitigation,” he told Reuters. “What is critical is the historicalrecord be set out with accuracy.”

Former New York governors George Pataki and Mario Cuomo, AndrewCuomo's father, said in a joint op-ed piece published in the WallStreet Journal on May 12 that Schneiderman should drop thecase.

The transaction with General Re led to five convictions of andtwo guilty pleas from former officials of the companies. A federalappeals court overturned the convictions in 2011, citing errors bythe trial judge.

The five entered into deferred prosecution agreements. As partof the deals, all five agreed that aspects of the transaction werefraudulent and that they should have taken steps to stop it.Buffett was not accused of wrongdoing.

Greenberg left New York-based AIG in March 2005 after nearlyfour decades at the insurer's helm. After his ouster, AIG paid $1.6billion to settle regulators' claims of improper accounting andother practices. AIG also restated financial results for severalyears.

The case is People v. Maurice R. Greenberg, New York StateSupreme Court, New York County No.401720/2005