By Karen Freifeld and Jonathan Stempel
NEW YORK (Reuters) - A New York state appeals court rejected former American International Group Inc Chairman Maurice "Hank" Greenberg's bid to dismiss a decade-old lawsuit accusing him of orchestrating an accounting fraud at the insurer.
The court found that the New York attorney general's claim for Greenberg to disgorge millions of dollars in allegedly ill-gotten bonuses was "legally viable."
Greenberg, 89, and his co-defendant, former AIG Chief Financial Officer Howard Smith, who also faces the claim, are accused of orchestrating sham transactions at the insurer.
The defendants failed to show the lack of incentive compensation resulting from the sham transactions at AIG, the Appellate Division, First Department ruled.
New York Attorney General Eric Schneiderman, who is pursuing the lawsuit initially brought by his predecessor, Eliot Spitzer, also seeks to ban the defendants from the securities industry and from serving as officers or directors of public companies.
The appeals court ruled in the state's favor on that relief as well, finding that Greenberg and Smith failed to demonstrate conclusively that a permanent injunction under the Martin Act, New York's powerful securities fraud statute, was unwarranted.
(Reporting by Karen Freifeld; Editing by Dan Grebler)