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U.S. loses bid to dismiss ex-AIG CEO's $25 billion lawsuit over bailout

By Jonathan Stempel

(Reuters) - A federal judge has rejected the United States' bid to dismiss a more than $25 billion lawsuit filed by Maurice "Hank" Greenberg, the former chief executive of American International Group Inc, over the insurer's government bailout, clearing the way for a Sept. 29 trial.

Judge Thomas Wheeler of the U.S. Court of Federal Claims said the case brought by Greenberg's Starr International Co on behalf of itself and other AIG shareholders involves "complex financial and economic issues" that deserve analysis and testimony from qualified expert witnesses.

"The complexity of the submissions and the factual disagreements strongly point to the need for a trial," Wheeler wrote in an order dated Monday.

A trial is expected to last six weeks.

A U.S. Department of Justice spokeswoman declined to comment.

"The decision speaks for itself," David Boies, a lawyer for Starr and Greenberg, said in a statement.

Starr had been AIG's largest shareholder, with a 12 percent stake, before the government rescued the New York-based insurer on Sept. 16, 2008, from skyrocketing losses.

The government took an initial 79.9 percent stake in AIG and conducted a reverse stock split, diluting existing shareholders.

Starr sued in 2011, contending that the $182.3 billion bailout was an illegal taking that violated its due process rights under the Fifth Amendment of the U.S. Constitution.

Greenberg's company had separately sued the Federal Reserve Bank of New York over its role, accusing it of engineering a "backdoor" bailout for Wall Street banks exposed to AIG.

But the 2nd U.S. Circuit Court of Appeals in January said the New York Fed had authority to act in "unusual and exigent circumstances," including "to rescue AIG from bankruptcy at the height of the direst financial crisis in modern times."

AIG finished repaying the bailout in December 2012, leaving taxpayers with a nearly $23 billion profit.

Greenberg, 89, led AIG for nearly four decades before his 2005 ouster.

The Court of Federal Claims sits in Washington, D.C., and handles lawsuits seeking money from the government.

The case is Starr International Co v. U.S., U.S. Court of Federal Claims, No. 11-00779.

(Reporting by Jonathan Stempel in New York; Additional reporting by Aruna Viswanatha in Washington, D.C.; Editing by Leslie Adler)

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