April 14 (Bloomberg) -- House Democrats are investigating American International Group Inc.’s role in a campaign to discredit its former chairman and chief executive officer, Maurice “Hank” Greenberg, in the wake of federal bailouts to the insurance company totaling $182.5 billion.

House Oversight and Government Reform Chairman Edolphus Towns today asked New York-based AIG to detail its relationship with public relations companies Burson-Marsteller and Hill & Knowlton, which he said have represented the company.

“I would be extremely disappointed to learn that any of the billions of taxpayer dollars invested to support AIG may have been diverted to finance a public relations campaign against critics of the AIG bailout,” Towns wrote in a letter to AIG Chairman and Chief Executive Officer Edward Liddy.

The request escalated a dispute between AIG and Greenberg, who was forced to retire from the insurer in 2005 after nearly four decades as CEO. Greenberg, 83, has blamed his successors for losses at AIG that brought the firm to the brink of bankruptcy.

Towns, a New York Democrat, said the committee was told that AIG had contacted reporters and others to attack Greenberg’s credibility as he was preparing to testify about the company’s collapse to the committee on April 2.

The committee chairman asked Liddy to provide copies of contracts, white papers, memoranda and bills received from Burson-Marsteller and Hill & Knowlton, both owned by London- based WPP Group.

‘Greenberg Legacy’

In his letter, Towns referred to a four-page paper titled “The Greenberg Legacy,” which was circulated to the news media prior to Greenberg’s appearance before the committee. The paper said that Greenberg personally created AIG Financial Products in 1987 “in an effort to increase earnings by AIG” and that he moved AIG “away from its core insurance expertise into the entirely different and complex world of credit derivatives and other complicated financial products.”

Greenberg “handpicked” the management of the financial products unit, the memo said.

“The committee was surprised to hear allegations that AIG was contacting the news media and others to attack Mr. Greenberg’s credibility, and circulating an anonymous paper entitled ‘The Greenberg Legacy,’” Towns said in the letter to Liddy.

The memo, which was distributed digitally as a Word document, contains background data indicating that it was created by AIG.

Forced Retirement

Greenberg was forced to retire amid state and federal probes into accounting and sales practices. He denies any wrongdoing in the case, which is still pending. Then-New York Attorney General Eliot Spitzer, a Democrat, dropped portions of the lawsuit in 2006 that included four other allegations tied to the investigation.

AIG spokesman Mark Herr said in a e-mailed statement that Greenberg and his lawyers have made “false and misleading statements” about AIG more than 30 times since the beginning of the year.

Herr also said the company looks forward to providing information that Towns requested.

“This issue is not about AIG’s corporate public relations expenditures, which are down sharply since last year,” Herr said. “It is about correcting Mr. Greenberg’s false and damaging statements.”

Burson spokesman Paul Cordasco declined to comment.

Hill & Knowlton USA Chairman MaryLee Sachs didn’t immediately respond to requests for comment.

To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net.

Last Updated: April 14, 2009 22:24 EDT