July 8 (Bloomberg) -- Jurors rejected as “weak” a lawsuit by American International Group Inc. alleging that a private company run by its former chief executive officer, Maurice “Hank” Greenberg, looted $4.3 billion in stock from the insurer, the forewoman said.

A federal jury in New York ruled yesterday that Greenberg’s firm, Starr International Co., or SICO, didn’t breach a trust to hold AIG shares solely for an AIG deferred-compensation plan. The panel also rejected AIG’s claim that SICO illegally converted $4.3 billion of those shares after Greenberg’s ouster in March 2005 amid an accounting scandal.

“SICO’s case was very strong and well documented,” jury forewoman Karen Jaroneski, 45, said in an interview. “The AIG case was weak and unsubstantiated. AIG’s burden of proof was insurmountable.”

U.S. District Judge Jed Rakoff may reverse the verdict regarding breach of trust, which he deemed advisory. He promised to make his own ruling on that issue by August. He said he wouldn’t reverse the jury’s finding that SICO didn’t illegally take AIG’s shares.

“This is not the final judgment” on breach of trust, Rakoff said after the verdict was read. “There are still the other shoes that need to drop, so to speak.”

AIG had said it would use proceeds of any judgment to help repay a $182.5 billion bailout package it received from the federal government.

‘Unequivocal Evidence’

The jury deliberated for 5 1/2 hours yesterday before deciding in SICO’s favor. When deliberations began, six jurors favored SICO and two were undecided, Jaroneski said.

Another juror who wouldn’t identify herself said she found no evidence to support AIG’s claim that a trust was created solely for AIG. A third juror, who also requested anonymity, said Rakoff’s legal instructions on the creation of an oral trust left them no choice but to reject the insurer’s claims.

SICO attorney David Boies said, “The quickness of this decision reflects the simplicity of the case.”

Rakoff had ruled that because the case centered on an oral trust, AIG had to prove its breach-of-trust claim by “unequivocal evidence,” a higher legal standard than the usual preponderance of evidence.

“We are disappointed with the jury’s verdict and we await the court’s final ruling,” said Mark Herr, a spokesman for New York-based AIG. “We continue to believe in the merits of our claim.”

AIG claimed an oral trust was created in 1970 solely for its benefit, and SICO breached it in 2005 to retaliate for Greenberg’s firing. Greenberg, 84, testified for seven days and denied the trust claimed by AIG, which he built into the world’s largest insurer before its near-collapse last year.

‘No Document’

“This was a trust that AIG was alleging no one had ever heard of, had ever seen, no document mentioned it,” Boies said after the verdict. “I would be hopeful that the judge would see it the same way the jury does.”

Greenberg testified that SICO donated AIG shares through its generosity during a 1970 corporate reorganization, that it could use them as it saw fit and that they ultimately benefited charity, not AIG.

The panel of seven women and one man rejected arguments by AIG attorney Ted Wells that Greenberg lied repeatedly in testimony and that SICO fabricated documents.

“I was very impressed by Hank Greenberg and his background,” said Jaroneski, a manager at a financial printing company. “He was very knowledgeable.”

Greenberg’s “testimony seemed a little disingenuous at times,” she said. When asked if she believed Greenberg’s account, Jaroneski said, “Some of it, not all of it.”

Videotaped Speeches

Wells said Greenberg spoke the truth in videotaped speeches to employees, including one in which he said SICO held enough shares in trust to fund their retirement for “a couple of hundred years.”

On the witness stand, Greenberg said he was exaggerating, was trying to build morale and wasn’t speaking in a legal sense. Wells said Greenberg lied on that and many other points.

“These are not small lies, these are big lies,” Wells said in his summation. Greenberg, he said, displayed “a certain arrogance, almost, and I can just say anything. I can walk through the raindrops and not be touched. A certain arrogance, almost an audacity of arrogance.”

Jaroneski said jurors wanted to know the specifics of Greenberg’s termination in 2005, one of several subjects that Rakoff ruled was too prejudicial for the jury to hear.

‘Why They Fired Him’

When asked if Greenberg acted in a retaliatory way, she said: “I have such a limited scope of understanding about what happened in 2005 because it wasn’t relevant to the case that I don’t know if I could knowledgeably speak about it. We don’t know the specifics of why they fired him.”

In an interview, Boies said Greenberg was “very pleased” with the verdict and that his testimony had been vindicated.

“The AIG side really made this a personal attack on his character,” Boies said. “I think he was particularly pleased that the jury had both so quickly and so completely rejected attacks.”

SICO got shares initially valued at $110 million that later grew to more than $20 billion in value. Over time, SICO used 7 percent of its assets to fund a series of two-year deferred- compensation plans. AIG claims SICO sold $4.3 billion in shares after 2005 and used those proceeds to fund investments in China, Russia and elsewhere.

Wells argued that Greenberg retaliated against AIG after his termination by ousting AIG employees on the SICO board, revoking the deferred-compensation plan and rescinding previous written commitments. A day after the litigation began, Greenberg ordered the transfer of AIG stock certificates from New York to Bermuda, Wells said.

No Disclosure

No AIG employee testified about the existence of the alleged trust, Boies argued. AIG never disclosed the existence of the trust to its shareholders, auditors, attorneys or regulators. The alleged trust, he said, was a creation of AIG lawyers after SICO sued the company in 2005 and AIG filed a countersuit.

In 35 years of detailed disclosures, AIG never mentioned the trust it claimed at trial, Boies said.

Boies said Greenberg and Starr plan “to continue to invest in Russia, China, the U.S. and Europe,” putting money “wherever there are investment opportunities open.”

The jury specifically asked to meet privately with Boies after the verdict. Boies said that in his 43 years of practice, he had never sat down with an entire jury to discuss a case.

Boies and Wells impressed the jury. “Both lead lawyers were incredible to watch,” Jaroneski said.

The case is Starr International Co. v. American International Group Inc., 05-cv-06283, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: David Voreacos in U.S. District Court in New York at dvoreacos@bloomberg.net; Patricia Hurtado in U.S. District Court in New York at pathurtado@bloomberg.net.

Last Updated: July 8, 2009 00:01 EDT