NEW YORK (Reuters) ? American International Group Inc. and its former chief executive, Maurice (Hank) Greenberg, face legal problems that extend beyond investigations by regulators, with shareholders already lining up to recoup billions of dollars in losses.

This week a shareholder class-action lawsuit against AIG was broadened to include the insurer?s outside auditor and its banks, raising the stakes in a lawsuit that was first filed in October 2004.

The expansion of the federal lawsuit a securities fraud claim comes as AIG is still in the midst of an investigation of its accounting by federal and state authorities, including New York State Attorney General Eliot Spitzer.

Spitzer has said he expects to resolve the investigation of AIG?s accounting which extends from suspicions about deals with offshore reinsurers to questions about its role in a bid-rigging scheme without bringing criminal charges.

That should be welcome news for AIG, since criminal charges could have shattered a company that remains one of the world?s largest insurers, with about 90,000 employees and operations in more than 100 countries.

But AIG still faces penalties for its suspect accounting, legal experts predict, saying the insurer should expect a sizable fine and requirements by Spitzer that it put stricter accounting controls in place.

?It?s a deterrence issue that (authorities) are most concerned about,? says Bob Hermann, an attorney with Thacher Proffitt & Wood and former Solicitor General for New York.

?It?s about sending the message to the whole industry that we?re not going to put up with this. Spitzer wants people to take responsibility. He?s going to want to put in place something to keep whatever happened from happening again.?

Hermann also doubts that criminal charges will be brought against Greenberg, who invoked his right (under the Fifth Amendment of the US Constitution) against possible self-incrimination when he was interviewed earlier this month by regulators.

?Criminal cases are not easy to prove in this kind of context. Spitzer?s real purpose is not to punish Mr. Greenberg but to get honesty in the marketplace.?

Spitzer has not said whether he plans to indict Greenberg, who recently transferred more than $2 billion of his AIG shares to his wife.

Even after the regulatory probes wrap up, Greenberg and AIG will likely have to deal with the recently expanded shareholder suit that claims the insurer lied about its finances.

Ohio Attorney General Jim Petro brought the federal lawsuit on behalf of the state?s public employees, including teachers and police, who owned stock through pensions.

A judge has named the group lead plaintiffs in the case much as New York state led shareholders suing WorldCom over its accounting.

Shareholders will likely want to recover billions of dollars from the company, its executives, its auditors and the banks that led AIG?s bond offerings. Facing the securities fraud suit, AIG has to walk a fine line between cooperating with regulators and providing class-action lawyers with more ammunition, experts say.

?They have to be forthcoming on a criminal level; it?s in their best interest to give investigators the fruits of their labours, their own investigation,? says Michael Himmel, chairman of the white collar defence practice at Lowenstein Sandler.

?On the other hand, to the extent that plaintiffs can get hold of the information, that could come back to bite AIG.?

Experts also say it could take years for the civil case to play out and predict it may never reach trial. Out-of-court settlements, like those that occurred with most of the defendants in the WorldCom case, are the most common outcome.

In a trial, says Himmel: ?The stakes are high; the risks are huge.?