NEW YORK (Bloomberg) — US District Judge Jed Rakoff ruled that speeches by Maurice (Hank) Greenberg, former head of American International Group Inc., aren't hearsay and can be heard in a $4.3 billion lawsuit between AIG and a private investment firm Greenberg runs, Starr International Co.

The ruling may help AIG support its claims that Greenberg, after being ousted from the company in 2005, improperly took, or converted, 290 million AIG shares that Starr held for decades to fund a deferred compensation programme for AIG workers, collecting $4.3 billion.

AIG claims Greenberg has made statements that show the restricted shares in question were held in a "trust" and that the disputed shares which Greenberg later took were for an AIG compensation programme and not to be taken by any single individual. Greenberg will testify in Manhattan federal court this week as a witness in the trial.

"During his tenure as AIG's CEO, Greenberg personally and repeatedly promised that SICO's AIG shares would always be used only for the purpose of compensating current and future AIG employees," said Mark Herr, a spokesman for AIG. "Yet Greenberg took the shares when he left AIG amid accounting scandals that marked the beginning of AIG's downfall." Starr International is known as SICO.

Rakoff also ruled that Starr can't bring in evidence and testimony about the US government's bailout earlier this year of AIG, once the world's largest insurer. The trial began this morning in US District Court in Manhattan.

"Regarding the bailout of AIG, that motion is granted," Rakoff said. "The proper relevance seems dubious in the extreme and the prejudice clear."

At stake isn't only whether Greenberg, who ran AIG for almost four decades, or the New York-based insurer gets the proceeds of the shares: AIG has received a $182.5 billion bailout package. The company said it will use any legal award it wins to repay some of that to the US government.

"It's a major public company against a close-knit private company with an affiliation to AIG that no one who is uninvolved with it fully understands," said attorney Ralph Ferrara of Dewey & LeBoeuf LLP in Washington, who isn't involved in the case. Greenberg "was there at the birth. Whatever those customs and traditions are, here is the man who fashioned them."

Rakoff also ruled that testimony about AIG's controversial bonuses awarded in 2008 and 2009 to employees won't be heard by the jury as well as the circumstances of Greenberg's being ousted from the company in 2005 and the investigations surrounding his departure.

"This is a case about an alleged trust and an alleged conversion of valuable shares," Rakoff said. :"It's not a forum for airing all of the innumerable other issues most of which are resolved regarding Mr. Greenberg, Starr, AIG bonuses, investigations and what have you."

Greenberg, 84, isn't the only potential headliner in the trial. Both AIG attorney Theodore Wells and Starr lawyer David Boies are among the nation's top white-collar courtroom advocates, said Paul Radvany, a former federal prosecutor. Boies and Wells didn't return calls seeking comment.

"You have these titans of the bar," said Radvany. "It should be a great trial to report on and watch because you have such a great judge and superstar lawyers on both sides."

The case involves decades of corporate history stemming from AIG's 1919 founding in Shanghai by Cornelius Vander Starr, who hand-picked Greenberg as his successor a year before the founder¿s death in 1968. In a reorganisation in 1970, privately held Starr got public shares of AIG. Directors of AIG and Starr overlapped. AIG alleged that under an unwritten agreement, it created a trust for its benefit in 1970 with Starr as the trustee. It claims Starr pledged to fund a deferred compensation plan for AIG employees through shares it held. Those shares helped later compensation plans until 2005, when the companies began to separate after Greenberg's departure. AIG claims it's entitled to proceeds of Starr's subsequent sale of 290 million shares.

Starr counters that no such trust was created in 1970. It contends it held AIG shares to help maintain control of the company and prevent a hostile takeover, according to court papers. It says AIG concocted such claims after Starr sued in 2005 for the return of artwork and other property valued at $15 million. AIG then filed several counterclaims, including that Starr improperly took shares.

The case raises "very technical" legal issues about the trust relationship between AIG and Starr, said S. David Cohen, a law professor at Pace Law School in New York. Most such trust cases are settled out of court, he said. AIG has little to lose except legal fees by going to trial, he added.

"If they lose, they can say, 'The money doesn't belong to SICO'," Cohen said, referring to Starr. "If they win, they can say, 'We can take steps to repay the US government'."

Lawyers on both sides are awaiting rulings from Rakoff on the admissibility of evidence, including a host of statements that Greenberg made through the years about the deferred compensation plans.