(Bloomberg) ? American International Group Inc. investors can proceed with claims that ex-Chief Executive Officer Maurice Greenberg siphoned millions from the company through payments to an insurance agency he controlled, a judge ruled.

Delaware Chancery Court Judge Leo Strine yesterday rebuffed Greenberg?s bid to dismiss a lawsuit brought by shareholders including the Teachers Retirement System of Louisiana. The suit says AIG, the world?s biggest insurer, didn?t need the agency, C.V. Starr & Co., to help it sell policies.

Starr, which severed ties with AIG after Greenberg was removed as CEO last year, used dividends to reward its shareholders, many of whom were AIG executives. The Louisiana pension fund properly presented claims that Greenberg and other AIG executives ?reaped millions of dollars in compensation from Starr as a result of its relationship with AIG,? Strine said in a 34-page decision.

Greenberg, 81, ran New York-based AIG for 38 years before he was ousted in March 2005 amid accounting probes by state and federal regulators. AIG has reduced net income by $3.4 billion and in February agreed to pay $1.64 billion to settle allegations that it misled investors, faked insurance bids and cheated state workers? compensation programmes.

Howard Opinsky, a spokesman for Greenberg, said he couldn?t immediately comment on Strine?s ruling. Stuart Grant, a lawyer for AIG investors, said he was pleased with the decision.

?Now the case can go forward and we hope justice can be done for AIG shareholders,? said Grant, a partner in Wilmington, Delaware-based Grant & Eisenhofer. Starr, started by AIG founder Cornelius Vander Starr in 1919 as a private group of insurance companies, was controlled by AIG executives until Greenberg?s removal and provided incentive pay for the insurer?s employees. From 2003 through 2005, AIG paid the company $592 million for the ?production of insurance business,? according to AIG?s annual report.

Greenberg is now using the Starr company to pursue investments and sell insurance underwritten by AIG rivals such as Berkshire Hathaway Inc., Ace Ltd. and Chubb Corp.

AIG investors contend Greenberg prompted AIG to pay millions in sham fees to Starr between 1999 and 2004. The payments amounted to extra compensation for Greenberg, Edward Matthews and Howard Smith, shareholders allege. Matthews, a former AIG vice chairman, and Smith, the company?s ex-chief financial officer, were members of Starr?s board.

The shareholder suit claims that AIG?s board improperly turned a blind eye to ?the nature of the AIG-Starr relationship,? Strine wrote. The investors say AIG directors gave annual approval to the ties to Starr after cursory briefings by Greenberg.

The shareholders can proceed with claims about AIG?s payments to Starr starting from January 1, 2000, Strine concluded. They waited too long to challenge the 1999 payments, he said.

The Louisiana pension fund ?has no cognizable excuse for failing to bring a timely suit attacking their propriety,? Strine wrote.

In February, Strine also dismissed 10 outside AIG directors from the suit after investors and AIG officials investigating claims of wrongdoing at the company agreed to the move. That limited the case to claims against Greenberg, Matthews, Smith and the Starr company.