Former American International Group Inc. Chairman Maurice “Hank” Greenberg says he got personally involved in an “insignificant” business deal at the insurance giant 18 years ago to teach some managers a lesson. Now, that deal is part of a fraud claim that could prevent the 91-year-old from serving as an officer of a public company.

Greenberg took the witness stand Tuesday in a Manhattan courtroom to defend against claims that he and former AIG Chief Financial Officer Howard Smith orchestrated two sham deals to hide the insurer’s financial condition from shareholders. One was a transaction involving CAPCO Reinsurance Co., allegedly to hide more than $200 million in underwriting losses from an auto-warranty business unit run by Greenberg’s son, Evan.

Greenberg said he became aware of serious problems in AIG’s auto-warranty business as early as 1998. He said he began taking steps to correct them the following year and only got involved in order to punish those who were responsible for the program, disagreeing with New York Assistant Attorney General David Nachman’s characterization that he was a “hands-on CEO.”

“This was a small part of our business,” said Greenberg. “It was insignificant.”

“It wasn’t so insignificant that you tried to insert yourself personally into these matters?” Nachman asked.

“I was trying to teach a lesson to some managers who were involved with it,” Greenberg said. “This was a nonevent at AIG. There are other things that are far more important than this.”

“You regard other things are more important than a fraud charge against you?,” Nachman asked.

“That’s why I’m here to defend against it,” Greenberg said.

For more on the lawsuit, click here.

Greenberg was dressed in a dark-blue suit, a white dress shirt and a light-blue tie. During about four hours on the witness stand, his exchanges with Nachman were sometimes congenial, amid questions about his background and AIG’s operations, and sometimes contentious as the lawyer pressed for answers about why Greenberg got personally involved with the auto-warranty program.

Home Depot Inc. co-founder Kenneth Langone, who has called for the state to drop the case, attended the beginning of his friend’s testimony.

Greenberg’s testimony comes more than a decade after the suit was filed by then-Attorney General Eliot Spitzer and a little more than a month before his lawyers are scheduled to argue an appeal of a ruling in a suit by his Starr International Co. against the U.S. government over the 2008 bailout of AIG. A federal judge found last year that the bailout was illegal but didn’t award the more than $40 billion in damages that Greenberg had sought, saying he wasn’t entitled to compensation because the insurer probably would’ve filed for bankruptcy otherwise.

The current attorney general, Eric Schneiderman, is seeking to bar Greenberg and Smith from serving as officers or directors of public companies and force them to give up more than $52 million in bonuses. Schneiderman dropped his demand for $6 billion in damages after two companies, Greenberg and three other executives paid $115 million in 2009 to settle suits filed by AIG shareholders.

The trial, which is being heard without a jury, is likely to last through January. Greenberg had asked the U.S. Supreme Court to review a June decision by New York’s top court allowing the trial to proceed, arguing the state claims are preempted by federal law.

Schneiderman alleges that the CAPCO transaction was used to shield from shareholders the underwriting losses — a key measure of an insurer’s financial health — and convert them into investment losses, a less important metric. Greenberg and Smith have argued the attorney general can’t prove that either transaction was improperly accounted for, that the defendants knew of any alleged impropriety or that the two deals were material to AIG.

Greenberg is scheduled to return to the stand on Wednesday.

The case is State of New York v. Greenberg, 401720-2005, New York state Supreme Court (Manhattan).