Former American International Group (AIG) chief executive Maurice "Hank" Greenberg and former chief financial officer Howard Smith will pay penalties to settle civil allegations of accounting fraud, the U.S. Securities and Exchange Commission said Thursday.

The lawsuit, filed in a federal court in Manhattan, alleges the men are liable for AIG's numerous accounting violations which helped inflate the now-troubled insurance giant's financial results between 2000 and 2005.

Greenberg will pay $15 million in penalties and disgorgement while Smith will pay $1.5 million. Both are settling without admitting or denying the charges.

Smith will also not be able to act as an officer of a public company for three years, the SEC said.

"Greenberg publicly described AIG as the leader in the insurance and financial services industry with a history of delivering double-digit growth," the SEC said in its lawsuit, noting that his words led investors to trade the company's stock at a premium compared with its competitors.

"In reality, AIG under Greenberg faced a number of financial challenges that, had they been properly reported or accounted for, would have exposed significant missteps in AIG's operations."

A statement issued on behalf of Greenberg said he is pleased to have the four-and-a-half year investigation behind him.

"Mr. Greenberg has consistently made clear that he personally never engaged in any fraud whatsoever and that the vast majority of AIG's Restatement was unnecessary and concerned accounting issues for which he had no responsibility," the statement said. "He also made clear to the SEC that he would never settle a charge of securities fraud, even if the settlement did not require him to admit the charge, and that he was confident that he could defeat in court any such claim if it were made."

Andrew Lawler, an attorney for Smith, said Thursday in a statement that "some of the transactions in the complaint filed by the SEC today are almost ten years old."

"Although Mr. Smith was originally inclined to litigate this matter, resolving the SEC matter allows him to move forward with his life without the added legal costs and distraction of this lawsuit," Lawler added.

The SEC says the men should be held responsible "as control persons" for three different areas of fraud, two of which involved deals with re-insurance firms General Re Corporation, a subsidiary of Berkshire Hathaway Inc. (BRKA) and Capco - a now-defunct Barbados-based shell company controlled by AIG. Reinsurance allows insurance companies to completely or partly insure the risk they have assumed for their customers. The transactions with General Re helped the company increase its loan loss reserves while its dealings with Capo were used to conceal underwriting losses by converting them to capital losses, the SEC alleges.

A third area of alleged fraud, meanwhile, entailed accounting transactions used to misstate net investment income or capital gains.

The SEC said the accounting fraud involving Gen Re began in 2000 after analysts had criticized the company for declining loss reserves. In response, Greenberg initiated two reinsurance transactions with Gen Re and wrongfully accounted for them as real reinsurance. That falsely increased the reported loss reserves and premiums written.

Without those phony loss reserves added to the balance sheet, the SEC said, the true reported loss reserves would have been a total of $500 million less over the course of two quarters in 2000 and 2001.

This latest lawsuit by the SEC comes a little more than three years after AIG settled accounting charges with the SEC by agreeing to pay disgorgement of $700 million and a penalty of $100 million.

Greenberg, who headed AIG for decades before stepping down amid the start of the accounting scandal in 2005, also is still contesting civil charges originally filed by former New York Attorney General Eliot Spitzer.

Separately, he was named as a co-conspirator but never charged in a criminal prosecution that ended last year after four former General Re executives and one AIG executive were convicted of inflating AIG's reserves by $500 million in 2000 and 2001 through fraudulent reinsurance deals.

A federal judge later ruled the government had enough evidence to try to convince a jury that that a conspiracy to fraudulently boost the financials of American International Group Inc. started with a phone call by Greenberg.

People familiar with the matter told The Wall Street Journal, a Dow Jones publication, that Greenberg is still under investigation in that case.

He has lost much of his net worth after the company nearly collapsed in the financial meltdown and had to be propped up with U.S. tax dollars.

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com