If the funds are not raised by the time of court approval of the settlement, the plaintiffs will be free to terminate the agreement, acquire $550 million in AIG stock, or extend the period for AIG to complete the offering.

The suit, filed in U.S. District Court in the Southern District of New York, involved the Ohio Public Employees Retirement System, State Teachers Retirement System of Ohio, and Ohio Policy and Fire Pension Fund as the lead plaintiffs. They would later be joined by a group of Florida pension funds in a consolidated class-action suit.

The funds alleged that between Oct. 28, 1999 and April 1, 2005, AIG, current and former officers and directors of the company, C.V. Starr & Company, Starr International Company, General Reinsurance Corp., PricewaterhouseCoopers LLP, and others engaged in unethical conduct that led to a significant drop in the price of its stock.

The groups were accused of engaging in "anti-competitive conduct through the alleged payment of contingent commissions to brokers and participation in illegal bid-rigging"; concealing practices to inflate earnings; selling insurance instruments to other companies designed to smooth income; and misleading investors about the scope of government investigations.

In August of last year, former AIG Chief Executive Officer Maurice "Hank" Greenberg, along with some other former AIG executives, C.V. Starr and Starr International, reached a $115 million settlement with the Ohio plaintiffs (http://www.property-casualty.com/News/2009/8/Pages/Greenberg-Others-Settle-Civil-Suit-For-115M-AIG-Still-Targeted.aspx?k=greenberg+ohio).

In a statement, Ohio Attorney General Richard Cordray said that with the announced settlement Friday, the total expected recovery is over $1 billion.

Besides Mr. Greenberg and AIG's settlement, Mr. Cordray said it obtained a $72 million settlement with General Reinsurance and $97.5 million from PricewaterhouseCoopers.

"This historic settlement is an excellent result for all shareholders harmed by AIG's misconduct, including Ohio's teachers, firefighters, police officers and public employees," said Mr. Cordray in a statement.

"Ohio is determined to send a strong message to the marketplace that companies who don't play by the rules will pay a steep price," he added.

The attorney general said the AIG case is the tenth-largest securities class-action settlement in United States history. He added that this is the first and only billion-dollar class-action settlement since the financial crisis hit in 2008.

The settlement is still subject to court approval. No date has been set for the hearing, a spokeswoman at the Ohio Attorney General's Office said.