A federal judge ruled yesterday that Starr International Company Inc. did not breach its trust to American International Group Inc. employees over continuing a deferred compensation program but criticized AIG’s former chief executive for playing loose with the facts at times.

U.S. District Court Judge Jed S. Rakoff agreed with a jury’s recent finding that SICO did not establish a deferred compensation program for the express purpose of compensating AIG employees and that shares in AIG held by SICO were not for that express purpose.

Rakoff’s decision in Southern District Court in Manhattan came after last month’s 3-week trial, where the jury found that SICO did not hold shares of AIG stock for the express benefit of AIG, nor that SICO breached any trust by converting those shares for the benefit of SICO. AIG was not entitled to $4.3 billion in damages, Rakoff ruled.

The jury was asked to act in an advisory role on the question of breach of trust, leaving the final decision to the court.

In his 59-page decision, Judge Rakoff praised AIG and SICO attorneys as “models of good lawyering” but said the case was not “a close one,” as the jury came to a verdict in less than a day of deliberation.

“Oral commitments are just too slippery to be enforced,” Rakoff said in his opinion. “The law will not recognize such an oral trust unless the evidence of its creation is unequivocal.”

AIG, the judge said, “relied heavily on adverse inferences” from Maurice R. Greenberg, the former chief executive officer of AIG and current chief executive of SICO, where attorneys argued he lied to cover up the existence of the trust.

“It was the court’s distinct impression, based on the jurors’ ‘body language,’ that the jury did not credit certain portions of Greenberg’s testimony; but the jury found in SICO’s favor nonetheless,” said the judge.

Rakoff noted of Greenberg’s close to a week of testimony, “that his testimony and the truth did not always converge.” He said Greenberg’s inaccuracies “were not as material as AIG argued, nor warranted the sweeping adverse inferences AIG hypothesized.”

The judge said at times Greenberg was “entirely truthful,” while at other times he was confused, or his testimony “was the product of prevarication.” Those points, however, did not make “a material difference in the court’s overall assessment of the evidence,” he said.

Rakoff questioned Greenberg’s truthfulness at several points in his opinion.

Greenberg had contended, for instance, that minutes from a SICO meeting in 2005 showed that SICO and AIG mutually agreed to end the compensation program.

“The court concludes that there was no adequate basis for this assertion of mutual agreement and that it was inserted at Greenberg’s behest to try to camouflage acts he and his allies were taking to retaliate against AIG,” Rakoff said.

The judge was also dubious of Greenberg’s recollection of a conversation the CEO had with an attorney. Greenberg said the attorney, appointed by AIG’s board of directors to investigate issues of corporate governance, told him that continuing the compensation agreement between the 2 companies was inadvisable. The attorney said no such conversation took place.

While not finding these issues material, Rakoff said Greenberg “correctly perceived that, once he and AIG were at war, AIG would never accept a compensation plan dictated by SICO, and this in fact was the view of AIG’s senior management.”

In a statement, SICO attorney David Boies said, “This dismisses AIG’s only remaining claim against Starr International. Another federal judge had already dismissed AIG’s other claims in June 2008.”

An AIG spokesman said the company had no comment.