American International Group Inc. has accepted a proposed class-action settlement agreement that calls for it to pay $725 million to Ohio and Florida public pension funds.

A group of plaintiffs led by the Ohio Public Employees Retirement System, the State Teachers Retirement System of Ohio, and the Ohio Policy and Fire Pension Fund filed the suit in the U.S. District Court in the Southern District of New York.

The plaintiffs say that, between Oct. 28, 1999, and April 1, 2005, AIG, New York (NYSE:AIG), current and former officers and directors of the company, C.V. Starr & Company, Starr International Company and others engaged in unethical conduct that hurt the price of AIG’s stock.

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

The proposed settlement with AIG is still subject to court approval. No date has been set for a hearing, according to a representative for Ohio Attorney General Richard Cordray.

The proposed agreement requires AIG to pay $175 million into an escrow account in 10 days, then get the remaining $550 million by selling stock or, if necessary, raising cash from “other sources,” according to a report AIG filed with the U.S. Securities and Exchange Commission.

If AIG does not raise the $550 million by the time the court approves the settlement, the plaintiffs could terminate the agreement, acquire $550 million in AIG stock, or extend the period for AIG to complete the offering, AIG says.

In August 2009, former AIG Chairman Maurice Greenberg, other former AIG executives, C.V. Starr and Starr International reached a $115 million settlement with the Ohio plaintiffs.

The proposed AIG settlement and related settlements should bring total recovery to about $1 billion, according to Ohio Attorney General Richard Cordray.

“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,” Cordray says 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.”

Cordray says the proposed AIG settlement is the tenth-largest securities class-action settlement in U.S. history.

The proposed settlement is also the first and only billion-dollar class-action settlement announced since the financial crisis hit in 2008, Cordray says.