In a single-sentence order, the state's appellate division on Tuesday granted a motion by Greenberg and Smith to appeal its May 8 decision to send the case to trial.

The charges under one of New York's toughest laws, the 90-year-old Martin Act, may now be heard by the Court of Appeals, the state's highest court.

Greenberg and Smith deny the charges and have fought them under three New York State Attorney-Generals since they were accused in 2005 of involvement in a reinsurance scheme at AIG that masked the company's true financial position.

AIG was bailed out by the federal government in the 2008 financial crisis.

Greenberg's lawyers at Boies, Schiller & Flexner said in a statement on Tuesday that they would challenge parts of the Martin Act, believing it is pre-empted by federal statutes.

The Act came into force in 1921. It gives a prosecutor extraordinary powers and discretion in financial fraud cases that exceed those of any other U.S. state.

"The appeal will determine the validity of the Martin Act, which the New York Attorney General and his predecessors have used prodigiously, but with questionable legality in light of conflicting federal standards," the lawyers' statement said.

James Freedland, a spokesman for New York Attorney General Eric Schneiderman, said the office was "confident the court of appeals will uphold the lower court's decision and we look forward to trying this case to hold the defendants accountable for perpetrating a major reinsurance scheme to defraud investors."

The case is People of the State of New York v Greenberg in the New York State Appellate Division, First Department, Motion Nos. M-2368 and M-2558

(Reporting by Grant McCool; Editing by Michael Perry)

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