As a federal probe into the insurance industry widens, four former top executives of giants General Re and American International Group are pleading not guilty to fraud and conspiracy charges.
The Justice Department has accused the four of orchestrating an audacious fraud, putting together a sham reinsurance transaction that allowed AIG to falsely report some $500 million in reserves against losses and thereby mislead shareholders, Wall Street and regulators.
The alleged conspiracy, using phony contracts and a secret side deal, was designed to make it appear that AIG’s loss reserves were growing so as to inflate the company’s stock price, prosecutors say.
New York-based AIG, one of the world’s largest insurance companies, last month agreed to pay a record $1.64 billion in a settlement with federal and New York state authorities. It also apologized for having deceived investors and regulators with misleading accounting practices.
AIG was alleged to have taken part in bid-rigging schemes, paid secret commissions to insurance brokers to steer business to it, used phony insurance deals to burnish its earnings and misstated the amounts of workers’ compensation premiums it had collected.
All four were entering pleas of not guilty and planned to contest the charges at trial, their attorneys say. Each defendant, if convicted on all 13 criminal counts of conspiracy, fraud and making false statements to the SEC, could face a maximum 95 years in prison and $7.75 million in fines.
They also are named in a related civil lawsuit by the SEC alleging that they aided AIG’s alleged securities fraud.
The indictment stemmed from the Justice and SEC investigations of a five-year-old deal between AIG and General Re. Wide-ranging investigations of the reinsurance business are being conducted by authorities in the United States and elsewhere.
Prosecutors say AIG had been concerned about Wall Street analysts’ suggestions that it had insufficient reserves to cover potential losses and approached General Re to facilitate a deal that would increase its loss reserves on paper. But the deal had no substantive value, did not transfer risk, and was designed to cosmetically alter AIG’s books, according to the indictment.
Two other former executives of Stamford, Conn.-based General Re–John Houldsworth and Richard Napier–pleaded guilty in June to roles in the sham deal. As part of their plea bargains, they have been aiding the investigation.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Topics Fraud Reinsurance AIG
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