Four former senior executives of Berkshire Hathaway’s General Re Corp. and a former senior executive of American International Group Inc. were indicted Wednesday on charges they participated in a scheme to manipulate AIG’s financial statements, prosecutors said.
The indictment alleges that the defendants engaged in a fraudulent scheme to make it appear as if AIG — one of the world’s largest insurance companies — increased its loss reserves, a key financial indicator to analysts and investors.
At issue are two reinsurance transactions between AIG and Stamford, Conn.-based Gen Re that were initiated by an AIG senior executive to quell criticism by analysts of an approximate $59 million reduction in AIG’s loss reserves in the third quarter of 2000, prosecutors said.
The phony transactions made it appear as though AIG had increased its loss reserves by $500 million, authorities said. The alleged conspiracy, using phony contracts and a secret side deal, was designed to make it appear that AIG’s loss reserves were growing to inflate the company’s stock price in 2000 and 2001, prosecutors say.
“The Department of Justice and our federal law enforcement partners are committed to investigating and prosecuting corporate executives who intend to mislead investors, employees and customers by manipulating company financial information,” said U.S. Attorney Kevin O’Connor.
The former General Re executives charged were Ronald E. Ferguson, 63, chief executive officer from about 1987 through September 2001; Elizabeth Monrad, 51, chief financial officer from June 2000 through July 2003; Robert Graham, 58, a senior vice president and assistant general counsel employed by Gen Re from about 1986 through October 2005; and Christopher P. Garand, 59, a senior vice president from 1994 until last year.
Also charged was Christian Milton, 58, who was AIG’s vice president of reinsurance from about April 1982 until March 2005.
All of the defendants except Garand had been charged in February in Virginia in connection with the alleged scheme and pleaded not guilty. The case later was transferred to Connecticut, where the defendants face additional charges.
The Securities and Exchange Commission has filed a related civil lawsuit.
AIG earlier this year agreed to pay a record $1.64 billion in a settlement with federal and New York authorities.
Allegations of accounting irregularities, including the Gen Re transactions, led to the resignation in March 2005 of AIG’s chairman and chief executive Maurice “Hank” Greenberg, who had headed the New York-based company for 37 years.
Greenberg has insisted that his actions as head of the company were proper. AIG filed a restatement last year related to the transactions.
Gen Re parent Berkshire Hathaway Inc., an investment company based in Omaha, Neb., is led by the influential billionaire Warren Buffett.
The Connecticut indictment says there were additional unnamed coconspirators, including senior level executives at AIG and Gen Re.
Last year, two senior Gen Re executives, John Houldsworth and Richard Napier, pleaded guilty to conspiracy to falsify SEC filings in connection with the investigation and are awaiting sentencing.
If convicted of all the charges, Ferguson, Monrad, Milton and Graham each face up to 230 years in prison and a fine of up to $46 million. Garand faces up to 160 years in prison and a fine of up to $29.5 million.
A trial has been scheduled for March 1.