A federal court jury in Hartford, Connecticut has found four former General Re Corp. executives and one former American International Group executive guilty of corporate fraud and conspiracy charges stemming from allegations that the five helped cook AIG’s books in an effort to boost its stock price.
According to the office of the U.S. Attorney for the District of Connecticut, the four Gen Re executives convicted were former CEO Ronald E. Ferguson, former CFO Elizabeth A. Monrad, and former senior vice presidents Christopher P. Garand and Robert D. Graham. Also convicted was former AIG vice president of reinsurance Christian M. Milton.
The verdict comes after seven days of jury deliberation following the five-week trial. The five counts against each defendant include securities fraud, mail fraud and lying to the Securities and Exchange Commission.
The defendants stood accused of taking part in a scheme of using reinsurance deals to inflate AIG’s loss reserves by roughly $500 million between 2000 and 2001.
At the heart of the scheme was a complicated and fraudulent transaction in which Gen Re would appear to pay $10 million in premium to transfer $100 million of insurance risk to AIG – although no real risk had been transferred.
In exchange, as part of an unwritten agreement, AIG padded other transactions to refund the $10 million, as well as pay a $5 million fee to Gen Re for participating in the deal.
At trial, prosecutor Eric Glover compared the arrangement to one in which an insurer pays a driver to insure his car.
By doing so, however, AIG inflated its loss reserves by $500 million, allowing the company to convince stock analysts that loss reserves at AIG were more than adequate.
Back in 2006, AIG paid $1.6 billion as part of a regulatory settlement in which it agreed to restate nearly $4 billion in profits for the period between 2000 and 2004.
That settlement led to the 2005 ouster of long-time AIG CEO Maurice “Hank” Greenberg, who is an alleged, unindicted co-conspirator in the Gen Re fraud trial.
Stamford, Conn.-based Gen Re Corp. is a unit of Warren Buffet’s Berkshire Hathaway.
“The investing public must be able to trust and rely upon corporate management to provide accurate information in their public filings,” said Assistant Attorney General Alice S. Fisher. “As these convictions demonstrate, executives who violate the criminal laws by deceiving investors or aiding in that deception will be held accountable.”
Added Kevin J. O’Connor, U.S. Attorney for the District of Connecticut: “We’re very pleased with the jury’s verdict, as it sends the appropriate message that those who engage in corporate wrongdoing will be held accountable.”