A former insurance executive was sentenced to two years in prison Tuesday for a scheme that prosecutors said allowed the American International Group to manipulate its financial statements through a sham reinsurance deal eight years ago.
Ronald Ferguson, a former chief executive of General Re Corp., a reinsurance unit of Warren Buffett’s Berkshire Hathaway Inc, is the first of five defendants convicted in the fraud to hear his sentence.
The case is not linked to AIG’s mortgage-related losses that led to a near collapse of the company in September and a federal bailout.
In February, a federal jury in Connecticut found all five defendants guilty of conspiracy, securities fraud, making false statements to regulators and mail fraud. Buffett was not charged in the case.
“This transaction was designed to cook the books of AIG. He had many opportunities to step in and stop the deal but he did not,” U.S. District Judge Christopher Droney said of Ferguson in his remarks to the court.
The other four defendants, who also face the possibility of lengthy prison terms, are not expected to be sentenced until next year. All five have been free on bail pending sentencing.
“I’m a man who has been crushed by what has happened over the last three, four years. My life is in shambles,” Ferguson told the judge before his sentencing. “I am joyless and sorrowful but my spirit is irrepressible.”
Ferguson, 66, must pay a $200,000 fine and undergo two years of supervised release when the sentence ends. Sentencing guidelines were far harsher, calling for life in prison, the judge said, but he chose a lighter sentence because of Ferguson’s “history” and “character.”
“This case is a tragedy especially for Ronald Ferguson. We will never know why such a good man did such a bad thing,” the judge added.
Defense lawyers previously said their clients did not believe they acted improperly and that they intend to appeal their convictions. Reinsurance is a practice of insurers transferring parts of their risk portfolios to other parties.
The phony deal, prosecutors said, misled AIG investors and artificially boosted the insurer’s stock price because it enabled the company to improperly inflate its loss reserves by about $500 million in late 2000 and early 2001. Loss reserves are a key indicator of financial health for insurers.
AIG has previously acknowledged accounting improprieties and restated $3.8 billion in earnings from 2000 through 2004 and agreed to a $1.64 billion regulatory settlement in 2006.
The government also has said the defendants made a secret side deal in which AIG would never have to pay any losses under the contracts, and that AIG would return to General Re $10 million in premiums. The government said AIG paid the reinsurer $5 million for entering into the transaction.
Ferguson, of Fairfield, Connecticut, was General Re’s chief executive from 1987 through September 2001.
U.S. prosecutors sought substantial prison sentences in the case, citing the size of the losses to AIG investors. Droney estimated that the losses totaled at least $544 million.
(Reporting by Ted Lorson and Martha Graybow; Editing by Jason Szep and Frances Kerry)
Topics Fraud Reinsurance AIG
Was this article valuable?
Here are more articles you may enjoy.
Two Montgomery Workers Charged with Insurance Fraud in Alabama 
‘Dirty Dozen’ Unsafe Employers Putting Workers at Risk 
Insurers Get Green Light to Pay Less Than Billed Charges in Florida PIP Cases 
Billionaire Ellison Is Moving Oracle to Nashville From Texas 
