Former General Re Executive Given Probation

By Dave Collins | June 18, 2009

A former business executive was sentenced Tuesday to two years of probation for his role in an accounting scandal that cost shareholders of insurer American International Group Inc. more than $500 million.

John Houldsworth, the former chief executive officer of an Irish affiliate of Berkshire Hathaway’s General Re, was also fined $5,000 and ordered to perform 400 hours of community service during the probation period.

U.S. District Judge Christopher Droney in Hartford noted that Houldsworth, 50, of Dublin, Ireland, provided crucial information to investigators that helped them win convictions against five other executives.

“Your honor, I would just like to say I’m sorry,” Houldsworth said. “From the bottom of my heart, I’d like to apologize to anybody who suffered as a result of the transaction.”

Houldsworth pleaded guilty in 2005 to conspiring to commit securities fraud and had faced up to five years in prison and up to $250,000 in fines under the plea deal.

Prosecutors said AIG paid Stamford, Connecticut-based Gen Re in a secret deal to take out reinsurance policies with AIG in late 2000 and early 2001, at a time when AIG’s stock was declining. They said the bogus deal made it look like Gen Re was going to pay AIG $500 million in premiums, when in reality Gen Re would pay no premiums and would actually receive $5 million from AIG for its involvement in the deal.

The transaction inflated AIG’s balance sheet and propped up AIG’s stock price. prosecutors said. They said hundreds of shareholders who bought AIG stock at the inflated price lost more than $500 million when the share price dropped after news of the scandal got out.

Five top executives were convicted and sent to prison for the fraud.

Former Gen Re Chief Executive Ronald Ferguson was sentenced to two years in prison and fined $200,000; former Gen Re Chief Financial Officer Elizabeth Monrad was sentenced to 18 months in prison and fined $250,000; former Gen Re Senior Vice President Christopher Garand was sentenced to a year and a day in prison and fined $150,000; and former Gen Re Senior Vice President and Assistant General Counsel Robert Graham was sentenced to a year and a day in prison and fined $100,000.

Also, former AIG Vice President Christian Milton was sentenced to four years in prison and fined $200,000.

General Re is part of Berkshire Hathaway Inc., which is led by billionaire investor Warren Buffett of Omaha, Neb. The executives who were sent to prison had claimed that Buffet was involved in the fraud. But Buffett denied the allegations and was never charged, and prosecutors say he did not approve the deal.

Houldsworth was chief executive officer of the Gen Re affiliate in Ireland, Cologne Re Dublin, from 1990 to 2005. He sighed in relief after the judge announced the sentence Tuesday and hugged his wife and about 10 other supporters in the public seating area. He declined to comment as he left the courtroom.

“Mr. Houldsworth’s cooperation in this case was
extraordinary,” Droney said.

The judge also said the cases against all the defendants in the AIG fraud should send a message to the business community.

“If fraud is contemplated … these people will know that they will be investigated and prosecuted for their involvement,” Droney said.

Houldsworth’s attorney, Lance Croffoot-Suede, said his client has taken responsibility for his actions, unlike the other former executives. Croffoot-Suede said there was no good explanation for why Houldsworth took part in the fraud, but he noted that other companies were making similar transactions at the time of the AIG scam.

“This sort of deal was not uncommon,” Croffoot-Suede said. “The reinsurance companies were merely doing what was asked of them.”

“It’s easy to see that John did something wrong,” he added. “I think he would do everything in his power to roll back the tape, as it were.”

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Latest Comments

  • June 18, 2009 at 5:08 am
    pita says:
    Feddie: The funds that were "stolen" to use your word...went to the company and not his personal pockets.
  • June 18, 2009 at 2:43 am
    Pete says:
    The impact of this sentence is more cynicism about the difference in justice based upon "class" and the lack of deterrent on others moved to this kind of dishonesty. The good ... read more
  • June 18, 2009 at 2:35 am
    Volunteer says:
    The Salvation Army does a lot of good work and some of the people they serve are homeless, including families. Prejudge much? http://www.salvationarmyusa.org/usn/www_usn_2.nsf... read more
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