Judge: Evidence Showed Greenberg Phone Call in AIG/General Re Case

By | May 21, 2008

A U.S. judge who oversaw the trial of executives accused of helping American International Group Inc. inflate reserves said there was sufficient evidence to show the conspiracy started with a phone call from the insurer’s former chief executive, Maurice “Hank” Greenberg.

U.S. District Judge Christopher Droney offered his assessment in a Friday ruling in which he denied the five defendants a new trial, clearing the way for them to be sentenced. The transaction involved AIG and General Re Corp., a reinsurance unit of Warren Buffett’s Berkshire Hathaway Inc.

Greenberg was not indicted in the case and has long maintained his innocence. Prosecutors have identified him previously as an unindicted alleged co-conspirator. He still faces civil charges over his reign at New York-based AIG, which he built over nearly four decades into the world’s largest insurer before his 2005 ouster.

A spokesman for Greenberg, Glen Rochkind, said Tuesday that the ruling by the judge in Hartford, Connecticut only pertained to the five defendants in the government’s case.

“Mr. Greenberg has always acted ethically, responsibly and legally in all of his business and personal actions,” he said in a statement. “In fact, evidence presented during the Hartford trial, including testimony from the government’s own witnesses, contradicted prior allegations that Mr. Greenberg asked General Re to provide a fraudulent transaction on October 31, 2000.”

He said Greenberg “did seek to buy a loss portfolio from Gen Re,” a “normal transaction in the insurance industry,” but conspirators at General Re appear to have created the fraud.

Prosecutors in the criminal case accused a former AIG executive and four former General Re executives of conspiring to inflate AIG’s loss reserves by $500 million through fraudulent reinsurance transactions beginning in 2000. Among those convicted was former General Re CEO Ronald Ferguson.

In his 29-page decision, seen on the court’s Web site, Droney wrote: “The government presented sufficient evidence that, starting with Greenberg’s Oct. 31, 2000 phone call to Ferguson, there was an agreement to carry out a transaction to artificially inflate AIG’s loss reserves and deceive AIG’s investors about the amount of the company’s loss reserves and the quality of its earnings.”

Droney said there was “an adequate basis for a rational jury to conclude” the conspiracy began with Greenberg’s phone call. His comments arose from an argument by Ferguson that no rational jury could find a conspiracy began around that time.

The judge added that “even though calculating loss reserves usually requires an actuarial assessment after the fact, Greenberg specified the amount of loss reserves he wanted from the deal during that call.”

A spokesman for the U.S. Attorney’s Office in Connecticut, Thomas Carson, declined comment on the ruling, but said the AIG/General Re matter remains an ongoing investigation.

Legal experts say they do not think the judge’s comments have implications for the government’s continuing probe. The ruling, they said, was meant to address the sufficiency of the evidence at trial as the judge considered whether the defendants who were found guilty deserved a new trial.

“I think the judge’s comment has no legal significance beyond what it means for the people who are being sentenced,” said C. Evan Stewart, a criminal defense attorney at law firm Zuckerman Spaeder LLP in New York who is not involved in the case.

Another defense attorney, Michael McGovern of Ropes & Gray LLP, who also is not involved in the case, said the ruling pertained to whether a rational jury in the trial against the five defendants could have concluded that the conspiracy began with Greenberg’s October 2000 phone call.

“The judge is not endorsing that view of the facts. He’s saying only that it was not irrational for the jury to so conclude,” McGovern said.

Greenberg holds about 12 percent of AIG shares through companies he controls and a personal stake. He has yet to win broad support for a revolt against current management, which has struggled with billions of dollars of losses tied to subprime mortgages.

(Editing by Tim Dobbyn)

Topics USA Legislation AIG

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