The former vice president of reinsurance of American International Group Inc. (AIG) has been sentenced to four years in prison for his role in a fraudulent scheme to manipulate AIG’s financial statements, according to the Department of Justice.
Christian M. Milton, 61, of Wynnewood, Pennsylvania, who served as vice president of reinsurance at AIG from 1982 to March 2005, was convicted by a federal jury on Feb. 25, 2008, on charges of conspiracy, securities fraud, false statements to the U.S. Securities and Exchange Commission and mail fraud.
AIG shareholders lost at least $544 million as a consequence of the scheme, according to the court.
In addition to the prison term, Milton was sentenced by U.S. District Judge Christopher F. Droney to two years of supervised release following his release from prison and a $200,000 fine. Milton was ordered to surrender himself to federal authorities in 60 days.
Prosecutors said that evidence presented at trial proved that Milton and his co-defendants, Ronald E. Ferguson, Elizabeth A. Monrad, Robert D. Graham and Christopher P. Garand, all former General Reinsurance Corp. executive officers, engaged in a scheme to falsely inflate AIG’s reported loss reserves, a key indicator of financial health to insurance industry analysts and investors. According to trial evidence, the fraud was carried out through the use of two sham reinsurance transactions between subsidiaries of AIG and Gen Re in response to analysts’ criticism of a $59 million decrease in AIG’s loss reserves for the third quarter of 2000.
The two sham transactions, prosecutors showed, increased AIG’s loss reserves by $250 million in the fourth quarter of 2000 and $250 million in the first quarter of 2001, masking a declining trend in loss reserves in the face of premium growth. Evidence showed that AIG restated the transactions at issue in filings with the SEC in May 2005. Evidence presented at trial established that when the investigation was disclosed to investors by AIG and through various media outlets between Feb. 14 and March 14, 2005, shares of AIG stock dropped from $73.12 to $61.92.
All five defendants were convicted on all counts presented against them in the 16-count superseding indictment. Subsequently, on Oct. 31, 2008, Judge Droney found that AIG’s shareholders lost between $544 million and $597 million as a consequence of the defendants’ fraudulent scheme.
Last month, Ronald Ferguson, the former CEO of General Re, was sentenced to two years in prison and fined $200,000 for his role in the fraud. Three other former Gen Re officials — Garand, Monrad and Graham– have not yet been sentenced.
General Re is part of Warren Buffett’s Berkshire Hathaway Inc.
According to evidence at trial, each of the defendants knew that the true purpose of the transactions was to permit AIG to falsely report increasing loss reserves in its statements to analysts, investors and in its SEC filings. The defendants structured a sham reinsurance transaction, according to trial evidence, and created a phony paper trail to make it appear as though Gen Re had solicited reinsurance from AIG when the evidence demonstrated that the parties knew AIG wanted the transaction to manipulate its financial statements.
Additionally, evidence presented at trial proved that the defendants entered into a secret side deal whereby AIG would never have to pay any losses under the contracts; AIG would return to Gen Re the $10 million in premiums Gen Re paid to AIG and AIG paid Gen Re a $5 million fee for entering into the transaction.
According to prosecutors, Milton’s former boss when he was CEO at CEO, Maurice “Hank” Greenberg, who resigned from AIG in 2005, has denied knowledge of any improper transaction and wasn’t charged with a crime.
After they left AIG in March, 2005, Greenberg hired Milton to work at his current firm, C.V. Starr & Co., an insurance and investment company.
Source: U.S. Department of Justice
CONTACT: U.S. Department of Justice Office of Public Affairs,
+1-202-514-2008, TDD: +1-202-514-1888
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