Gen Re and AIG Executives to Face January Retrial

Four General Reinsurance Corp. executives and one from American International Group Inc. will face a Jan. 22, 2013, trial on accusations they created a sham finite reinsurance transaction to boost AIG's earnings.

The trial date was issued by U.S. District Judge Vanessa L. Bryant, along with a schedule of various deadlines. Bryant will preside over the case in the U.S. District Court for Connecticut.

The heart of the case is a loss-portfolio transfer — a finite reinsurance transaction—that prosecutors said allowed AIG to book $500 million of loss reserves in the fourth quarter of 2000 and first quarter of 2001 without assuming any real risk. Gen Re allegedly paid a $10 million premium that AIG secretly returned through a side deal, plus an additional $5 million fee, prosecutors said.

When the news broke that the transaction was being questioned by regulators, AIG's stock price slipped. Shareholders of AIG lost between $544 million and $597 million from the transaction, prosecutors said.

This will be the second time the executives face a trial on the charges. They were initially convicted in 2008 following a six-week trial on charges including conspiracy, mail fraud, securities fraud and making false statements to the U.S. Securities and Exchange Commission. Convicted were: Christian Milton, former AIG vice president of reinsurance; Ronald Ferguson, former Gen Re chief executive; Elizabeth Monrad, former Gen Re chief financial officer; Christopher Garand, former Gen Re head of finite reinsurance operations in the United States; and Robert Graham, former assistant general counsel at Gen Re.

In August, the 2nd U.S. Circuit Court of Appeals in New York overturned the executives' convictions. The appeals court found the prosecution's use of charts to show AIG's stock price declining 12% from February to March 2005 were overly prejudicial, and the court "abused its discretion" in admitting three bar charts. The appellate court also took issue with the trial court's instructions to the jury on the issue of causation.

Terree Bowers, a former U.S. attorney who chairs Arent Fox's white collar and investigations practice group, previously told Best's News Service that neither of the reasons the appellate court gave for vacating the convictions were "fatal" (Best's News Service, Aug. 1, 2011).

Milton had been sentenced to four years in jail and fined $200,000. Ferguson had been sentenced to two years in prison and fined $200,000. Monrad was sentenced to 18 months in prison and fined $250,000. Garand was sentenced to one year in prison and fined $150,000. Graham was sentenced to one year in prison and fined $100,000 (Best's News Service, Sept. 15, 2009).

General Re Group, a subsidiary of Berkshire Hathaway, currently has a Best's Financial Strength Rating of A++ (Superior). Most AIG companies have current Best's Financial Strength Ratings of A (Excellent). Shares of AIG (NYSE: AIG), on the afternoon of Feb. 29, were trading at $29.22, up 0.9% from the previous close.

(By Michael Buck, senior associate editor, BestWeek: [email protected])