Dec. 10 (Bloomberg) -- Elizabeth Monrad, the convicted ex- finance chief of General Reinsurance Corp. who faces possible life in prison for her role in a $597 million fraud, said she should have testified at her trial to proclaim her innocence.

“I will regret it for the rest of my life,” said Monrad, 54, in an interview with Bloomberg News, her first about the case. “I’m coping. I wall off the normal part of my life from the legal nightmare. I’m still in disbelief. The trial’s outcome was a total shock.”

Monrad was convicted Feb. 15 with four other insurance executives of using a sham transaction in 2000 to deceive shareholders at American International Group Inc. None of the defendants testified. All face as much as life in prison when they are sentenced in federal court in Hartford, Connecticut.

Monrad spoke about her defense strategy as one of her co- defendants nears the first sentencing. Prosecutors said former General Re Chief Executive Officer Ronald Ferguson joined Monrad and others who illegally helped AIG add $500 million in loss reserves, a key indicator of an insurer’s health. Ferguson will be sentenced Dec. 16. No date has been set for Monrad.

Deciding whether to let an executive testify is one of the hardest choices for a defense lawyer, attorneys say. An executive seeking to explain her state of mind must weigh the peril of cross-examination by prosecutors. In earlier trials, jurors convicted former WorldCom Inc. Chairman Bernard Ebbers and ex- Enron Corp. Chief Executive Officer Jeffrey Skilling after they testified. Ebbers is serving 25 years. Skilling got 24 years.

‘I’m Innocent’

“I know I’m innocent,” said Monrad, who said she will appeal. The other four defendants said they intend to appeal.

She said she prepared for her case by reading transcripts of the testimony of Sheila Kahanek, an Enron accountant who was the only one to take the witness stand in a six-defendant trial over a sham Nigerian energy barge deal. Kahanek was the lone defendant acquitted at that trial.

Jurors “want to know what’s on the mind of senior executives on trial, and somehow it’s got to get conveyed,” Monrad said. “The defense thought they could win the case simply by impeaching the credibility of a few government witnesses. I believe now that’s not good enough in a white-collar case.”

Monrad said she “absolutely” expected to testify and explain the “complicated and arcane” nature of the transaction until her attorney, Reid Weingarten, convinced her near the trial’s end that it wasn’t needed. Weingarten also represented Ebbers.

‘Entirely Honorable’

“Since my lawyer was looking somewhat positively on the trial’s expected outcome, I thought, ‘All right, why take the risk of testifying if it wasn’t necessary,’” she said.

In response to Monrad’s comments, Weingarten said: “Elizabeth Monrad is an entirely honorable, decent and modest woman who found herself in the wrong place at the wrong time. As a result, a life marked by love of family, professional excellence and good works has been turned upside down and inside out.”

Monrad said she also was influenced by a colleague’s lawyer who “said to me that if I testified, prosecutors would use me in cross-examination to try to harm my co-defendants. Even though I believed in my colleagues’ innocence, that weighed really heavily on my decision not to testify.”

Prosecutors centered their case on taped conversations and testimony from ex-General Re executives John Houldsworth and Richard Napier, who pleaded guilty to conspiring to abet false accounting at AIG. At the six-week trial, defense attorneys attacked their credibility.

‘Could Not Imagine’

Monrad, who was featured prominently on the tapes, said she “could not imagine” testifying as Houldsworth and Napier did against colleagues whom she believes did nothing wrong.

“I was surprised to hear testimony from cooperating witnesses of meetings and conversations that never occurred,” she said. “Some of that false testimony must have cemented in the jury’s mind that a conspiracy had occurred.”

Monrad said prosecutors asked her before trial to plead guilty and perhaps avoid prison by implicating her colleagues.

“The system puts a gun to someone’s head and says plead and cooperate and I’ll give you probation, or go to trial and risk going to prison for the rest of your life,” she said. “Through my lawyer, I told them I didn’t have the testimony they were seeking. I couldn’t live with sending someone to prison by telling stories I knew weren’t true.”

Thomas Carson, a spokesman for the U.S. Attorney’s Office in Connecticut, declined to comment.

In a Sept. 19 memo filed with U.S. District Judge Christopher Droney in Hartford, prosecutors said Monrad deserves a “substantial” prison term, not the six to 12 months her lawyers requested.

Leniency

“In the face of the overwhelming evidence of her guilt adduced at trial, and without accepting any responsibility for her actions, she now pleads for leniency,” prosecutors wrote. “Simply put, leniency is not appropriate for a defendant who questions the jury’s verdict but does not question, in any way, her own conduct.”

AIG was bailed out by the U.S. in September, getting an $85 billion loan after ceding control to the government. The U.S. later increased the bailout to more than $150 billion. General Re is owned by billionaire Warren Buffett’s Berkshire Hathaway Inc.

The deal at the center of the fraud arose after New York- based AIG said on Oct. 26, 2000, that premiums increased in the third quarter of 2000 as reserves for claims fell. Five days later, former AIG CEO Maurice “Hank” Greenberg asked Ferguson for help with AIG’s loss reserves, according to trial evidence.

$500 Million

Stamford, Connecticut-based General Re agreed in writing to transfer at least $500 million in policies and pay $500 million in premiums, with AIG facing up to $100 million in losses. AIG improperly booked the deal as posing a risk of loss, while General Re accounted for it correctly, prosecutors said. Secret side agreements corrupted the deal, according to the government.

“I didn’t view the transaction as a sham,” Monrad said. “I was assured that there were $500 million in underlying liabilities that had the potential for loss to AIG.”

Buffett, 78, approved the deal’s reputational risk, or threat of bad publicity, Napier testified. Prosecutors said Buffett wasn’t aware of the side agreements. Buffett, who was on the government’s witness list, wasn’t implicated in the case, didn’t testify and has denied any wrongdoing.

Greenberg, named by prosecutors as an unindicted co- conspirator in the case, has denied wrongdoing. AIG later reversed the transaction and agreed in 2006 to pay $1.64 billion to settle probes of its sales and accounting practices.

Monrad, a certified public accountant, said General Re lawyers and accountants told her the deal was proper.

‘AIG’s Inner Workings’

“AIG told us they would use deposit accounting,” she said. “How was I to know otherwise? I’m not an expert in AIG’s inner workings. AIG had people who knew the accounting rules.”

She said: “Buffett’s ongoing involvement in the transaction gave me comfort that it was acceptable.”

Monrad, a graduate of Wellesley College and the MIT Sloan School of Management, worked for 12 years at the Coopers & Lybrand accounting firm before joining General Re in 1992. Monrad, who said she was the highest-ranking woman at the company, was named the Insurance Woman of the Year by the Association of Professional Insurance Women in 1999.

“I cared about doing what I could to mentor and promote other women within the company so that they had the chance that I had,” Monrad said.

In 2003, she became finance chief at TIAA-CREF, which oversees $399 billion in assets for employees at universities and other non-profits. She took a leave of absence in May 2005 after the Securities and Exchange Commission told her she might be sued over the AIG transaction. She resigned in November 2005.

Monrad lives in New Canaan, Connecticut, with her husband, Eric Shuman. Their two children are undergraduates at Harvard College. She said she has spent her time working on her case, painting landscapes and portraits, and writing a book about shortcomings of the U.S. legal system. She’s written 324 pages.

“I was very surprised to see the many advantages prosecutors have over the defense in a criminal trial,” Monrad said. “I thought the justice system was more balanced, but it’s not.”

The case is U.S. v. Ferguson, 06-cr-00137, U.S. District Court, District of Connecticut (Hartford).

To contact the reporters on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net and; Jane Mills in Hartford, Connecticut, t .

Last Updated: December 10, 2008 00:01 EST