Gen Re, AIG Defendants Win Approval of Fraud Dismissals

Four former General Reinsurance Corp. executives and one at American International Group Inc. will win dismissal of accounting fraud charges under deferred-prosecution agreements approved today by a U.S. judge.

The executives were convicted at trial of fraud charges in 2008 and sentenced to prison before a federal appeals court overturned the verdicts and ordered a new trial in Hartford, Connecticut. On June 22, prosecutors agreed to drop the charges in a year, and the executives admitted that “aspects” of a transaction in 2000 and 2001 were fraudulent. Prosecutors alleged that the fraud helped to deceive AIG investors.

U.S. District Judge Vanessa Bryant’s approval is needed for the agreements covering former General Re Chief Executive Officer Ronald Ferguson, ex-Chief Financial Officer Elizabeth Monrad, ex-Senior Vice President Christopher Garand, ex-Assistant General Counsel Robert Graham, and former AIG Vice President Christian Milton.

“Mr. Garand has always adamantly maintained his innocence and that he acted in the utmost good faith,” his attorney, Robert Cleary, said in a phone interview. “As Mr. Garand now looks to restore his good name and claim back his reputation, I would like to thank the Department of Justice for having the professionalism to recognize that this was a fatally flawed prosecution.”

Attorneys for the other defendants didn’t immediately return calls or e-mails seeking comment.

Red Flags

Each executive acknowledged that parts of the transaction were fraudulent, that they disregarded red flags suggesting the deal would be “improperly accounted for,” and that they “should have attempted to stop it from going forward, but instead continued to participate in it,” according to their agreements filed in federal court in Hartford.

Under the agreements, Ferguson will pay a $200,000 fine; Milton, $200,000, Monrad, $250,000; Garand $150,000; and Graham, $100,000.

The U.S. Court of Appeals in New York ordered the new trial in August. It was set for Jan. 22.

At the original trial, jurors convicted each defendant of charges including conspiracy, securities fraud, mail fraud and making false statements to the U.S. Securities and Exchange Commission.

Prosecutors said Ferguson and his subordinates set up a phony reinsurance deal after Maurice “Hank” Greenberg, then-chief executive officer of New York-based AIG, sought to assuage investors about the reserves.

The trial featured testimony about Greenberg and billionaire Warren Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., which owns General Re. Neither was charged with a crime, and both denied wrongdoing.

The appeals court said that the trial judge erroneously let prosecutors show jurors three charts with AIG stock-price data, and improperly instructed the jury on causation.

The case is U.S. v. Ferguson, 3:06-cr-00137, U.S. District Court, District of Connecticut (Hartford).

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