Four former senior executives of General Re—including its former chief financial officer–and one former senior executive of American International Group were indicted for their participation in a fraudulent scheme to manipulate AIG’s financial statements.
The announcement was made on Wednesday by Alice Fisher, assistant attorney general of the Department of Justice’s Criminal Division, and Kevin O’Connor, United States Attorney for the District of Connecticut. The 16-count indictment charges four individuals with one count of conspiracy to violate federal securities laws and to commit mail fraud, seven counts of securities fraud, five counts of making false statements to the Securities and Exchange Commission, and three counts of mail fraud.
The indictments were handed out to Elizabeth Monrad, a former Gen Re’s CFO; Ronald Ferguson, a former Gen Re’s chief executive officer; Christian Milton, AIG’s vice president of reinsurance; and Robert Graham, a one-time Gen Re senior vice president and assistant general counsel.
In addition, Christopher Garand was charged with one count of conspiracy to violate federal securities laws and to commit mail fraud, three counts of securities fraud, three counts of making false statements to the SEC, and three counts of mail fraud. He was a Gen Re senior vice president and the head and chief underwriter of Gen Re’s finite reinsurance operations in the U.S. He also was a member of the board of Cologne Re Dublin, a Gen Re entity.
The five executives were accused of engaging in a fraudulent scheme to make it appear as though AIG increased its loss reserves, a key financial indicator to analysts and investors. The DOJ said in its press release that the indictment includes “two sham reinsurance transactions” between subsidiaries of AIG and Gen Re that were initiated by an AIG senior executive to quell criticism by analysts related to a $59 million reduction in AIG’s loss reserves in the third quarter of 2000.
According to the DOJ, these reportedly phony transactions made it falsely appear as though AIG had increased its loss reserves by $250 million in the fourth quarter of 2000, and by an additional $250 million in the first quarter of 2001. Without the fake loss reserves added to AIG’s balance sheet, the insurance company’s earnings release would have shown greater reductions in loss reserves for both quarters, instead of the increased loss reserves touted by AIG in its earnings releases, the DOJ asserted.
In a restatement filed last year with the SEC, AIG reversed and restated the entries relating to these transactions, the DOJ noted.
The indictment further alleges that the defendants designed the transactions solely for the purpose of aiding AIG in manipulating its financial statements. “The only economic benefit from the transactions to either party was a $5 million fee AIG paid to Gen Re for putting the deal together, which was an undisclosed side agreement,” said the press statement.
If they are convicted of all the charges in the indictment, Ferguson, Monrad, Milton, and Graham each face a maximum of 230 years in prison and a fine of up to $46 million. Garand faces up to 160 years in prison and a fine of up to $29.5 million.
In February, a federal grand jury in Norfolk returned a 13-count indictment charging Ferguson, Monrad, Milton, and Graham with various counts of conspiracy to commit securities fraud, causing false statements to be made to the SEC, and mail and wire fraud. In April, the trial judge in the Eastern District of Virginia transferred venue in the case, for the convenience of the parties, to the District of Connecticut.