Five former insurance company executives were found guilty Monday of a scheme to manipulate the financial statements of the world’s largest insurance company, American International Group Inc.
The defendants, including four former executives including a onetime CEO of General Re Corp., and a former executive of AIG, sat stone-faced as they were convicted of conspiracy, securities fraud, mail fraud and making false statements to the Securities and Exchange Commission.
Prosecutors said they participated in a scheme in which AIG paid Gen Re as part of a secret side agreement to take out reinsurance policies with AIG in 2000 and 2001, propping up its stock price and inflating reserves by $500 million.
“The case sends the message to executives that their decisions will be scrutinized ... and these types of offenses aren’t just speeding tickets that you can pay,” prosecutor Paul Pelletier told reporters after the verdict was read.
The verdict came in the seventh day of jury deliberations following a monthlong trial in federal court in Hartford.
The defendants were former General Re CEO Ronald Ferguson; former General Re Senior Vice President Christopher P. Garand; former General Re Chief Financial Officer Elizabeth Monrad; and Robert Graham, a General Re senior vice president and assistant general counsel from about 1986 through October 2005.
Also charged was Christian Milton, AIG’s vice president of reinsurance from about April 1982 until March 2005.
Ferguson, Monrad, Milton and Graham each face up to 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.
Each declined to comment when they left the courtroom. They remained free on $1 million bond and are to be sentenced May 15.
“This is a very sad day, not only for Ron Ferguson, but for our criminal justice system,” Clifford Schoenberg, Ferguson’s personal attorney, said in a statement distributed at U.S. District Court in Hartford. “I and the rest of Ron’s legal team will not rest until we see him — and justice — vindicated.”
Garand’s attorney, Anthony Pacheco, said he was disappointed by the verdict.
“Although this is a major hurdle, we will aggressively pursue all of Mr. Garand’s rights on appeal,” he said.
Milton’s attorney, Frederick Hafetz, also vowed an appeal, saying that his client should have been tried separately from the other defendants.
Reinsurance policies are backups purchased by insurance companies to completely or partly insure the risk they have assumed for their customers.
Prosecutors said AIG gave Gen Re $10 million to pay the policy’s premiums as part of a secret side agreement.
Prosecutors, who say the investigation that led to the charges is ongoing, have said AIG Chief Executive Maurice “Hank” Greenberg was an unindicted co-conspirator in the case. Greenberg was not charged and has denied any wrongdoing, but allegations of accounting irregularities, including the General Re transactions, led to his resignation in 2005.
General Re is part of Berkshire Hathaway Inc., which is led by the billionaire investor Warren Buffett.
In their closing statements, defense attorneys repeatedly invoked the name of the widely admired Buffett in arguing there was no wrongdoing and only a routine deal between AIG and Gen Re.
Buffett was not charged with any wrongdoing and did not testify at the trial.