Four insurance industry executives plead not guilty to fraud | VailDaily.com
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Four insurance industry executives plead not guilty to fraud

ALEXANDRIA, Va. – Four former top executives of insurance giants General Re and American International Group pleaded not guilty to federal fraud and conspiracy charges Thursday and pledged $1 million in bond. Their trial was set for May.The Justice Department has accused the four of orchestrating an audacious fraud, putting together a sham reinsurance transaction that allowed AIG to falsely report some $500 million in reserves against losses and thereby mislead shareholders, Wall Street and regulators. The charges come as the government’s investigation of the insurance industry widens.The alleged conspiracy, using phony contracts and a secret side deal, was designed to make it appear that AIG’s loss reserves were growing so as to inflate the company’s stock price in 2000 and 2001, prosecutors say.Appearing in federal court in Alexandria were: Ronald Ferguson, who was chief executive of Berkshire Hathaway Inc.’s General Reinsurance Corp.; Elizabeth Monrad, its former chief financial officer; Robert Graham, the company’s former assistant general counsel; and Christian Milton, who ran the reinsurance division of AIG.By turns, they stood before U.S. District Judge Gerald Bruce Lee and replied, “Not guilty” when asked how they were responding to the charges. They also said they wanted a jury trial rather than a hearing with only a judge.Each pledged a $1 million bond and surrendered his or her passport. Lee set a trial date of May 22, saying it’s likely to last about 16 days.Each defendant, if convicted on all 13 criminal counts of conspiracy, fraud and making false statements to the Securities and Exchange Commission, could face a maximum of 95 years in prison and $7.75 million in fines.Their attorneys unsuccessfully argued for a later trial date to prepare their cases, citing the daunting complexity and volume of documents involved.Quotes from e-mail correspondence and taped telephone conversations fill the 40-page indictment and are cited by the prosecutors as demonstrating a conspiracy among the defendants and an intent to conceal their alleged scheme. Defense lawyers are seeking copies of audiotapes related to the transaction at the heart of the case and of the deposition of a cooperating defendant who has pleaded guilty.New York-based AIG, one of the world’s largest insurance companies, last week agreed to pay a record $1.64 billion in a settlement with federal and New York state authorities. It also apologized for having deceived investors and regulators with misleading accounting practices.AIG was alleged to have participated in bid-rigging schemes, paid secret commissions to insurance brokers to steer business to it, used phony insurance deals to burnish its earnings and misstated the amount of workers’ compensation premiums it had collected.The company’s ousted chief executive, Maurice “Hank” Greenberg, remains under investigation by the Justice Department and the SEC, and has been named in a civil lawsuit by New York Attorney General Eliot Spitzer.He has denied any wrongdoing. He has said that transactions made during his 38 years at the helm of AIG were proper and correctly accounted for, and his spokesman says he will be vindicated in the courts.Greenberg, though not named, is referred to as “AIG unindicted co-conspirator 1” and is portrayed as playing a role in the sham transaction in the indictment handed up this month by a federal grand jury in Norfolk, Va.Richard Napier, a former General Re senior vice president who pleaded guilty last June to having played a role in the transaction, said in a statement of facts accompanying his plea agreement that Ferguson told him in October 2000 that Greenberg had asked Ferguson to help concoct the $500 million deal.Ferguson, Monrad, Graham and Milton are named in a related SEC civil lawsuit alleging that they helped AIG’s alleged securities fraud.The indictment stemmed from the Justice and SEC investigations of a 5-year-old deal between AIG and General Re, both major players in the reinsurance industry, which sells insurance to primary insurers to help spread risk.General Re parent Berkshire Hathaway, an investment company based in Omaha, Neb., is led by influential billionaire Warren Buffett, who was interviewed by SEC and New York state investigators last April. He has not been accused of any wrongdoing.Vail, Colorado


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