NU Online News Service, Nov. 17, 4:02 p.m. EDT
Five executives convicted of producing a sham insurance contract deal between General Re Corp. and American International Group argued in the U.S. Court of Appeals that a district court committed multiple procedural missteps during their 2008 trial.
The U.S. Court of Appeals for the Second Circuit in New York heard arguments contending that the District Court in Connecticut erred in a number of areas, including not excluding evidence from the case, not properly instructing the jury on certain matters of law and allowing testimony from witnesses that the defendants deemed perjured.
In its brief to the Appeals Court, the government countered that whether there was an error or not, the totality of evidence was so overwhelming that it did not amount to any harm to the defendants' case.
Ronald Ferguson, former Gen Re chief executive officer; Elizabeth Monrad, Gen Re chief financial officer; Christopher Garand, Gen Re senior vice president for U.S. Underwriting; Robert Graham, former Gen Re senior vice president and assistant general counsel; and Christian Milton, AIG's vice president of reinsurance, were convicted in 2008 of a scheme to manipulate American International Group's financial statement with a sham insurance contract in 2002.
The discovery of the sham contract, which inflated AIG's reserves by $500 million, resulted in a restatement of earnings and the loss to shareholders of between $544 million and $597 million.
Prosecutors claim that the executives created a sham reinsurance transaction and a phony paper trail to make it appear that Gen Re purchased a reinsurance contract from AIG.
Instead, prosecutors contend, the companies entered into a side deal, not written into the agreement, where AIG returned $10 million in premium to Gen Re and AIG paid Gen Re a $5 million fee for entering into the transaction. Prosecutors also contend that there was explicit understanding that there was no transfer of risk between the parties.
The defendants were sentenced to a combination of prison time and probation and also ordered to pay fines. Mr. Milton received the longest sentence of four years in prison. The others received prison terms from one up to two years.
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