Monday, June 6, 2005

Govt. Gets Cooperator in AIG-General Re Investigation

According to the Wall Street Jrl here, a General Re executive who lives in Ireland and worked there has agreed to plead guilty to a conspiracy count and provide the government with cooperation in their investigation.    A key issue here may be how much information this cooperating witness will be able to provide to the government. 

The cooperation here had two benefits to the Government.  First it may provide them with information to move the investigation a step forward.  Second, if they had planned to proceed against this individual, they can now do so without having to go through an extradition process.

(esp) (with thanks to Joe Hodnicki for also noticing this newsbreak)

                                                                                       

UPDATE (6/6): The SEC filed a complaint against John Houldsworth that outlines the government's allegations and identifies the involvement of both former AIG CEO Maurice Greenberg and former General Re CEO Ronald Ferguson, both of whom asserted their Fifth Amendment privilege and refused to testify before the SEC.  The complaint (here) summarizes the case in this way:

This case is not about the violation of technical accounting rules. It involves the deliberate or extremely reckless efforts by senior corporate officers of a facilitator company (Gen Re) to aid and abet senior management of an issuer (AIG) in structuring transactions, having no economic substance, that were designed solely for the unlawful purpose of achieving a specific, and false, accounting effect on the issuer’s financial statements. The only economic benefit to either party of the transactions at issue was a $5.2 million fee – agreed to in an undisclosed side agreement – to be paid by AIG to Gen Re for putting this deal together. The "premiums" purportedly due AIG under the terms of the bogus transaction documents were merely window dressing and were in fact pre-funded by AIG to Gen Re in another undisclosed side agreement. Gen Re and AIG also created a phony paper trail to make it appear as though Gen Re had solicited reinsurance from AIG when, in fact, AIG had solicited the deal to manipulate its financial statements.

The complaint does not identify Greenberg and Ferguson by name, but does describe their involvement in this way: "AIG’s then Chairman (the "AIG Chairman") called Gen Re’s then CEO (the "Gen Re CEO") to solicit help in structuring a transaction between AIG and Gen Re that would transfer $200 million to $500 million of 'loss reserves' to AIG by year end through a reinsurance arrangement between AIG and Gen Re."  The AIG side of the transaction clearly is based on information provided by AIG's former president of its reinsurance unit, Joseph Umansky, who testified before a New York state grand jury under an immunity grant (see earlier post here). The Houldsworth guilty plea brings the government one step closer to bringing a case against Greenberg and Ferguson, the top officials at the two companies involved in the transaction.  (ph)

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