Wednesday, January 9, 2008
The prosecution of General Re's former CEO Ronald Ferguson and four others for a reinsurance transaction that allegedly was designed only to help prop up the stock price of American International Group (AIG) is a bit odd because of who is not there as much as those who are on trial. General Re is a subsidiary of Berkshire Hathaway, and opening defense statements invoked the name of that company's CEO, Warren Buffett, as having blessed the deal, and therefore how could anyone think there was something wrong in the transaction. While prosecutors had originally listed Buffett as a possible witness (see earlier post here), before trial they tried to keep the defense from mentioning his name, asserting that Buffett would only be a rebuttal witness and not part of the government's case-in-chief. That motion failed, and the defendants are sure to refer to him whenever possible as a paragon of proper business dealings to show they did not intend to engage in any fraud.
The second empty chair is former AIG CEO Maurice Greenberg, mentioned in the government's opening statement as the one who initiated the deal to bolster the company's stock price by inflating its insurance reserves, an important measure of an insurer's financial health. While prosecutors pointed the finger at Greenberg, who is an unindicted coconspirator, he's notably absent from the courtroom because he was never charged. While the government often fears an "empty chair" defense at trial that blames someone who is not present for the wrongdoing, it's rather uncommon to see prosecutors reference an unindicted coconspirator as a key player without having charged him or reached some type of plea agreement. Greenberg has denied any wrongdoing, and one has to wonder whether references to the two CEOs -- Greenberg and Buffett -- might work in the defendants' favor.
The case involves some fairly arcane insurance and accounting rules, so anything that moves the focus away from the minutiae might be welcomed by the jurors who will have to sit through the trial. The government has estimated it will take twenty trial days to present its case, and that may be an underestimate given that there are five sets of defense lawyers ready to cross-examine each witness. It may well be springtime before there's a verdict in the case. A Bloomberg story (here) discusses the opening days of the case. (ph)