Former Gen Re exec sentenced to prison

Robert Graham (right), former General Re Corp. senior vp and assistant general counsel, was sentenced last week to one year and one day in prison for his role in a sham reinsurance deal. PHOTO: AP PHOTO

HARTFORD, Conn.—The relatively light prison terms imposed by a federal judge on five former executives from General Re Corp. and American International Group Inc. for their role in a sham reinsurance deal are not likely to be overturned on appeal, legal experts say.

Former Gen Re Senior Vp and Assistant General Counsel Robert Graham was sentenced last week to one year and one day in prison. Judge Christopher Droney of the U.S. District Court in Hartford, Conn., again rejected federal guidelines in sentencing Mr. Graham, who is the last of five former executives to be sentenced in the case since they were convicted in February 2008.

Mr. Graham also was sentenced to two years of supervised release and fined $100,000. He and the other four defendants remain free on bond pending appeal of their convictions.

Judge Droney said Mr. Graham's participation was "important to the sham transaction." The judge added that, as Gen Re's lawyer, Mr. Graham used his expertise to draft contracts for the transaction and create a paper trail to deceive auditors and regulators.

"A message must be sent to the business community, and the lawyers that counsel them, that this kind of behavior will not be tolerated," the judge said. However, he noted that unlike many other white-collar criminals, Mr. Graham was not motivated by personal gain.

'No do-overs'

Addressing the judge, Mr. Graham said, "I realize there are no do-overs in life. Nothing I can say or do now can change what has happened or its impact on the lives of others or on me. Your honor, I regret that more than words can adequately express."

Mr. Graham and the other defendants in the case were convicted on charges of conspiracy, securities fraud and making false statements to the U.S. Securities and Exchange Commission. Prosecutors convinced the jury that the individuals had created a sham loss-portfolio transfer designed to help AIG manipulate its financial statements.

Judge Droney in November 2008 determined AIG shareholders lost more than $500 million because of the bogus deal--a figure that, under sentencing guidelines, could have resulted in life sentences. However, federal sentencing guidelines are no longer mandatory, and many judges do not feel bound by them, experts say.

Judge Droney's decision to impose sentences far below federal sentencing guidelines for all the defendants reflects "a bit of a disconnect between the loss amount and the actual harm," said Peter Henning, a professor at Wayne State University Law School in Detroit.

"Clearly, he felt a life sentence was just too Draconian," Mr. Henning said. But at the same time, "he wasn't letting them off the hook." Mr. Henning noted the judge rejected defendants' requests for community service and home confinement instead of prison.

Last December, Judge Droney sentenced former Gen Re Chief Executive Officer Ronald E. Ferguson to two years in prison and a $200,000 fine for his role in the deal. Since then, the judge has handed down prison terms ranging from one to four years (see box).

Appeals to take time

All five defendants have indicated they will appeal their convictions and sentences. However, legal experts say their chances of successfully overturning their convictions and avoiding jail time are slim.

"It's a steep hill to climb to win a reversal after a jury verdict," said Mr. Henning. "It's not impossible, but statistically, the odds are against them," he said.

On appeal, the defendants likely will challenge a range of issues, said Michael Cornacchia, a New York criminal defense attorney and former assistant U.S. attorney. Defense lawyers likely will argue the government excluded evidence or did not introduce sufficient evidence, or they will try to show a flaw in the judge's instructions to the jury, he said.

"They have very good lawyers, but most appeals in federal court are not successful," Mr. Cornacchia said.

After last week's final sentencing hearing, the appeals process moves to the 2nd U.S. Circuit Court of Appeals in New York, where it could take six to nine months before oral arguments are scheduled. Given the complex nature of the case and the number of defendants, experts say the appeals may not be completed until spring 2010.

Prosecutors, who asked for substantial prison time for all the defendants, also have filed documents in U.S. District Court in Hartford indicating they will appeal the judge's sentences. However, experts say, the move is essentially a standard procedure to "preserve their option" and it is unclear how serious the U.S. Attorney's Office is in pursuing this.

"A government appeal is very rare. It's a big undertaking," Mr. Cornacchia said.

However, "there is a chance they could move forward given the glaring departure" between the guidelines and the sentence, he said. Any appeal by the government would have to be "carefully vetted," he said. "The government is not going to appeal a case it does not think it can win."

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