Appeals court overturns convictions of former Gen Re, AIG executivesPosted On: Aug. 1, 2011 12:00 AM CST
NEW YORK—A panel of the 2nd U.S. Circuit Court of Appeals on Monday overturned the convictions of five former executives of General Re Corp. and American International Group Inc. who had been found guilty of orchestrating a sham finite reinsurance deal.
The three-judge panel of the appeals court said that while most of the defendants' arguments for a reversal were without merit, their convictions had to be vacated because the district court abused its discretion and issued an inappropriate jury instruction.
The three-judge panel ordered a new trial for Ronald E. Ferguson, former Gen Re CEO; Christopher P. Garand, former Gen Re senior vp in charge of U.S. finite underwriting; Robert Graham, former Gen Re senior vp and assistant general counsel; Elizabeth Monrad, former Gen Re chief financial officer; and Christian M. Milton, former AIG vp for reinsurance.
Prosecutors had alleged that the executives engineered a bogus loss portfolio reinsurance transaction that helped AIG inflate its loss reserves by $500 million in 2000 and 2001.
The deal, aimed at countering stock analyst concerns about the New York insurer's reserves, transferred no risk to AIG and included an unwritten side agreement that AIG would refund Gen Re's $10 million premium and pay the reinsurer a $5 million fee.
The five executives were convicted in February 2008 by a federal court jury in Hartford, Conn., on charges of conspiracy, securities and mail fraud, and making false statements to the U.S. Securities and Exchange Commission.
In seeking a reversal on appeal, attorneys argued last November that, among other issues, the trial court took AIG's multibillion-dollar stock price drop in 2005 as proof that the finite reinsurance deal was “material,” requiring AIG to inform investors, but the defense said prosecutors lacked evidence on what really hurt AIG's stock price.
The appeals court ruled that charts submitted as evidence suggested that AIG's stock price fell only as a result of the investigation into the finite transaction, even though AIG was facing several other problems at the time. In addition, a compromise on jury instructions fashioned from submissions by the defense and the prosecution, failed to instruct the jury correctly on causation requirements.
For full coverage of the Gen Re/AIG finite trial, click here.