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HARTFORD, Conn.—Former executives of General Reinsurance Corp. and American International Group Inc., whose convictions in a sham finite reinsurance deal were overturned, have a stronger hand going into a retrial scheduled for next year, experts say.
Last week, U.S. District Court Judge Vanessa Bryant set Jan. 22, 2013, for the retrial of 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.
In February 2008, a jury convicted the five on charges of conspiracy, securities and mail fraud, and making false statements to the U.S. Securities and Exchange Commission stemming from a loss portfolio transaction conducted in 2000 and 2001.
Prosecutors alleged that the defendants constructed the deal to artificially bolster AIG's loss reserves, ultimately costing AIG investors as much as $597 million as word of the SEC investigation into the transaction emerged and the stock declined.
Last August, however, the 2nd U.S. Circuit Court of Appeals said Judge Christopher Droney erred in allowing prosecutors to use a line graph tracing AIG's stock price, which the three-judge panel said was prejudicial, and overturned the conviction.
“The defendants appeal on a variety of grounds, some in common and others specific to each defendant, ranging from evidentiary challenges to serious allegations of widespread prosecutorial misconduct,” Chief Judge Dennis Jacobs wrote for the appeals court. “Most of the arguments are without merit, but the defendants' convictions must be vacated because the district court abused its discretion by admitting the stock-price data.”
Attorneys for the defendants and representatives of the U.S. attorney's office either declined comment or could not be reached for comment.
Lawrence A. Hamermesh, Ruby R. Vale professor of corporate and business law at Widener University's School of Law in Wilmington, Del., said the government will have to rely on evidence other than AIG's stock price during a retrial to convince jurors of the harm resulting from the deal.
“I assume the retrial will have a more limited showing of materiality,” Mr. Hamermesh said. “The prosecution won't have the stock price chart to wave at the jury” during a retrial.
Philip Hilder, an attorney at Hilder & Associates P.C., a Houston law firm representing corporate defendants, said that while he does not expect the government to follow the same playbook as the first trial, prosecutors are limited to the evidence that was introduced in the first trial.
“The government case can't vary too much,” Mr. Hilder said. “A retrial is a distinct advantage to the defense because they've already seen the weaknesses in the (prosecution's) case.”
Another potential disadvantage for the prosecution is that defense attorneys can exploit the fading memories of witnesses to undermine their credibility, which Mr. Hilder said makes the outcome of a retrial uncertain.