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Gen Re ex-CEO, ex-CFO, and others indicted in AIG-Related Case

Toomre Capital Markets made a post back in November 2005 entitled Civil Fraud Charges Likely Coming in General Re / AIG reinsurance probe?? that speculated on the probable imminent indictments of Ronald E. Ferguson, General Re’s former chief executive officer, as well as Elizabeth A. Monrad, General Re’s former chief financial officer, in the General Re / AIG reinsurance case that led to the resignation of long-time AIG CEO Maurice R. Greenberg. At that time, Colgate-Palmolive Co. said in a regulatory filing that both Ferguson, who served as head of that company’s audit sub-committee, and Monrad, who served as the head of another sub-committee, had resigned from Colgate-Palmolive’s board of directors. Previously both had received so-called Wells notices from the U.S. Securities and Exchange Commission and it was curious that both should resign from the board of directors at the same time seemingly out of the blue. Ms. Monrad, who had taken a leave of absence from her position as the CFO of TIAA-CREF after receiving her Wells notice in May 2005, formally resigned from TIAA-CREF in mid-November which made the joint resignations from Colgate’s board seem even more curious. After an initial flurry of visits around when the above post was made, the TCM web server log files reveal that general interest about this story was insignificant – until this week that is when activity markedly increased! Tonight the public now knows why…

The Wall Street Journal reports at 6:57 PM on February 1, 2006 in a news article entitled Ex-AIG, General Re Executives Indicted written by Karen Richardson that a federal grand jury in the Eastern District of Virginia has returned indictments against Former General Re Chief Executive Ronald Ferguson, former General Re Chief Financial Officer Elizabeth Monrad, General Re's former General Counsel Robert Graham and the former head of AIG's reinsurance operations, Christian Milton, charging them with conspiracy to commit fraud. The article continues:

The Securities and Exchange Commission is also expected to announce that it is filing civil charges against the executives for aiding and abetting securities fraud, a person familiar with the matter said. Mr. Ferguson and Ms. Monrad are the two most senior former General Re executives to be criminally charged in the General Re-AIG accounting probe. Mr. Milton is the only former AIG executive to have been charged in the Justice Department's investigation into a transaction between the two insurance companies in late 2000. The investigation into the deal is continuing, according to people familiar with the matter.

The indictments against the former high-level General Re executives underscore the government's determination to prosecute parties they allege have aided and abetted alleged white-collar crimes, a person familiar with the case said. Last summer, two former General Re employees, John Houldsworth and Richard Napier, pleaded guilty to the criminal charge of conspiracy to commit fraud and agreed to cooperate with prosecutors. Messrs. Houldsworth and Napier haven't yet been sentenced, but they each face up to five years in prison. Aside from Mr. Milton, no other current or former AIG official has been criminally charged in the Justice Department's investigation.

The New York Times in an article written by Timothy L. O’Brien confirms the gist of The Wall Street Journal report and adds this additional information:

Since early last year, federal prosecutors have been investigating General Re and A.I.G. for financial improprieties relating to transactions that artificially inflated A.I.G.'s reserves by $500 million in 2000 and 2001. The New York attorney general, Eliot Spitzer, is also investigating improprieties at A.I.G. and has filed civil fraud charges against Maurice R. Greenberg, the former chairman and chief executive, and A.I.G.'s former chief financial officer… The charges reach into the highest levels of General Re and A.I.G.'s former senior ranks and raise uncertainties about the potential impact on Warren E. Buffett, the billionaire investor who controls Berkshire Hathway, as well as on Mr. Greenberg. Mr. Buffett has not been charged with any wrongdoing and prosecutors have described him as nothing more than a cooperating witness. He could not be reached for comment.

Toomre Capital Markets first wrote about the General Re / AIG finite reinsurance transaction back on March 4, 2005 in the post Non-traditional insurance products snare AIG and General Re???. As was posted then, “Very clearly the last shoe has not yet dropped on indictments of either companies or individuals, including some very senior executives...” The thought still applies today. Comments and thoughts on this still evolving case are encouraged [TCM site registration required to avoid spam].