Saturday, March 7, 2009

AIG paid Stamford-based Gen Re in a secret deal to take out reinsurance policies

Ex-Gen Re executive gets 1 year in prison
By DAVE COLLINS
Associated Press Writer

A former senior vice president at General Re Corp. was sentenced Wednesday to a year and a day in federal prison for an accounting fraud scandal that artificially propped up the stock price of insurer American International Group Inc.

Christopher Garand, 61, was also fined $150,000 for his role in the case, which authorities say cost AIG shareholders more than $500 million.

Garand is one of five former executives convicted in the case.

Federal prosecutors say New York-based AIG paid Stamford-based Gen Re in a secret deal to take out reinsurance policies with AIG in 2000 and 2001. They say the scheme propped up AIG's stock prices and inflated reserves by $500 million with the goal of quelling criticism by analysts and concerns by investors.

U.S. District Judge Christopher Droney noted at Wednesday's hearing that Garand didn't try to benefit personally from the stock manipulation, and he said the scandal was not comparable with higher-profile ones involving Enron Corp., Adelphia or other companies.

But the judge said Garand knew he was breaking the law.

"Mr. Garand knew and understood the scope of the ... fraud," the judge said, adding that a message needed to be sent to the business community that this kind of conduct will not be tolerated.

Garand had faced up to 160 years in prison and a fine of up to $29.5 million.

Defendants in the case have said in court papers that there was no link between the eight-year-old deal and AIG's recent financial troubles that sparked a federal financial-rescue package.

Garand, of Upper Saddle River, N.J., begged Droney for a lenient sentence, saying he didn't know how he and his family would cope with a prison sentence.

"I'm profoundly sorry, your honor," Garand said. "I ask for your wisdom, compassion and mercy."

His wife, Barbara, a school board official in their New Jersey community, also pleaded with Droney.

"These past few years have caused a great deal of pain to our family," she said. "Please don't take him from us. Our lives are in your hands."

Garand, his wife, his two daughters, ages 26 and 15, and many in the crowd of nearly 80 people cried during parts of the 2 1/2-hour proceeding. Garand said his main concerns were how his wife, children and granddaughter would cope if he was imprisoned.

Garand's family and friends sent numerous letters to the judge, saying Garand was a family man, Army veteran and tireless community volunteer.

Neither Garand nor his wife would comment after the hearing. He was ordered to report to prison on April 22, but defense attorneys have asked that he remain free on bond pending an appeal.

The prosecutor, Assistant U.S. Attorney Ray Patricco, also declined to comment about the sentence. He had sought a "substantial" prison term.

During the hearing, Patricco said Garand played a significant role in the fraud, including coming up with the ideas for using sham contracts and leaving a deceptive paper trail. Garand denied those claims.

"The evidence at trial shows that he was much more than a bit player in this deal," Patricco said. "He knew that he was getting involved in a fraud and a serious crime. The seriousness of the offense cannot be overstated in this case."

Garand was the third executive to be sentenced. Former General Re chief executive Ronald Ferguson was sentenced in December to two years in prison and fined $200,000, while former AIG vice president Christian Milton was sentenced to four years in prison and fined $200,000.

Still to be sentenced are Elizabeth Monrad, former General Re chief financial officer, and Robert Graham, a former General Re senior vice president.

1 comment:

Terry said...

The transaction was far from being a secret. It was repeatedly disclosed in AIG's publicly available regulatory statements. It was visible to any analyst or regulator reviewing AIG's statements.

Warren Buffett approved the transaction and directed that Gen Re earn a fee.