Former Gen Re Executive Who Cooperated With Feds Gets Two Years' Probation

Richard Napier, a former Gen Re senior vice president, received two years probation and was fined $10,000 for his role in a sham finite reinsurance transaction involving Berkshire Hathaway's General Reinsurance Corp. and American International Group Inc.

Napier testified for the government that the defendants structured the transaction to avoid detection by auditors and regulators. U.S. District Court Judge Christopher Droney sentenced Napier in Hartford, Conn. Napier, who pleaded guilty to one count of conspiracy to commit securities fraud, must also perform 400 hours of community service, according to the U.S. Department of Justice.

The transaction involved a loss portfolio transfer that prosecutors said allowed AIG to book $500 million of loss reserves in the fourth quarter of 2000 and first quarter of 2001 without assuming any real risk. Gen Re allegedly paid a $10 million premium that AIG secretly returned through a side deal, prosecutors said. The two government witnesses ? Napier and John Houldsworth, the former chief executive officer of Berkshire Hathaway's General Re affiliate Cologne Re Dublin ? testified that the defendants structured the transaction to avoid detection by auditors and regulators (BestWire, Feb. 25, 2008).

Authorities said the transaction increased AIG's loss reserves by $500 million. Shareholders of AIG are said to have lost between $544 million and $597 million from the transaction, authorities said.

In a statement, the Department of Justice said Napier "provided extraordinary assistance to the government throughout the investigation and prosecution of his co-conspirators, and testified for seven days during the trial, explaining in great detail the fraudulent nature of the transaction."

In June, Houldsworth was sentenced in federal court to serve two years of probation for his role in the sham finite reinsurance deal. He was also fined $5,000, and was ordered to perform 400 hours of community service (BestWire, June 16, 2009).

After a trial last year, four executives from Gen Re and one from AIG were found guilty on all charges against them related to the transaction. The charges included securities fraud, false statements to the U.S. Securities and Exchange Commission, and mail fraud.

Ronald Ferguson, former Gen Re chief executive, was sentenced to two years in prison plus an additional two years supervised release and a $200,000 fine. Christian Milton, former AIG vice president of reinsurance, was sentenced to four years in jail and a $200,000 fine. Elizabeth Monrad, former Gen Re chief financial officer, was sentenced to 18 months in prison, three years of supervised release and a $250,000 fine. Christopher Garand, former Gen Re head of finite reinsurance operations in the United States, was sentenced to a year and one day in prison and a $150,000 fine. Robert Graham, former assistant general counsel at Gen Re, was sentenced to one year and one day in prison, two years supervised release and a $100,000 fine.