[JURIST] A federal jury in Hartford, Connecticut on Monday found five former insurance executives guilty of charges of conspiracy, securities fraud, false statements to the SEC, and mail fraud in connection with a scheme to falsely inflate the financial health of American International Group (AIG) [corporate website], one of the world's largest insurance companies. Four of the defendants worked for the General Re (Gen Re) [corporate website] insurance group, a subsidiary of Berkshire Hathaway [corporate website], at the time of the fraudulent scheme, while the fifth defendant is a former AIG executive. The Department of Justice press release [text] explained the theory of the case:
At trial, the government presented evidence that the defendants engaged in a scheme to falsely inflate AIG's reported loss reserves, a key indicator of financial health to insurance industry analysts and investors. This fraud was effectuated through the use of two sham reinsurance transactions between subsidiaries of AIG and Gen Re in response to analysts' criticism of a $59 million decrease in AIG's loss reserves for the third quarter of 2000. The two sham transactions increased AIG's loss reserves by $250 million in the fourth quarter of 2000 and $250 million in the first quarter of 2001, masking a declining trend in loss reserves in the face of premium growth. AIG restated the transactions at issue in filings with the Securities and Exchange Commission in May of 2005. Evidence presented at trial established that when the investigation was disclosed to investors by AIG and through various media outlets between Feb. 14 and March 14, 2005, shares of AIG stock dropped from $73.12 to $61.92.In 2006, AIG settled security fraud charges [press release; JURIST report] related to AIG-Gen re transactions for $800 million. In all, AIG agreed to pay $1.64 billion to settle [agreement text, PDF] civil fraud charges brought by the federal and New York state governments. The four Gen Re defendants face maximum sentences of 210 years in prison and a $46 million fine; the former AIG executive faces a maximum sentence of 150 years and a $29.5 million fine. Sentencing is scheduled for May 15, 2008. The New York Times has more.