United States Attorney's Office District of Connecticut
Press Release

GEN RE AND AIG EXECUTIVES CHARGED IN SUPERSEDING INDICTMENT

Alice S. Fisher, Assistant Attorney General of the Department of Justice’s Criminal Division, and Kevin J. O’Connor, United States Attorney for the District of Connecticut, announced that a federal grand jury in New Haven today returned a 16-count Superseding Indictment charging four former senior executives of General Re Corporation (Gen Re) and one former senior executive of American International Group, Inc. (AIG) for their participation in a fraudulent scheme to manipulate AIG’s financial statements.

The Superseding Indictment charges the following individuals with one count of conspiracy to violate federal securities laws and to commit mail fraud, seven counts of securities fraud, five counts of making false statements to the Securities and Exchange Commission, and three counts of mail fraud:

RONALD E. FERGUSON, age 63, of Fairfield, Connecticut, who was Gen Re’s chief executive officer from about 1987 through September 2001;

ELIZABETH MONRAD, age 51, of New Canaan, Connecticut, who was Gen Re’s chief financial officer from about June 2000 through July 2003;

CHRISTIAN MILTON, age 58, of Winnewood, Pennsylvania, who was AIG’s vice president of reinsurance from about April 1982 until March 2005; and

ROBERT GRAHAM, age 58, of Westport, Connecticut, who was a Gen Re senior vice president and assistant general counsel employed by Gen Re from about 1986 through October 2005.

The Superseding Indictment also charges CHRISTOPHER P. GARAND, age 59, of Upper Saddle River, New Jersey, with one count of conspiracy to violate federal securities laws and to commit mail fraud, three counts of securities fraud, three counts of making false statements to the SEC, and three counts of mail fraud. GARAND was a Gen Re senior vice president and the head and chief underwriter of Gen Re’s finite reinsurance operations in the U.S. from about 1994 until August 2005. GARAND also was a member of the Board of Directors of Cologne Re Dublin, a Gen Re entity.

The Superseding Indictment charges that the defendants engaged in a fraudulent scheme to make it appear as though AIG increased its loss reserves, a key financial indicator to analysts and investors. At issue are two sham reinsurance transactions between subsidiaries of AIG and Gen Re that were initiated by an AIG senior executive to quell criticism by analysts of an approximate $59 million reduction in AIG’s loss reserves in the third quarter of 2000.

“The Department of Justice and our federal law enforcement partners are committed to investigating and prosecuting corporate executives who intend to mislead investors, employees and customers by manipulating company financial information,” U.S. Attorney O’Connor stated.

According to the Superseding Indictment, these phony transactions made it falsely appear as though AIG had increased its loss reserves by $250 million in the fourth quarter of 2000 and by an additional $250 million in the first quarter of 2001. Without the fake loss reserves added to AIG’s balance sheet, AIG’s earnings release would have shown greater reductions in loss reserves for both quarters, instead of the increased loss reserves touted by AIG in its earnings releases. In a restatement filed last year with the SEC, AIG reversed and restated the entries relating to these transactions.

The Superseding Indictment further alleges that the defendants designed the transactions solely for the purpose of aiding AIG in manipulating its financial statements. The only economic benefit from the transactions to either party was a $5 million fee AIG paid to Gen Re for putting the deal together, which was an undisclosed side agreement. The parties agreed in another undisclosed side agreement that AIG would never have to pay any losses under the contracts, even though the contracts were written to appear as if AIG could incur $100 million in losses. Further, the premiums supposedly due AIG under the terms of the contracts were an illusion. In a round trip of cash, AIG gave Gen Re the money to pay the $10 million in premiums as part of another secret side agreement. The defendants allegedly masked the reason for the transfer of funds between AIG and Gen Re pursuant to these side agreements. The defendants also allegedly participated in creating a phony paper trail for the two transactions to make it appear as though Gen Re had solicited the reinsurance when all parties knew AIG sought the deal to manipulate its financial statements.

Each of the defendants was aware that the true purpose of the transactions was to permit AIG to record and report loss reserves that it did not really have to calm analyst criticism of AIG’s reduction in loss reserves in the third quarter of 2000. Nevertheless, as alleged in the Superseding Indictment, each of them knowingly took steps to help AIG accomplish its fraudulent purpose.

If convicted of all the charges in the indictment, FERGUSON, MONRAD, MILTON and GRAHAM each face a maximum term of imprisonment of 230 years in prison and a fine of up to $46 million. GARAND faces a maximum term of imprisonment of 160 years and a fine of up to $29.5 million.

On February 1, 2006, a federal grand jury in Norfolk, Virginia, returned a 13-count Indictment charging FERGUSON, MONRAD, MILTON and GRAHAM with various counts of conspiracy to commit securities fraud, securities fraud, causing false statements to be made to the Securities and Exchange Commission, and mail and wire fraud.

On April 10, 2006, the trial judge in the Eastern District of Virginia transferred venue in the case, for the convenience of the parties, to the District of Connecticut. The matter has been assigned to Senior United States District Judge Peter C. Dorsey in New Haven, who has scheduled a trial date of March 1, 2007.

In a related civil case brought by the SEC, these defendants have been charged with aiding and abetting AIG’s violations of the anti-fraud, reporting and other provisions of the federal securities laws.

In June 2005, two senior Gen Re executives, John Houldsworth and Richard Napier, each pleaded guilty to conspiracy to falsify SEC filings in connection with this investigation. Houldworth’s case has also been transferred to the District of Connecticut. Each awaits sentencing.

U.S. Attorney O’Connor stressed that an indictment is only a charge and is not evidence of guilt. Each defendant is entitled to a fair trial at which it is the Government’s burden to prove guilt beyond a reasonable doubt.

U.S. Attorney O’Connor noted that the investigation is ongoing.

This case is being investigated by the United States Postal Inspection Service. The case is being prosecuted by Assistant United States Attorney Eric J. Glover of the District of Connecticut, Assistant United States Attorney Raymond E. Patricco, Jr. of the Eastern District of Virginia, and Trial Attorney Adam Safwat and Special Attorney Eva Saketkoo of the Fraud Section of the Criminal Division at the U.S. Department of Justice.

CONTACT:

U.S. ATTORNEY'S OFFICE
Tom Carson
(203) 821-3722
thomas.carson@usdoj.gov