General Re settles federal charges in AIG case
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Thursday, January 21, 2010
General Re, a reinsurer owned by Berkshire Hathaway, agreed Wednesday to pay $92 million to settle federal charges that it helped American International Group orchestrate a massive fraud, concocting sham deals that allowed AIG to overstate its financial strength.
AIG was charged in 2006 with arranging one of the largest financial frauds in U.S. history and was ordered to pay over $1 billion in fines and penalties. The scandal broke years before the company's risky financial bets led to its decline and eventual rescue by the federal government.
In its settlement, Gen Re admitted that between 2000 and 2004 top executives engaged in fake reinsurance deals to artificially inflate AIG's loss reserves, which investors and insurance industry analysts use to judge financial health. A federal court previously concluded that the fraud cost AIG's shareholders up to $600 million.
Gen Re agreed to pay $19.5 million to the U.S. Postal Inspection Service Consumer Fraud Fund, and $12.2 million to taxpayers to settle civil charges brought by the Securities and Exchange Commission. It also agreed to pay $60.5 million to AIG's injured shareholders.
The firm previously paid $5 million to settle an earlier case.
The Justice Department agreed not to prosecute the firm criminally, citing Gen Re's cooperation with investigators there and at the SEC. However, four General Re executives, including former chief executive Ronald Ferguson, were convicted previously of charges stemming from their involvement.
Connecticut-based Gen Re, which provides a second layer of insurance to other insurance companies, did not return calls or e-mails seeking comment. General Re's corporate parent, Berkshire Hathaway, is run by Warren E. Buffett, who was never charged in the case and previously denied wrongdoing. (Buffett is also a director of The Washington Post Co. and the largest non-family shareholder.)
AIG declined to comment.
