A former General Re Corp. executive is expected to plead guilty in federal court Friday to a criminal charge of helping other high-level executives arrange a transaction intended to mislead investors and regulators about the financial health of insurance giant American International Group Inc.
Richard Napier, a former General Re senior vice president, is expected to enter his plea in federal court in Alexandria, according to people familiar with the matter who spoke on condition of anonymity because of the continuing investigation. Napier would be the second former General Re executive in two days to enter a plea relating to a wide-ranging state and federal investigation into alleged misuse of a reinsurance product used by public companies to spread large losses over time.
The investigation has resulted in the founder of AIG, the nation's largest insurance company, being forced out. In addition, AIG was forced to restate several years worth of financial statements, reducing the company's net worth by $2.3 billion. The investigations are part of a broader probe of insurance industry accounting and business practices that may have hurt consumers and investors.
Napier was responsible for the company's relationship with AIG in 2000 and 2001, when the $500 million deal at the heart of several investigations was executed, according to court papers.
A lawyer for Napier could not be reached Thursday.
General Re is a unit of Warren E. Buffett's Berkshire Hathaway Inc. Buffett is an investor in and director of The Washington Post Co.
Napier's expected plea would follow Thursday's appearance in the same courthouse by John Houldsworth, the former head of General Re's Ireland-based unit, who pleaded guilty to a single count of conspiracy to commit securities fraud in a case stemming from the same deal. Houldsworth also agreed to cooperate with the Justice Department and the office of U.S. Attorney Paul J. McNulty of the Eastern District of Virginia.
Among other things, the 46-year-old Houldsworth is expected to tell prosecutors that the current General Re chief executive, Joseph Brandon, also knew details of the transaction, according to a person familiar with the matter who spoke only on the condition of anonymity because of the continuing investigation.
A call to Brandon on Thursday was referred to a General Re spokesman, who did not return several telephone calls.
In a 25-page document charging Houldsworth, prosecutors list a number of General Re and AIG executives who were also identified by the Securities and Exchange Commission in a civil fraud complaint filed against Houldsworth on Monday. The criminal charging document says AIG's chief executive, then Maurice R. "Hank" Greenberg, asked the General Re chief executive, then Ronald E. Ferguson, to arrange a deal purporting to transfer risk to AIG that actually carried no risk. That deal, in 2000 and 2001, allowed the insurer to improperly inflate its reserves, according to the complaint.
Assigned the task, prosecutors say, Houldsworth worked closely with General Re's finance chief, identified in the SEC complaint as Elizabeth Monrad, and Napier. Prosecutors also say AIG's former finance chief Howard I. Smith is mentioned in several e-mails as directing various aspects of the deal and as having attended a meeting in November 2000 in which General Re executives told him that General Re's accounting for the deal would differ from the accounting AIG intended to use.
Lawyers for Smith could not be reached. Lawyers for Monrad and Ferguson and a spokesman for Greenberg's lawyers declined to comment.
Houldsworth faces a maximum prison sentence of five years. He is scheduled for sentencing Dec. 9.