By David Voreacos and David Scheer
Jan. 20 (Bloomberg) — General Re Corp., the reinsurer owned by Warren Buffett’sBerkshire Hathaway Inc., agreed to pay more than $92 million to settle U.S. investigations and investor claims over its role in sham transactions with American International Group Inc. and Prudential Financial Inc.
The company will pay $19.5 million to the U.S. Postal Inspection Service Consumer Fraud Fund, $12.2 million to the Securities and Exchange Commission and $60.5 million to AIG shareholders in a class-action settlement, the SEC said in a statement today. Gen Re previously forfeited $5 million in fees linked to the AIG scheme, the SEC said. The deal lets Gen Re avoid prosecution by the Justice Department and resolves an SEC civil lawsuit filed today.
General Re was involved in sham transactions with AIG in 2000 and a Prudential division from 1997 to 2002 that helped those two companies manipulate financial statements, the SEC said in a complaint in federal court in Manhattan today. The AIG dealings helped AIG overstate loss reserves, a key indicator of an insurer’s health, by $500 million, according to the claim.
“Gen Re and its senior management were aware that the true purpose of the transactions was to permit AIG to record and report phony loss reserves to calm analysts’ criticism,” the agency wrote in the complaint.
The U.S. probe led to criminal convictions of four former Gen Re executives, including ex-Chief Executive Officer Ronald Ferguson, 68, and one from AIG. The fraud cost AIG shareholders from $544 million to $597 million, ruled a federal judge in Hartford, Connecticut. Two other Gen Re executives pleaded guilty.
Misled, Faked and Cheated
Attorneys representing Gen Re didn’t immediately return calls seeking comment. Gen Re was cooperating with government investigators, Berkshire Hathaway said in a Nov. 6 regulatory filing.
New York-based AIG, once the world’s largest insurer, agreed to pay $1.64 billion in 2006 to resolve government claims it misled investors, faked bids, and cheated workers’ compensation programs.
AIG shareholders have reached other legal settlements to recover money. In October 2008, AIG’s accounting firm, PricewaterhouseCoopers LLP, agreed to pay $97.5 million to settle litigation led by Ohio public pension funds claiming it helped mislead investors. In February, Stamford, Connecticut- based Gen Re agreed to pay $72 million to settle litigation, also led by the Ohio funds, claiming it helped mislead AIG investors. A judge has not given final approval yet to that deal, court records show.
Two Years
After the criminal trial in Hartford, U.S. District Judge Christopher Droney sentenced Ferguson to two years in prison. Former AIG Vice President Christian Milton was sentenced to a four-year term, and ex-Gen Re Chief Financial Officer Elizabeth Monrad got 18 months. Former Gen Re Senior Vice President Christopher Garand and ex-Gen Re Assistant General Counsel Robert Graham each got a one-year prison term.
The trial featured testimony about Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway. Buffett wasn’t charged with a crime and denied any wrongdoing.
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