Third Executive Faces Complaint in Insurer Inquiry
By TIMOTHY L. O'BRIEN
The New York Times
Published: May 11, 2005
The Securities and Exchange Commission has notified a third executive of the General Re Corporation that he faces a civil fraud complaint as part of an investigation of financial manipulation in the insurance industry, a person briefed on the matter said yesterday.
The executive, John Houldsworth, was the head of General Re's office in Dublin. Mr. Houldsworth has been in the middle of several questionable transactions that have drawn the attention of regulators in the United States and other countries. While he still holds a senior position in Dublin, he no longer manages the office.
The S.E.C. move increases pressure on both current and potential targets of a wide-ranging insurance investigation. It is standard practice in such investigations for prosecutors to try to compel junior executives to testify against executives above them.
As the insurance industry investigation has escalated, the S.E.C. has become involved in something of a prosecutorial race with the New York attorney general, Eliot Spitzer, to gain a lead role in enforcement actions related to possible insurance infractions, according to several people involved in the investigations.
The latest notice also comes as the pension fund giant TIAA-CREF said yesterday that its chief financial officer, Elizabeth A. Monrad, had requested and was granted an unpaid leave of absence in order to respond to a regulatory action against her.
The S.E.C. notified Ms. Monrad last Thursday that it planned to file a civil fraud complaint against her in connection with a questionable transaction between her former employer, General Re, and the American International Group, according to a person briefed on the matter. Both General Re and A.I.G. are targets of wide-ranging investigations into fraudulent insurance practices. Both are cooperating with the inquiries.
Last week, the S.E.C. also notified a current General Re executive, Richard Napier, that it planned to file a civil fraud complaint against him in connection with the A.I.G. transaction, according to two other people briefed on the matter. Mr. Napier has not returned calls seeking comment.
The transaction, in 2000, artificially increased A.I.G.'s reserves by $500 million over two quarters. An investigation of the deal, which A.I.G. has acknowledged was improper, led to the recent ouster of A.I.G.'s former chairman and chief executive, Maurice R. Greenberg.
General Re, an insurance unit of Berkshire Hathaway, is the subject of several regulatory inquiries in the United States and abroad.
Lawyers for General Re brought the transaction to the attention of law enforcement authorities earlier this year, according to insurance executives and several other people involved. The lawyers noticed the transaction because paperwork associated with it had been altered in a questionable manner, these people said.
The lawyers were examining General Re's books as part of an internal inquiry prompted by a Justice Department investigation of its financial dealings with medical malpractice insurers in the Midwest and Southeast. Ms. Monrad declined to comment about TIAA-CREF's announcement when reached by telephone yesterday. She joined General Re in 1992 and was the chief financial officer when she accepted a new position at TIAA-CREF in 2003.
Ms. Monrad is a well-regarded executive described by current and former colleagues as a manager with a strong reputation for integrity and diligence.
The S.E.C. informed Ms. Monrad of its intention to file a complaint through an administrative action known as a Wells notice. Under the terms of a Wells notice, a target of an investigation is given an opportunity to provide facts or testimony to regulators in an effort to convince them that filing a fraud complaint is unwarranted.
It could not be determined how vigorously Ms. Monrad intends to respond to the Wells notice. She has told at least one acquaintance that she does not believe she engaged in fraud.
In an interview last month with The New York Times, Ms. Monrad said that she may have received copies of e-mail messages relating to the A.I.G. transaction but that she was not aware of any improprieties associated with the deal. She also said that she believed that A.I.G. intended to properly account for the transaction.
In mid-November 2000, Ms. Monrad and Mr. Napier had asked Mr. Houldsworth to handle the A.I.G. transaction that led to an increase in A.I.G. insurance reserves, Ms. Monrad said in the interview. Mr. Napier and Ms. Monrad also handled details of the transaction with Christian M. Milton, a former A.I.G. executive, according to several people briefed on the transaction.
A.I.G. recently fired Mr. Milton for not cooperating with investigators. Correspondence uncovered by investigators examining the transaction shows that Mr. Milton was aware of the alteration and approved of it, according to insurance industry executives.
The Times first reported last month that Mr. Napier, Ms. Monrad, Mr. Milton and Mr. Houldsworth were suspected of playing some role in carrying out an improper transaction and doctoring the paperwork associated with it.
Two people briefed on the matter said that the S.E.C. was expected to issue more Wells notices to insurance executives.