General Re discussed AIG's illicit deal
June 9, 2005
NEW YORK - Executives at Berkshire Hathaway's General Re unit knew four years ago that American International Group would use a reinsurance transaction to "cook the books," according to phone transcripts cited in a suit from regulators.
John Houldsworth, a former General Re executive who agreed this week to plead guilty to a criminal charge of conspiring to misstate AIG's finances, discussed the planned transaction in a November 2000 phone call with the insurer's chief financial officer at the time, Elizabeth Monrad.
"They'll find ways to cook the books won't they?," Houldsworth told Monrad, according to a civil complaint the U.S. Securities and Exchange Commission filed Monday in conjunction with the plea agreement. The comment prompted Monrad to laugh, and then Houldsworth continued, "It's up to them! We won't help them to do that too much. We'll do nothing illegal."
The SEC said in court papers that Monrad and Houldsworth, as well as the General Re senior vice president, Richard Napier, and former chief executive officer, Ronald Ferguson, knew what was intended by New York-based AIG, which last month corrected its accounting on that deal and an array of other transactions.
The transaction, which improperly increased AIG's reserves for claims, sparked an accounting investigation in October that led AIG last month to restate five years of financial reports and lower net income by $3.9 billion, or 10 percent. The deal also induced AIG, the world's largest insurer, to oust Maurice "Hank" Greenberg as chairman and chief executive in March.
Monrad's lawyer, Paul Shechtman, said that "when all the facts are known, it will be clear that Ms. Monrad acted properly." An AIG spokesman, Chris Winans, declined to comment.
6 AIG units to pay NASD
Six units of AIG are among 14 brokerages and a fund distributor that agreed to pay $34 million for allegedly accepting fees from mutual funds in exchange for preferential treatment, the NASD said, Bloomberg reported from Washington.
The firms, which did not admit to wrongdoing, were accused of working harder to promote funds that paid fees, a practice known as directed brokerage.
These payments, often paid out of fund assets, are usually hidden from shareholders.