General Re's Ferguson Gets Two Years, Avoids Life (Update3)
By Jane Mills and David Voreacos
December 16, 2008
Dec. 16 (Bloomberg) -- Ronald Ferguson, the former chief executive of General Reinsurance Corp., was sentenced to two years in prison for helping American International Group Inc. deceive shareholders, avoiding a potential life term.
Ferguson, 66, was the highest-ranking of five executives convicted for using a sham transaction in 2000 to help AIG improve its balance sheet. U.S. District Judge Christopher Droney also ordered Ferguson to pay a $200,000 fine and serve two years of supervised release after prison. The judge could have given Ferguson a life sentence after ruling earlier that the fraud cost AIG shareholders as much as $597 million.
"We will never know why such a good man did such a bad thing," Droney said today in federal court in Hartford, Connecticut. While Ferguson's criminal conduct was "substantial," he deserved leniency because of his "history and character," Droney said. "I've never received such an outpouring for a defendant," the judge said.
Ferguson, General Re's CEO from 1987 to 2001, was convicted in February of conspiracy, securities fraud, false statements and mail fraud. The sham transaction let AIG add $500 million in loss reserves, a key indicator of an insurer's health, prosecutors said. Ferguson asked the judge for mercy, saying he began to study for the ministry after surviving a brain hemorrhage in 1999.
"I ask for clemency so that I may finish my seminary education and live my purpose to serve others," Ferguson said. "In a way, my plea is for me and my family. I cannot credibly deny that. But it is also to serve others."
Ferguson deserved a "substantial" term, Assistant U.S. Attorney Eric Glover told Droney today, though he added that life "would not be appropriate." Manipulating financial statements "could not be more serious" and "erodes the public trust," Glover said.
Nora Dannehy, the acting U.S. Attorney for Connecticut, would have been "comfortable" with a term of six to nine years, she said in an interview after the hearing.
"While the government believes that a longer term of imprisonment was justified, the message is clear," Dannehy said in a statement. "Those who seek to deceive investors by fraudulently manipulating corporate balance sheets face the very real possibility of a felony conviction and time in prison."
AIG's chief executive at the time of the deal was Maurice "Hank" Greenberg, whom prosecutors called an unindicted coconspirator in the case. Greenberg, who resigned in 2005, wasn't charged with a crime and denied any knowledge of an improper transaction.
"Mr. Ferguson had a very serious ethical and legal blind spot when it came to Mr. Greenberg, when it came to AIG," Glover told the judge.
The deal at the center of the fraud arose after New York- based AIG said on Oct. 26, 2000, that premiums increased in the third quarter of 2000 as reserves for claims fell. Five days later, Greenberg asked Ferguson for help with AIG's loss reserves, according to trial evidence.
General Re, based in Stamford, Connecticut, agreed in writing to transfer at least $500 million in policies and pay $500 million in premiums, with AIG facing as much as $100 million in losses. AIG improperly booked the deal as posing a risk of loss, while General Re accounted for it correctly, prosecutors said. Secret side agreements corrupted the deal, according to the government.
The initial phone call from Greenberg "should have alerted Mr. Ferguson right away that this was a sham transaction," Droney said. "What we will never know is why he did not call Mr. Greenberg back and say, 'This is a shady deal,'" and that he would have no involvement in it.
Greenberg attorney Robert Morvillo didn't immediately return a call seeking comment.
Defense attorney Michael Horowitz asked Droney to impose "an unusually long period of supervised release or probation" to allow Ferguson to work with the needy. Ferguson filed 379 letters asking for mercy and depicting him as decent, caring and honorable.
Billionaire Warren Buffett, whose Berkshire Hathaway Inc. owns General Re, didn't write a letter. Those who did included Chubb Group CEO John Finnegan; Ramani Ayer, CEO of Hartford Financial Services Group Inc.; Carl Lindner Jr., chairman of American Financial Group Inc.; William C. Ferguson, who is unrelated and the former CEO of Nynex Corp.; and I. John Cholnoky, president of General Re.
More than 30 Ferguson supporters filled the courtroom today. The ones who spoke on his behalf included Andrew Henry, general counsel of Colgate-Palmolive Co., where Ferguson was a director from 1987 to 2005; Jill Ker Conway, the former president of Smith College; and Ferguson's wife of more than 40 years, Carol, who was flanked by their two children.
'Begging for Mercy'
"I am begging you for mercy," Carol Ferguson, who turned 66 yesterday, said to Droney. "I cannot imagine my life without Ron." She said her husband's message for the past 50 years has been to "do the right thing, even when it hurts, even when no one is looking."
Ferguson was convicted with ex-Chief Financial Officer Elizabeth Monrad, 54; Christopher Garand, 61, a former senior vice president; Robert Graham, 60, a former General Re assistant general counsel; and Christian Milton, 61, AIG's former head of reinsurance.
Droney ordered Ferguson to surrender to the U.S. Bureau of Prisons by Feb. 18. He said he would consider Ferguson's request for bail pending appeal after reviewing legal filings.
Ferguson was the first defendant to be sentenced. Milton is scheduled for the next sentencing on Jan. 27.
The case is U.S. v. Ferguson, 06-cr-137, U.S. District Court, District of Connecticut (Hartford).
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