AIG's Milton Gets Four Years for Fraud, Avoids Life (Update1)
By Jane Mills and David Voreacos
January 27, 2009
Jan. 27 (Bloomberg) -- A former vice president at American International Group Inc. was sentenced to four years in prison for defrauding shareholders, avoiding a possible life term.
Christian Milton, 61, was convicted Feb. 25 with four former executives of General Reinsurance Corp. of using a sham transaction in 2000 to help AIG improve its balance sheet. The judge could have given Milton a life sentence after ruling that the fraud cost AIG shareholders as much as $597 million.
Milton asked U.S. District Judge Christopher Droney for a "minimal" term, citing his good work in the community. Droney said that while life in prison would be too severe, the sentence must deter other executives, and that Milton's conduct showed a "stark lack of honesty and respect" for investors.
"Mr. Milton's participation in this fraud was critical to its success, and particularly disturbing," Droney said in federal court in Hartford, Connecticut. "He surely knew it was a scam from the start."
Droney also imposed a $200,000 fine and ordered two years of supervised release after Milton's term ends. Milton, a legal permanent resident of the U.S., faces deportation to his native England after his prison term.
U.S. prosecutors said Milton played a central role in a transaction that began in October 2000 with a phone call from former AIG Chief Executive Officer Maurice "Hank" Greenberg.
"He could have and should have told Mr. Greenberg that this was a shady deal and he would have nothing to do with it," Assistant U.S. Attorney Raymond E. Patricco Jr. told the judge today. "Instead, he became the point man for the deal."
Prosecutors have said Greenberg was 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.
Milton was fired from AIG in March 2005 and hired within days at C.V. Starr & Co., an insurance and investment company run by Greenberg, Patricco said today. Milton makes $425,000 a year at C.V. Starr, according to Patricco.
"To this day, Mr. Greenberg remains his boss and holds the purse strings" to his deferred compensation, Patricco told the judge.
An attorney for Greenberg who attended today's hearing, Scott Morvillo, declined comment. Amy Foote, a spokeswoman for C.V. Starr, also declined comment.
Milton will surrender to the U.S. Bureau of Prisons by March 25. He may apply for bail pending appeal. If the judge grants his request, it would delay the start of his prison term.
Milton, who submitted 67 letters to the judge seeking leniency, declined to speak at the hearing.
His attorney, Frederick Hafetz, said Milton deserved leniency for a variety of good acts, including intervening at AIG on behalf of two employees who had contracted AIDS.
"Mr. Milton, time after time, is the individual who stood up and showed compassion and courage when people were in trouble at work," Hafetz said.
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, a key measure of an insurer's success, 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.
On Dec. 16, Droney sentenced former General Re Chief Executive Officer Ronald Ferguson to two years in prison and fined him $200,000. He also faced a possible life term.
The case is U.S. v. Ferguson, 06-cr-137, U.S. District Court, District of Connecticut (Hartford).
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