Gen Re's Monrad Gets 18 Months in AIG Investor Fraud (Update2)
By Jane Mills and David Voreacos
April 2, 2009
April 2 (Bloomberg) -- Elizabeth Monrad, former chief financial officer of General Reinsurance Corp., was sentenced to 18 months in prison and fined $250,000 for helping to defraud American International Group Inc. investors in 2000.
U.S. District Judge Christopher Droney also said Monrad must serve two years of supervised release after prison. Monrad, 54, and four other insurance executives were convicted in February 2008 for their roles in a fraud that Droney previously said cost AIG shareholders as much as $597 million.
"There were many opportunities for her to come to her senses and shake this shady deal, but she never did," Droney said in federal court in Hartford, Connecticut. "She knew that AIG would book" the deal "dishonestly. It was clear as day that AIG would do the wrong thing."
At the center of the fraud was what prosecutors called a sham transaction to inflate AIG's loss reserves by $500 million. In court papers, prosecutors urged a "substantial" term for Monrad, saying she "managed the campaign to help AIG deceive its auditors and regulators." The fraud preceded by several years the recent financial crisis of New York-based AIG, which has gotten a bailout of $182.5 billion from U.S. taxpayers.
Droney said that while Monrad didn't gain personally from her criminal acts, that "doesn't excuse her conduct."
He also praised her accomplishments, including scholarships she has sponsored at the Massachusetts Institute of Technology, her financial support of needy children and her mentoring to many women in business.
'Particularly Sad Day'
"This is a particularly sad day for someone who has done so much," the judge said. "She has been a wonderful spouse, neighbor and friend to so many."
Monrad's two children, who are students at Harvard College, asked the judge for leniency, sobbing as they spoke. Monrad's father and husband also spoke to the judge. Monrad, who faced up to life in prison and insisted on her innocence, then asked the judge for leniency.
"I ask you, I beg you for the sake of my children, please do not let them suffer further," she said. "Please grant me mercy."
Monrad said she has replayed details of the transaction in her head many times, asking what she could have done differently. She cited the Danish philosopher Soren Kierkegaard.
"Life can only be understood backwards but must be lived forward," Monrad said. "That's what makes life endlessly fascinating but risky."
Monrad, a resident of New Canaan, Connecticut, was the fourth defendant sentenced by Droney so far. He allowed her to remain free on bail while she appeals the case.
He previously imposed a two-year term on former General Re Chief Executive Officer Ronald Ferguson, four years on ex-AIG Vice President Christian Milton and one year on former General Re Senior Vice President Christopher Garand.
AIG said on Oct. 26, 2000, that premiums increased in the third quarter of that year as loss reserves for claims fell. Five days later, Maurice "Hank" Greenberg, then AIG's CEO, asked Ferguson for help with AIG's reserves, a key measure of an insurer's health.
AIG and General Re, based in Stamford, Connecticut, engaged in sham transfers of policies and premiums between the companies that allowed AIG to inflate its loss reserves by $500 million, the government said.
Jurors heard tapes of the defendants, including Monrad, negotiating the transactions on business phones whose calls were routinely recorded.
Monrad, an accountant, joined General Re in 1992 and became its finance chief in 2000. In an interview with Bloomberg News last December, Monrad said, "I know I'm innocent." She said she should have testified and proclaimed her innocence.
"I will regret it for the rest of my life," Monrad said. "I'm coping. I wall off the normal part of my life from the legal nightmare. I'm still in disbelief. The trial's outcome was a total shock."
Jurors "want to know what's on the mind of senior executives on trial, and somehow it's got to get conveyed," Monrad said. "The defense thought they could win the case simply by impeaching the credibility of a few government witnesses. I believe now that's not good enough in a white- collar case."
At today's hearing, Assistant U.S. Attorney Eric Glover criticized Monrad's comments in the interview, saying she blamed everyone except herself, including her lawyers, the justice system, the government and the government's main witness.
'Lack of Remorse'
"Her lack of remorse and respect for the jury verdict should be taken into account," Glover said.
"Her basic claim was that she didn't know AIG would book this improperly, but she knew from the start," Glover said. "This case is not about policing the books of another company. It's about the fact that Ms. Monrad helped create a sham transaction and deceived the investing public."
Monrad attorney Reid Weingarten told Droney, "There is no contrition here. It's not out of arrogance. It's not her contempt for the court or the judicial system. It is out of her sense of integrity."
In his sentencing memorandum, Weingarten asked for leniency.
"Ms. Monrad is an extraordinary woman who earned a reputation for integrity in the business world while finding time to be a devoted mother and to serve her church and community," the lawyer wrote.
Monrad submitted 95 letters from supporters asking for leniency. One was from John C. Jeffries Jr., who was dean at the University of Virginia School of Law when he wrote it. Another writer was Neil L. Rudenstine, past president of Harvard University.
"The reach of the federal criminal law is sufficiently broad that many, conceivably even most, persons with substantial responsibility in major organizations could be prosecuted," Jeffries wrote.
The case is U.S. v. Ferguson, 06-cr-137, U.S. District Court, District of Connecticut (Hartford).
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