Gen Re's Houldsworth Avoids Prison in AIG Fraud Case (Update2)

By Jane Mills and David Voreacos
Bloomberg News
June 16, 2009

June 16 (Bloomberg) -- John Houldsworth, whose testimony helped convict five insurance executives of defrauding American International Group Inc. investors of as much as $597 million, was spared prison for his role in the scheme.

Houldsworth, 50, a former chief executive officer at a General Reinsurance Corp. subsidiary, was sentenced today to two years' probation and fined $5,000 in federal court in Hartford, Connecticut, where he testified for eight days in 2008 for the government. He must also perform 400 hours of community service.

Prosecutors said Houldsworth's cooperation was "exceptional" after he pleaded guilty in 2005 to conspiracy to commit securities fraud and his testimony was "critical" in helping to secure the five convictions. U.S. District Judge Christopher Droney granted the prosecution's request for leniency for Houldsworth, who faced up to five years in prison.

"Mr. Houldsworth helped the government and ultimately the jury understand the nature and depth of the fraud and its concealment," Droney said. The judge said he hoped Houldsworth would set an example for other executives to "blow the whistle" on market fraud.

"I am sorry," Houldworth, the former CEO of Cologne Re Dublin, told Droney at the hearing. "From the bottom of my heart, I would like to apologize to anyone who suffered as a result of the transaction."

Droney previously imposed a four-year prison term on ex-AIG Vice President Christian Milton, two years on ex-General Re Chief Executive Officer Ronald Ferguson, 18 months on ex-General Re Chief Financial Officer Elizabeth Monrad and one year on ex- General Re Senior Vice President Christopher Garand and ex- General Re Assistant General Counsel Robert Graham.

'Truly Extraordinary'

"Mr. Houldsworth's cooperation was truly extraordinary," Assistant U.S. Attorney Eric Glover told the judge. "He agreed to cooperate very early in the investigation. He clearly committed a fraud, assisted AIG misstate its financial statements and admitted as much."

The fraud centered on what prosecutors called a sham transaction to inflate AIG's loss reserves by $500 million. It preceded by several years the recent financial crisis of New York-based AIG, which got a bailout of $182.5 billion from U.S. taxpayers.

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.

Sham Transfers

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.

Houldsworth was one of two executives who pleaded guilty and testified as a prosecution witness against his former colleagues. The other cooperator, former General Re vice president Richard Napier, is scheduled to be sentenced Sept. 15.

Houldsworth is a U.K. citizen who lives in Ireland.

The case is U.S. v. Ferguson, 06-cr-137, U.S. District Court, District of Connecticut (Hartford).

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