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Appeals Court Overturns 5 Gen Re and A.I.G. Convictions
On Monday, the United States Court of Appeals for the Second Circuit ordered a new trial of the five.
August 1, 2011, 2:35 pm
Appeals Court Overturns 5 Gen Re and A.I.G. Convictions

A federal appeals court has reversed the convictions of four former executives of General Reinsurance and one from American International Group, saying that a lower court erred by allowing the government to present stock-price data and by issuing a flawed jury instruction.

Ronald Ferguson, the former chief executive of General Re, which is owned by Warren E. Buffett’s Berkshire Hathaway was convicted of fraud and conspiracy charges by a federal jury in Hartford in 2008, as were Elizabeth Monrad, Robert Graham and Christopher P. Garand of General Re and Christian Milton of A.I.G.

On Monday, the United States Court of Appeals for the Second Circuit ordered a new trial of the five.

At the center of the case was a reinsurance transaction, initiated in October 2000, that prosecutors said inflated A.I.G.’s reserves. Investigations into the transaction and other accounting issues led to the resignation of A.I.G.’s longtime chief, Maurice R. Greenberg, in 2005. (Mr. Greenberg was not charged in the case.)

Chief Judge Dennis Jacobs, writing for the three-judge panel, said the district court was inconsistent on stock price data during the trial. It excluded a chart showing the decline in A.I.G.’s stock price from February through March 2005, noting that there were other factors beyond the transaction in question. But the court allowed the government to show the jury three bar charts.

“The court’s solution, to allow only isolated ranges of stock-price data, did not mitigate the prejudice: Instead of a downward line, there were three dropping sets of dots; it is inevitable that jurors would connect them,” Judge Jacobs wrote.

The suggestion that questions about the Gen Re transaction caused a 12 percent drop in A.I.G.’s stock “prejudicially cast the defendants as causing an economic downturn that has affected every family in America,” the appeals panel wrote.

The district court judge, Christopher Droney, also erred in his instructions to the jury, the panel said.

In its survey of the history of the case, the appeals court ruling notes the phone call between Mr. Ferguson and Mr. Greenberg on Oct. 31, 2000, to discuss ways to shore up A.I.G.’s reserves. The court says:

An important question for this case is whether the call
between Ferguson and Greenberg initiated a conspiracy. It
may have been a high-level brainstorming session about using
accounting rules aggressively–but lawfully–to achieve an
accounting objective; but it may (instead or also) have been
an unlawful agreement to deceive A.I.G. stockholders by booking
a no-risk transaction (which by definition would not satisfy
FAS 113) as reinsurance.

Appellate panel ruling in U.S. v. Ferguson

© 2003 The E-Accountability Foundation