Insurance and Securities Executives charged with: conspiracy, securities fraud, mail fraud and making false statements
A federal judge who oversaw a closely watched trial of five former insurance executives at American International Group Inc. and Berkshire Hathaway Inc.'s General Re unit ruled Friday that their conspiracy caused massive losses for investors.
Troubles at AIG continue
That determination by U.S. District Judge Christopher F. Droney means the defendants, who were convicted earlier this year of helping AIG fraudulently boost its financials, could potentially face much stiffer prison sentences.
Judge Droney, who presided over the trial in Hartford, Conn., ruled that the defendants caused shareholders of insurance giant AIG to lose $550 million to $600 million in 2005, after the company disclosed information related to the fraud and its share price fell.
After the trial, prosecutors and defense attorneys made arguments as to how much investors had lost, which can affect the guidelines that judges use to determine prison sentences.
Using analysis by an economics expert, the government argued that AIG investors lost between about $350 million and $1.4 billion, based on several different studies. One of the expert's studies calculated the loss at $550 million to $600 million, and the judge agreed. Defense attorneys had said investors lost no money in the fraud.
The ruling, in which the judge also determined that more than 250 shareholders were harmed, means the defendants each face between roughly 16 to 20 years in prison based on the sentencing guidelines, though judges can, and often do, give sentences lower than the guidelines. The judge didn't schedule a date for sentencing.
A spokeswoman for the Justice Department declined to comment on the ruling.
The executives were convicted in February in one of the highest-profile fraud cases to emerge from the accounting investigations that rocked Wall Street following the collapses of Enron Corp.and WorldCom Inc.
Prosecutors in 2006 had accused the executives of helping AIG inflate its reserves by $500 million in 2000 and 2001 through reinsurance deals that improperly burnished the financials of AIG -- General Re's largest client -- by making it look like the company had a bigger cushion against losses, thereby boosting its stock price. Gen Re, a reinsurance company, allows insurance firms like AIG to completely or partly insure the risk they have assumed for their customers.
Four of the five convicted executives worked for Gen Re, including the former chief executive and chief financial officer; the fifth was at AIG. A federal jury found them guilty on all 16 counts in their indictment, including conspiracy, securities fraud, mail fraud and making false statements.
Lawyers for the defendants have said they would appeal their convictions.
