Four former executives of Berkshire Hathaway Inc's General Re Corp and one at American International Group Inc won the reversal of their convictions over a reinsurance transaction that prosecutors said fraudulently boosted AIG's loss reserves. The 2nd US Circuit Court of Appeals in New York on Monday ordered a new trial for the defendants, who included former General Re Chief Executive Ronald Ferguson.
It concluded that the judge overseeing the 2008 jury trial in Hartford, Connecticut erred in admitting data about how the transaction might have affected AIG's stock price. "The defendants' substantial rights were affected," Chief Judge Dennis Jacobs wrote for a three-judge panel. The appeals court also said the trial judge, US District Judge Christopher Droney, erred in instructing jurors on what to consider in deciding whether the defendants committed fraud.
President Barack Obama in May nominated Droney to serve on the 2nd Circuit. Prosecutors had accused the defendants of engineering a sham reinsurance transaction in 2000 that let AIG inflate its loss reserves by $500 million without transferring risk. The transaction eventually helped lead to the 2005 ouster of AIG's long-time chief executive, Maurice "Hank" Greenberg.
Warren Buffett, Berkshire's chief executive, testified about the transaction, but was not implicated. The other defendants are former General Re Chief Financial Officer Elizabeth Monrad, former Senior Vice President Christopher Garand and former Assistant General Counsel Robert Graham, and former AIG Vice President Christian Milton. Droney sentenced Milton to four years in prison, Ferguson to two years, Monrad to 1-1/2 years, and Garand and Graham to one year each. It is unclear whether prosecutors will retry the case. The office of US Attorney David Fein in Connecticut did not return a call seeking comment. "We are very gratified by the decision, and look forward to a new trial," said Milton's lawyer Frederick Hafetz.