HARTFORD, CONN.--Prosecutors and a defense attorney clashed here today over the amount of losses and number of victims impacted by a scheme to manipulate American International Group financial statements.

The occasion was a pre-sentence hearing in U.S. District Court for five insurance executives convicted of a role in a sham reinsurance transaction between AIG and General Reinsurance designed to make AIG reserves look better.

Federal prosecutors said that the fraudulent transaction caused stockholders a loss of between $543 million and $1.4 billion and the victimized investors, in addition to 154 institutional groups, included persons who held mutual funds with AIG stock.

The five defendants, who were convicted in February include former Gen Re Chief Executive Ronald Ferguson, Christopher Garand (a former Gen Re senior vice president), Robert Graham, (Gen Re's former senior vice president and counsel), Elizabeth Monrad (Gen Re's former chief financial officer) and Christian Milton (former AIG vice president for reinsurance).

Alan Vinegrad, who represented Mr. Graham at trial, speaking for the five, said none of them had profited from the arrangement and he said there was no evidence that AIG's actions led to sales of stock at a loss. "That's where the government's analysis falls apart," he said.

Prosecutors said their stock experts, in order to come up with their figures, reviewed a 10-year window of earnings reports from 31 different insurance companies to determine how a company's stock would have reacted if AIG had reported two consecutive quarters of declining loss reserves rather than hiding them with a sham reinsurance transaction.

Assistant U.S. Attorney Raymond Patricco said the experts "were careful to filter out any market and confounding industry news" that may have also been a factor in AIG's stock price decline of 6-15 percent from Feb. 14, 2005 to mid-March of that year.

Judge Christopher Droney, who is not expected to pronounce sentence for at least a month, gave prosecutors until Oct. 3 to file responses to questions he has about the loss figure and to draft a restitution order for his review.

A probation department report has recommended sentences ranging from 14 years to more than 17 years for each defendant.

All but Mr. Garand were convicted of 16 counts with a statutory maximum of 210 years for charges involving conspiracy, securities fraud, mail fraud and false statement to the Securities & Exchange Commission.

For Mr. Garand, convicted of 10 counts the statutory maximum would be 150 years. However, under court sentencing guidelines statutory maximums are not applied.

Special Reports /

U.S. Says 5 In AIG Scam Caused Stock Loss Up To $1.4 Billion

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