The UK Financial Services Authority announced last week that a tribunal upheld its decision prohibiting the former chief executive at a General Reinsurance Group unit from working in financial services.
Milan Vukelic, former CEO of Alternative Solutions, has been banned from the industry for his involvement in sham reinsurance deals that helped shaky insurance companies bolster their results.
The FSA’s decision was upheld by the Financial Services and Markets Tribunal in London, which found that Mr. Vukelic’s actions as CEO of AltSol lacked integrity, said FSA.
General Reinsurance Corporation, a subsidiary of Warren Buffett’s Berkshire Hathaway Inc., established Alt Sol to develop and market financial reinsurance products outside the United States, according to the Tribunal.
Alt Sol’s former chief underwriter, John Houldsworth, a former chief executive of Gen Re’s Dublin unit Cologne Re, pleaded guilty to U.S. securities fraud conspiracy and testified last year against five executives who were convicted of a scheme between Gen Re and AIG to inflate AIG’s earnings with two sham finite reinsurance transactions.
One of the executives, Elizabeth A. Monrad, the former chief financial officer for Gen Re, was sentenced to 18 months in a federal prison by a district court judge in Connecticut a few days before the Tribunal decision.
The Tribunal in its decision noted that “large and damaging transactions could not have gone ahead without Mr. Vukelic’s want of integrity.”
Mr. Vukelic was CEO from August 1997 until October 2002. During that time Mr. Vukelic was responsible for overseeing and structuring three different transactions that were designed to allow the client insurance companies to hide very significant losses in their accounts, the FSA said.
Mr. Vukelic, according to FSA, knew that the deals were not genuine reinsurance transactions and that they could be used to mislead the clients’ auditors.
It noted that two of the three client insurance companies subsequently collapsed with wide-ranging consequences.
The Tribunal found that Mr. Vukelic had “turned a blind eye” to the true nature of the contracts and was “reckless as to whether they were intended to mislead auditors and others.”
Margaret Cole, FSA director of enforcement, said in a statement: “This case has been fought every inch of the way by Mr. Vukelic. We are determined to take whatever action is necessary to ensure that individuals should not avoid the consequence of their actions. The Tribunal rightly criticized his persistent failure to recognize his shortcomings.
“Those carrying out senior functions in regulated firms need to be clear that the FSA will hold them to the highest standards of behavior and will take action against those who fall short. There is no place in financial services for the sort of behavior demonstrated by Mr. Vukelic.”
FSA said Mr. Vukelic ceased to be an approved person for the industry in July 2005.
He is the second executive connected to a Gen Re subsidiary against whom the FSA has taken action in the past two years. In 2006 John Byrne, a reinsurance specialist with Cologne Re, was prohibited from working in the industry for five years.
Separately, in the U.S. District Court in Hartford, Conn., on April 2, Judge Christopher F. Droney’s sentence for Ms. Monrad was the fourth sentence he has handed down to executives for the roles they played in a sham insurance scheme involving American International Group.
In addition to the prison term, Judge Droney sentenced Ms. Monrad to three years probation and fined her $250,000.
Ms. Monrad was found guilty in February of last year of conspiracy, securities fraud, making false statements to the U.S. Securities and Exchange Commission, and mail fraud.
Ms. Monrad and four others were convicted of creating two sham insurance deals. The deals increased AIG’s loss reserves by $250 million in the fourth quarter of 2000 and $250 million in the first quarter of 2001. An investigation forced AIG to restate its earnings in 2005, costing shareholders more than $500 million.
Others sentenced in the case were Ronald E. Ferguson, Gen Re’s former chief executive officer; Christopher P. Garand, former senior vice president and chief underwriter of the company’s finite reinsurance operations in the United States; and Christian M. Milton, a vice president of reinsurance at AIG.
Mr. Ferguson was sentenced to two years in prison and fined $200,000. Mr. Milton was sentenced to four years in prison and fined $200,000. Mr. Garand received a year and a day in prison and was fined $150,000.
The fifth defendant, Robert D. Graham, formerly Gen Re senior vice president and assistant general counsel, is still awaiting sentencing.