Alexandria, Va.–Former Cologne Re Dublin Chief Executive Officer John Houldsworth pleaded guilty in federal court today to conspiring with executives of American International Group and Gen Re in a phony accounting transaction that helped AIG improve its financial picture.
Mr. Houldsworth's action in U.S. District Court here came as part of a plea agreement with the U.S. Justice Department and U.S. Attorney's Office for the Eastern District of Virginia, which subjects him to a possible sentence of up to five years and a $250,000 fine for one count of conspiring to violate federal securities laws.
U.S. District Court Judge Claude Hilton set Dec. 9 as the date for sentencing.
The plea arrangement carries no specific promise of leniency, beyond the fact that prosecutors will make known the extent of Mr. Houldsworth's cooperation in giving testimony about the scheme.
In an information filing with the court by prosecutors laying out facts in the case, it was revealed that when Mr. Houldsworth asked an executive of his parent company, Gen Re (a part of Berkshire Hathaway), "how much cooking goes on" at AIG, he was told, "they'll do whatever they need to make the numbers look right."
Mr. Houldsworth, in his plea, agreed to a statement-of-facts document, noting in part that between October 2000 and December 2001, he and others at Stamford, Conn.-based Gen Re and AIG in New York "agreed to and did aid and abet AIG in reporting $500 million of fraudulently inflated reserves and related entries" in filings with the U.S. Securities and Exchange Commission.
The confession agreement states that Mr. Houldsworth was told in November 2000 that AIG's then chief executive officer, Maurice Greenberg, had called Gen Re's CEO at the time, Ronald E. Ferguson, and asked if his firm could lend AIG up to $500 million in reserves on a short-term basis through a loss-portfolio transfer without transferring any real risk of loss to AIG.
In the period that followed, Mr. Houldsworth admitted to being part of a scheme that involved structuring a series of sham transactions and creating false records that included a "paper trail" to make it look as though Cologne Re Dublin (CRD) had asked AIG to initiate the transaction.
Mr. Houldsworth's confession also stated there were two sham "reserve" contracts kept in a locked drawer at CRD's Dublin offices, and that Gen Re and CRD each collected $2.6 million as a fee for the deal.
Judge Hilton released Mr. Houldsworth on $75,000 bond. His U.S. attorney==Larry Byrne, of the White & Case law firm's New York office==said later that his 46-year-old client, who lives outside Dublin with his wife and children, has already made four trips from Ireland to meet with federal prosecutors.
AIG, as a result of an internal investigation, has admitted that the deal with CRD was improperly documented, and has since issued a revised annual statement to account for other improper actions, which reduced the company's book value by $2.7 billion.
Mr. Greenberg, who was forced from his post at AIG, has invoked his Fifth Amendment right against self-incrimination when questioned by federal and New York State investigators.
Mr. Ferguson, who stepped down as Gen Re CEO in October 2001, had continued with the company in a consulting capacity. He was fired from that job by Berkshire Hathaway on May 20 after taking the Fifth Amendment when questioned by the SEC and Justice Department fraud section.
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