A General Reinsurance executive became the second top player to confess in federal court this month to a role in a $500 million sham reserving scheme with American International Group.
The admission in U.S. District Court in Alexandria, Va., by Richard Napier–a former senior vice president for Stamford, Conn.-based Gen Re–came as part of a plea agreement with the Eastern District of Virginia U.S. Attorney's Office and U.S. Justice Department's criminal division.
Mr. Napier's confession follows an earlier plea by John Houldsworth, the former chief executive of Gen Re subsidiary Cologne Re Dublin. Gen Re is a unit of Omaha, Neb.-based Berkshire Hathaway.
Both pleaded guilty to one count of conspiring to falsify SEC filings, and both as a consequence face up to five years in prison, a fine of $250,000 and twice any gain or loss. At a minimum they would face a year of probation. Judge James Cacheris set Dec. 9 for Mr. Napier's sentencing.
In 2000, when the scheme was allegedly hatched by AIG's then chairman, Maurice Greenberg, with Gen Re's chief executive officer at the time, Ronald E. Ferguson, Mr. Napier was responsible for managing relations with AIG, according to court filings with his plea.
According to the filing, the two CEOs agreed to a sham transaction enabling AIG to book $500 million in reinsurance reserves, even though AIG assumed no real risk in the transaction.
According to federal prosecutors, Mr. Napier was told that AIG wanted the transaction in response to stock market and insurance industry analyst criticism of AIG's previous reduction of reserves.
The arrangements, prosecutors said, were done through Gen Re's Dublin-based unit outside the United States so that it would not be apparent that Gen Re and AIG were booking the transaction in inconsistent ways.
AIG has since admitted the transaction was improperly documented, and has revised its annual financial statement to reflect changes–thus reducing the company's book value by $2.7 billion.
Mr. Greenberg and Mr. Ferguson have both refused to answer questions and invoked their Fifth Amendment right against self-incrimination when questioned by state and federal investigators about the transaction.
The Justice Department said Mr. Napier, in a related civil case brought by the SEC, has agreed to a judgment barring him from serving as an officer or director of a public company.
Two key executives say they agreed to a sham transaction enabling AIG to book $500 million in reinsurance reserves, even though AIG assumed no real risk in the transaction.
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