Napier Takes Stand At Gen Re Trial

HARTFORD, CONN.–A former General Reinsurance senior vice president, who admitted to activity that helped American International Group puff up its financial statements, testified for a second day yesterday against five executives charged in the scheme.

Richard Napier, who in 2005 pleaded guilty to conspiracy to falsify SEC filings in the AIG case, began giving evidence Wednesday. He followed Morgan Stanley analyst Alice Schroeder on the stand in U.S. District Court here.

On trial are:

o Ronald E. Ferguson, 63, of Fairfield, Conn., formerly Gen Re's chief executive officer.

o Elizabeth Monrad, 51, of New Canaan, Conn., Gen Re's former chief financial officer.

o Robert Graham, 58, of Westport, Conn., former Gen Re senior vice president and assistant general counsel.

o Christopher Garand, 59, of Upper Saddle River, N.J., formerly a Gen Re senior vice president and the head and chief underwriter of Gen Re's finite reinsurance operations in the United States. He was also a member of the board of directors of Cologne Re Dublin, a Gen Re entity.

o Christian Milton, 58, of Winnewood, Pa., formerly AIG's vice president of reinsurance.

The five are facing various charges–including securities fraud, mail fraud and conspiracy–in a scheme to make it appear as though AIG increased its loss reserves via a sham reinsurance transaction with Gen Re in 2000 and 2001.

Ms. Schroeder testified Wednesday that she never would have upgraded AIG's stock in March 2001 had she known the company's year-end reserves included $250 million related to what prosecutors allege was a bogus reinsurance deal with Gen Re.

“Seriously, if I had known, it would almost certainly have affected my decision,” Ms. Schroeder said under questioning by Assistant U.S. Attorney Eric Glover.

AIG's reserves increased by $106 million by year-end 2000, and by another $63 million in the first quarter of 2001.

Ms. Schroeder testified that she upgraded AIG's rating to a “strong buy” after the year-end 2000 reserve increase, and after a conversation with Maurice R. Greenberg, AIG's former chairman and chief executive officer, who reassured her about AIG's reserve levels, who is an unindicted co-conspirator in this federal case. He is also a defendant in a state civil suit in New York involving the same transactions.

Ms. Schroeder is on leave from Morgan Stanley and is writing a book on Warren E. Buffett, chairman of Gen Re's parent company, Berkshire Hathaway Inc.

In her testimony, Ms. Schroeder also said she was friends or acquaintances with several of the defendants on trial. She said she sees Gen Re's ex-CEO, Ronald Ferguson, “from time to time,” and described her relationship with him as “very friendly” and “cordial.”

Mr. Napier testified about conversations he had with then-CEO Ronald Ferguson, who detailed that the deal would not involve any real risk to AIG.

Prosecutors played a recording at the trial involving discussions of the AIG deal by Mr. Napier with Ms. Monrad and John Houldsworth, Cologne Re Dublin's former CEO, who has pled guilty in the case and agreed to testify to the conspiracy.

The conversations were taped by a Gen Re system that automatically recorded calls in case there was a dispute over an insurance derivative trade.

In previously released portions of transcripts, Mr. Houldsworth was recorded telling Ms. Monrad, “if there's enough pressure on at [AIG's] end, they'll find ways to cook the books, won't they?” and, “We won't help them do that much…We'll do nothing illegal,” to which Ms. Monrad replies, “right.”

The trial is now in recess until Tuesday, when Mr. Napier is due to resume the stand.

Leonard Felson is an NU special correspondent