AIG Trial Witness Admits Role In Aussie Scandal

HARTFORD, CONN.–A key government witness at the trial of five U.S. executives, facing securities fraud charges for an allegedly bogus reinsurance transaction, admitted today his history included lying to Australian authorities about a similar deal.

The admission came during the cross-examination here in U.S. District Court of John Houldsworth, a former chief executive at Cologne Re Dublin, a subsidiary of the General Reinsurance unit of Berkshire Hathaway.

Mr. Houldsworth confirmed his past behavior while undergoing questioning by Alan Vinegard, the attorney for Robert Graham (Gen Re's former senior vice president and counsel).

Mr. Graham is on trial with Ronald Ferguson (former Gen Re chief executive officer), Elizabeth Monrad (Gen Re's former chief financial officer), Christopher Garand (a former Gen Re senior vice president) and Christian Milton (former AIG vice president for reinsurance).

The group is accused of a executing a sham finite-reinsurance transaction that allowed AIG to bolster its financial picture by appearing to increase its loss reserves by $250 million in the fourth quarter of 2000, and by an additional $250 million in the first quarter of 2001.

In a plea deal with the government Mr. Houldsworth in 2005 admitted to conspiracy to commit securities fraud for his role in the transaction.

Mr. Vinegard, seeking to shatter the witness' credibility, brought up an incident in Australia that ended in 2004, when Mr. Houldsworth was one of six Gen Re executives disqualified from doing business in that country for action related to the mammoth failure of HIH Insurance Ltd. in 2001.

Mr. Houldsworth was sanctioned by the Australian Prudential Regulation Authority because of a reinsurance contract sold to FAI General Insurance Company Ltd. that boosted its 1998 profit. HIH acquired FAI based on the false financial information, which contributed to its $5.3 billion collapse.

Mr. Vinegrad asked Mr. Houldsworth to confirm that he had written a letter appealing his disqualification to Australian authorities, in which he told them he had done nothing wrong and had not been untruthful to them.

“Both those statements were lies?” asked Mr. Vinegrad. “They were,” Mr. Houldsworth answered.

Earlier, Mr. Vinegrad had him repeat admissions he made during prior cross-examination that he lied to federal prosecutors and Securities and Exchange Commission lawyers when they initially questioned him about the AIG deal.

The trial is due to resume on Monday, when the government is expected to present its final witness and rest its case.