AIG Deal Investigator Got Shaky Answers

HARTFORD, CONN.–An attorney hired for an American International Group internal investigation of a disputed 2000 General Reinsurance deal that prosecutors charge was a sham to help artificially bolster reserves testified today that the answers he got didn't add up.

Government witness Martin Flumenbaum gave evidence here in U.S. District Court at the trial of five insurance executives. They are accused of conspiring in a bogus reinsurance transaction in the fourth quarter of 2000 and first quarter of 2001 to permit AIG to falsely improve its reserve picture by hundreds of millions in order to boost the company's stock price.

The accused are 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), Robert Graham (Gen Re's former senior vice president and counsel) and Christian Milton (former AIG vice president for reinsurance).

Mr. Flumenbaum, a partner with the New York law firm Paul, Weiss, Rifkind, Wharton & Garrison, told of questioning Mr. Milton during two hour-long sessions on Feb. 14 2005, and getting conflicting answers, or no answers at all.

The meeting occurred after AIG was hit by subpoenas from federal prosecutors and the New York State Attorney General's Office.

The attorney said he asked Mr. Milton about a draft letter concerning the deal, which he had on his personal computer. Mr. Flumenbaum said the defendant had told him that Gen Re–using its subsidiary, Cologne Re Dublin–had approached AIG about the transaction.

Mr. Flumenbaum wondered if that was the case, why the text of Gen Re's offer letter was on Mr. Milton's personal computer, and why the draft offer letter was dated Dec. 12, 2000, when the actual final offer letter was Dec. 17, 2000.

“I recall asking why he would have a draft of Gen Re's offer letter. I don't recall any specific explanation,” he related under questioning by Assistant U.S. Attorney Paul Pelletier.

Mr. Flumenbaum also said that Mr. Milton had maintained the transaction was nothing unusual, but that he could not cite any other examples of such a deal.

When the government put in evidence a copy of the draft letter that was in Mr. Milton's computer, it drew strong objections from Mr. Milton's attorney, Frederick Hafetz, who argued that prosecutors were trying to imply that it was improper for his client to have it in his possession.

“This is not fair by the government,” he protested to the judge in a conference held away from the jury.

Mr. Milton, the witness said, also failed to explain the flow of money involved in the deal, particularly $5 million that Gen Re received from AIG. Mr. Milton, he recounted, had said it was a ceding fee, but when pressed how this could be, “he wasn't able to explain that in the interview.”