A number of powerful players took a huge fall from grace this past year, while one iconic figure staged a major comeback in the midst of the financial meltdown that almost destroyed the biggest insurance titan of all–American International Group.
In late February, five former top executives with General Reinsurance and AIG were found guilty of 16 federal charges in a scheme to use a bogus finite reinsurance deal to help AIG falsely boost its financial standing. The biggest fish caught was Ronald Ferguson, Gen Re's former CEO.
The other four defendants were Christopher Garand, a former Gen Re senior vice president; Robert Graham, Gen Re's former senior vice president and counsel; Elizabeth Monrad, Gen Re's former chief financial officer; and Christian Milton, former AIG vice president for reinsurance.
Two other executives copped a plea for lesser charges and testified for the prosecution–John Houldsworth (formerly CEO of Cologne Re, an arm of Gen Re involved in the deal) and Richard Napier (a former Gen Re senior vice president).
The crux was that Gen Re had helped AIG pump finite re steroids to mislead analysts and the public, artificially enhancing AIG's balance sheet to trick investors into believing the company was in better shape than was actually the case.
The involvement of Mr. Ferguson was the real shocker, coming after a stellar 30-year career. The affair gave another black eye to an industry with a reputation already undermined by bid-rigging scandals.
Also named an unindicted co-conspirator was Maurice Greenberg, AIG's former chairman and CEO, who left the firm in 2005 after the finite re allegations became public. Mr. Greenberg, who now heads C.V. Starr & Company, may not be off the hook, as he received a Wells Notice from the SEC, which is still looking into the case.
However, as AIG slid deeper into financial trouble in the wake of the subprime mortgage fallout, Mr. Greenberg–flying under the radar and remaining relatively quiet during the ongoing finite re probe–returned to the public stage big time once AIG's deeper problems emerged.
In the spring, Mr. Greenberg boldly challenged the leadership of his successor as CEO, Martin Sullivan. As AIG's financial position rapidly deteriorated, Mr. Sullivan resigned–replaced by Robert Willumstad, who had taken over from Mr. Greenberg as chairman. (At the time, I criticized the company for once again uniting the CEO and chairman positions, thus eliminating one key oversight level.)
But Mr. Willumstad's tenure didn't last long, as he was replaced by Allstate's former CEO, Edward Liddy, when AIG was forced to hit up Uncle Sam for $85 billion (now up to $150 billion) in bailout funds after its credit default-swapping Financial Products division nearly drove the company off a cliff.
For months, Mr. Greenberg has been back in the spotlight–regularly appearing on TV and having his letters quoted as he criticized and cajoled until AIG's loan agreement was renegotiated along the lines he suggested. (Of course, this is probably little consolation for Mr. Greenberg, who lost billions as AIG's share value plummeted to penny stock levels.)
Meanwhile, two high-profile plaintiff attorneys experienced life as criminal defendants this year. Mississippi's killer trial lawyer "Dickie" Scruggs was sent to jail for five years after conspiring to bribe a judge, while class-action king Melvyn Weiss was sentenced to 30 months for racketeering after paying kickbacks to secure plaintiffs.
Perhaps the most celebrated fall was by someone not in insurance–the resignation in March of New York's former attorney general and governor, Eliot Spitzer, after his tawdry involvement with a prostitute was exposed. The man who forced the mega-brokers to give up lucrative contingency fees to settle bid-rigging charges, and who also pursued Mr. Greenberg in the finite re scandal, was now on the receiving end of the vicious publicity machine he'd used to bring down many other alleged wrongdoers.
For those dancing on his political grave, however, watch out! Mr. Spitzer resurfaced recently with a prominent op-ed column, pretty much saying he told us so about the dangers of unregulated markets and urging more government oversight. I doubt we've seen the last of Mr. Spitzer in public life.
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