AIG-Gen Re Case Informer Napier Gets Probation

NU Online News Service, Sept. 15, 2:03 p.m. EDT

Richard Napier, the star government witness in the American International Group accounting fraud case, was sentenced to two years of federal probation and fined $10,000 today.

U.S. District Court Judge Christopher F. Droney in Hartford, Conn., also sentenced the former Gen Re senior vice president to serve 400 hours of community service.

Mr. Napier, 58 of Wilton, Conn., pleaded guilty on June 10, 2005, to one count of conspiring to commit securities fraud, and subsequently testified against four executives at Gen Re and one at AIG.

The five were all convicted last year of conspiracy, securities fraud, false statements to the U.S. Securities and Exchange Commission (SEC) and mail fraud charges for a scheme in which Gen Re structured a sham reinsurance transaction that allowed Gen Re's big client, AIG, to manipulate its financial statements.

Currently free on bail and appealing their sentences are:

o Ronald E. Ferguson, former chief executive of Gen Re, sentenced to two years.

o Elizabeth Monrad, of New Canaan, Conn., Gen Re's former chief financial officer, sentenced to one year and six months.

o Robert Graham, of Westport, Conn., former Gen Re senior vice president and assistant general counsel, sentenced to one year.

o Christopher Garand, of Upper Saddle River, N.J., formerly a Gen Re senior vice president, and the 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. He was sentenced to one year.

o Christian Milton, of Winnewood, Pa., formerly AIG's vice president of reinsurance, sentenced to four years.

Another cooperating witness–John Houldsworth, an Irish citizen from Dublin, and the former head of Cologne Re, a Gen Re subsidiary–also received probation.

AIG's former chair and chief executive officer Maurice Greenberg was mentioned as an unindicted co-conspirator in the case, but was never charged.

Mr. Napier testified that after financial industry analysts criticized a $59 million decrease in AIG's loss reserves for the third quarter of 2000, he had participated in a conspiracy in which Gen Re structured the sham reinsurance transaction.

The transaction, known as the LPT, made it appear that AIG was reinsuring Gen Re, and that AIG was taking on $100 million in risk. But the government charged that no risk was transferred to AIG, and through a secret side deal, AIG returned the $10 million premium that Gen Re paid to AIG, and paid Gen Re a fee of $5 million to undertake the sham transaction.

The transaction increased AIG's loss reserves by $250 million in the fourth quarter of 2000 and $250 million in the first quarter of 2001, masking a declining trend in loss reserves in the face of premium growth. AIG restated the transactions at issue in filings with the SEC in May 2005.

Judge Droney ruled that AIG's shareholders lost between $544 million and $597 million as a consequence of the defendants' fraudulent scheme.

The U.S. Attorney's office, in a statement concerning his sentence, said Mr. Napier had "provided extraordinary assistance to the government throughout the investigation and prosecution of his co-conspirators, and testified for seven days during the trial, explaining in great detail the fraudulent nature of the transaction."

Part of his testimony concern e-mails from Mr. Ferguson advising him to take steps to limit who knew about scheme the defendants were involved in.

The case was prosecuted by Assistant U.S. Attorneys Eric J. Glover of the District of Connecticut and Raymond E. Patricco of the Eastern District of Virginia. The U.S. Postal Inspection Service investigated the case.