NU Online News Service, Jan. 20, 3:33 p.m. EST
General Re Corp. has settled charges for $12.2 million that it aided schemes by American International Group and Prudential Financial, Inc. to falsify financial reports, the Securities and Exchange Commission announced.
The charges involved allegations that Gen Re arranged with AIG and Prudential to create sham reinsurance transactions that were in fact loans to the companies to cover-up decreases in their loss reserves, the SEC said.
For its involvement in the schemes, the SEC said Gen Re will pay the U.S. Postal Inspection Service Consumer Fraud fund $19.5 million and $60.5 million through a civil class action settlement to AIG's injured shareholders. It has already forfeited approximately $5 million in fees it earned from participating in the AIG scheme.
"Gen Re arranged to sell financial products to AIG and Prudential for the sole purpose of enabling those companies to manipulate their accounting results and mislead investors," said Andrew M. Calamari, associate director of the SEC's New York regional office in a statement.
Resulting criminal indictments led to the conviction of four Gen Re executives and one AIG executive, including former Gen Re chief executive Ronald E. Ferguson, on conspiracy and security fraud allegations. The five are appealing their sentences.
The SEC said AIG has paid $800 million to settle securities fraud and improper accounting charges. Similar allegations of fraud were brought against Prudential in 2008. The SEC and Prudential reached a settlement that year.
SEC also brought individual civil charges that AIG chairman Maurice R. Greenberg and former AIG Chief Financial Officer Howard Smith. Mr. Greenberg was charged as a control person for AIG's violations of the antifraud and other provisions of the securities laws and was guilty of improper accounting. Mr.. Greenberg and Mr. Smith agreed to settle the SEC's charges and pay disgorgement and penalties totaling $15 million and $1.5 million, respectively.
The company was accused of entering into the sham deals that allowed it to recognize $200 million in revenues in 2000, 2001, and 2002. Gen Re received fees totaling $8.1 million for creating the deals.
In its 2008 agreement, the SEC said Prudential settled the matter by agreeing to a permanent injunction against such practices.
A representative from Gen Re could not be reached for comment. None of the settlements involved acknowledgement of any guilt.
In an SEC filing yesterday, Berkshire Hathaway, the parent company of Gen Re, said under the agreement that neither Gen Re or its executives could take any action to deny any of the SEC's allegations. Any such action would allow the SEC to vacate the agreement and take legal action. The agreement is still subject to court approval.
Berkshire added that it "is not aware of any remaining U.S. federal or state governmental investigations of any of its subsidiaries involving non-traditional products or related transactions."
This story was updated Jan. 21 at 10:55 a.m. EST
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