From the Wall Street Journal today.
"Gen Re Official
To Plead Guilty
And Cooperate
By KAREN RICHARDSON and GREGORY ZUCKERMAN
Staff Reporters of THE WALL STREET JOURNAL
June 7, 2005; Page C1
An executive at a unit of Berkshire Hathaway Inc.'s General Reinsurance plans to plead guilty to the first criminal charge related to a controversial transaction five years ago between General Re and American International Group Inc., his lawyer said.
John Houldsworth, who headed General Re's Cologne Re unit in Dublin, also agreed to cooperate with the Justice Department and the Securities and Exchange Commission in their probes of nontraditional insurance products, the lawyer added.
A person close to the investigation said more criminal charges are likely to be filed against General Re employees. A civil complaint against Mr. Houldsworth filed separately yesterday by the SEC in the Southern District of Manhattan claims several other senior General Re and AIG executives were involved in structuring the transaction at issue, a 2000 reinsurance deal that authorities say improperly boosted AIG's reserves for property-casualty claims.
Mr. Houldsworth plans to tell investigators about the roles played by other senior General Re executives he says were involved in the transaction, including former Chief Financial Officer Elizabeth Monrad and current Chief Executive Joseph Brandon, to whom Ms. Monrad reported, said a person familiar with the matter.
Mr. Brandon isn't mentioned in the civil complaint. In an interview with regulators in April, Berkshire Chairman and Chief Executive Warren Buffett said he and Mr. Brandon discussed General Re's accounting for the AIG deal several times but didn't go into details. Mr. Brandon declined to comment, as did a spokesman for General Re. Mr. Buffett wasn't available for comment.
Mr. Houldsworth "deeply regrets his actions in working with others to assist in this scheme," Larry Byrne, a White & Case LLP lawyer who represents Mr. Houldsworth, said in a written statement. "John wants to put these regrettable matters behind him."
Mr. Houldsworth has agreed to plead guilty to criminal conspiracy on Thursday when the Justice Department intends to file a criminal complaint against him in the Eastern District of Virginia in Alexandria, Mr. Byrne said. Specifically, he will admit to conspiring with other General Re and AIG executives in helping AIG mislead shareholders and auditors with the transaction, Mr. Byrne said. The 46-year-old, now on paid leave from General Re, faces as long as five years in prison.
The SEC's civil complaint against Mr. Houldsworth alleges that he aided and abetted AIG in committing securities fraud. Mr. Houldsworth entered into a partial settlement with the SEC without admitting or denying the SEC's allegations. The partial settlement defers any penalties to a later date and bars Mr. Houldsworth from serving as a director or officer of a publicly traded company, the SEC said in a statement.
The SEC complaint also mentions former General Re Chief Executive Officer Ronald Ferguson, Ms. Monrad and Senior Vice President Richard Napier, who remains employed at General Re, as involved in the alleged conspiracy, although only Mr. Houldsworth is named as a defendant in the complaint. A person close to the investigation said Mr. Napier and Ms. Monrad are discussing a possible settlement with investigators, though no deal has been reached.
The complaint details a meeting in late 2000 at which Ms. Monrad, Mr. Napier and an unnamed General Re executive met with AIG's then-chief financial officer, its controller and a senior AIG reinsurance executive. In that meeting, according to the complaint, the General Re executives purportedly told the AIG executives that AIG's intended accounting for the reinsurance contract was problematic.
This is the first time that AIG executives aside from former Chairman and Chief Executive Maurice R. "Hank" Greenberg and Christian Milton, the reinsurance executive, have been linked to the transaction.
In 2000, AIG's chief financial officer was Howard I. Smith, who was fired in March this year after failing to cooperate with investigators.
An attorney for Mr. Smith couldn't be reached, but the attorney said last month that Mr. Smith would contest allegations of fraud in a civil lawsuit filed against him, Mr. Greenberg and AIG in state court by New York's attorney general.
The complaint is the latest example of the government cracking down on financial-services firms and their employees for allegedly aiding fraud. Last fall, AIG reached settlements totaling $126 million tied to sales of financial products to two companies that allegedly helped them keep bad financial results hidden from shareholders.
Although other General Re executives may face charges, the company itself, and Berkshire, are unlikely to face criminal charges, some attorneys said, because investigators would be inclined to reward them for handing over details of the controversial AIG transaction.
"Prosecutors generally don't bite the hand that feeds it -- it makes it harder to feed in the future," said John Coffee of Columbia University Law School. "If you indict General Re, it would be a dangerous precedent."
Corrections & Amplifications
John Houldsworth, who headed General Re's reinsurance unit in Dublin, agreed to plead guilty to a charge of criminal conspiracy. An earlier version of this article incorrectly said he pleaded guilty.
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