United States Attorney's Office District of Connecticut
Press Release

FORMER CEO OF GEN RE SUBSIDIARY SENTENCED FOR ROLE IN FRAUDULENT MANIPULATION SCHEME

Nora R. Dannehy, Acting United States Attorney for the District of Connecticut, and Dana Boente, Acting United States Attorney for the Eastern District of Virginia, announced that John Houldsworth, 50, of Dublin, Ireland, was sentenced today by United States District Judge Christopher F. Droney in Hartford to two years of probation for his role in a fraudulent scheme to manipulate AIG’s financial statements.  Houldsworth also was ordered to pay a fine in the amount of $5,000, and ordered to perform 400 hours of community service.  On June 9, 2005, Houldsworth pleaded guilty to one count of conspiring to commit securities fraud.

According to the evidence presented during the trial of five of Houldsworth’s co-conspirators, Houldsworth was the Chief Executive Officer of Cologne Re Dublin (“CRD”), a small subsidiary of General Re Corporation (Gen Re) located in Dublin, Ireland.  In response to financial industry analysts’ criticism of a $59 million decrease in AIG’s loss reserves for the third quarter of 2000, and at the direction of Gen Re executives, Houldsworth assisted Gen Re in structuring a sham reinsurance transaction that allowed AIG, Gen Re’s most significant client, to manipulate its financial statements and thereby deceive and defraud its investors and the investing public.  The sham reinsurance transaction, known as the LPT, made it appear that AIG was reinsuring Gen Re, and that AIG was taking on $100 million in risk. The truth, however, was that no risk was transferred to AIG, and that 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 sham 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.  Evidence presented at trial established that, when the investigation was disclosed to investors by AIG and through various media outlets between Feb. 14 and March 14, 2005, shares of AIG stock dropped from $73.12 to $61.92.

The court has found that AIG’s shareholders lost between $544 million and $597 million as a consequence of the defendants’ fraudulent scheme.

In early 2008, Houldsworth’s co-conspirators Ronald E. Ferguson, Elizabeth A. Monrad, Robert D. Graham and Christopher P. Garand, all former executive officers of Gen Re, and Christian M. Milton, AIG’s vice president of reinsurance, were tried on conspiracy, securities fraud, false statements to the U.S. Securities and Exchange Commission (SEC) and mail fraud charges stemming from the scheme.  Houldsworth provided extraordinary assistance to the government throughout the investigation and prosecution of his co-conspirators, and testified for eight days during the trial, explaining in great detail the fraudulent nature of the transaction.

On February 25, 2008, Houldsworth’s five co-conspirators were found guilty of all charges against them.  Each subsequently has been sentenced to a term of imprisonment.

This case is being prosecuted by Assistant U.S. Attorneys Eric J. Glover of the District of Connecticut and Raymond E. Patricco of the Eastern District of Virginia.  Additional assistance has been provided by Paralegal Specialist Amy Konarski.  This matter has been investigated by the United States Postal Inspection Service.

CONTACT:

U.S. ATTORNEY'S OFFICE
Tom Carson
(203) 821-3722
thomas.carson@usdoj.gov