Four former executives of General Reinsurance Corp. and one from American International Group won new trials on Monday as a federal appeals court overturned their 2008 fraud convictions, declaring that the trial judge erred in allowing prosecutors to offer prejudicial evidence.
The U.S. Court of Appeals for the 2nd Circuit dealt a significant setback to the Department of Justice in ordering new trials for Ronald Ferguson, General Reinsurance’s former chief executive; Elizabeth Monrad, Gen Re’s former chief financial officer; Christopher Garand, once a Gen Re senior vice president, and Robert Graham, once an assistant general counsel for Gen Re. Former AIG Vice President Christian Milton also won reversal and a new trial.
The five defendants were accused of defrauding AIG investors early in the last decade by almost $600 million by masking losses at AIG, which later became known to the general public as a big beneficiary of a federal bailout.
As recounted by Bloomberg, the alleged fraud perpetrated upon AIG investors “centered on what prosecutors called a sham transaction to inflate AIG’s loss reserves by $500 million. It preceded by several years the financial crisis of New York-based AIG, which got a bailout of $182.3 billion from U.S. taxpayers.”
A three-judge appeals panel said the trial judge erroneously let prosecutors display three prejudicial charts with AIG stock-price data.
“The charts suggested that this transaction caused AIG’s shares to plummet 12 percent during the relevant time period, which is without foundation, and (given the role of AIG in the financial panic) prejudicially cast the defendants as causing an economic downturn that has affected every family in America,” the panel ruled in a 77-page opinion.
The panel also found that U.S. Judge Christopher Droney of the District of Connecticut also erred by improperly instructing the jury on causation.
The defendants were convicted in Hartford of conspiracy, mail fraud, securities fraud and making false statements to the Securities and Exchange Commission and sentenced to terms ranging from one to four years.
The criminal case grew out of investigations in 2005 by the SEC and the New York State attorney general’s office into AIG’s accounting. Maurice “Hank” Greenberg, AIG’s former CEO, was named by prosecutors as an “unindicted co-conspirator.”
The defendants have been free on bail pending appeals. Two General Reinsurance executives who pleaded guilty and testified for the prosecution were put on probation.