Hearing Focuses on Loss in Insurance Scheme

September 26, 2008

Five insurance executives convicted of a scheme to manipulate the financial statements of the world’s largest insurance company were back in court as a judge tries to put a price-tag on their crimes.

Prosecutors argued Thursday that many investors lost money as a result of the scandal, and that loss should be considered when the judge passes sentence on the men. They cite studies by its expert concluding the fraud-related losses to AIG shareholders totaled $543 million to $1.4 billion.

Defense attorneys argue the government has failed to prove that anyone lost money as a direct result of the crimes.

The four former executives of General Re Corp. and a former executive of American International Group were convicted in February of conspiracy, securities fraud, mail fraud and making false statements to the Securities and Exchange Commission.

Prosecutors said the defendants participated in a scheme in which AIG paid Gen Re as part of a secret side agreement to take out reinsurance policies with AIG in 2000 and 2001, propping up its stock price and inflating reserves.

Reinsurance policies are backups purchased by insurance companies to completely or partly insure the risk they have assumed for their customers.

General Re is part of Berkshire Hathaway Inc., which is led by billionaire investor Warren Buffett of Omaha, Neb.

A report by the probation department recommends sentences of 14 to more than 17 years for each defendant.

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