U.S. Court of Appeals for the Second Circuit Overturns Gen Re and AIG Convictions
On Monday, August 1, 2011, the U.S. Court of Appeals for the Second Circuit overturned the 2008 convictions of four former executives of General Reinsurance Corporation (Gen Re) and one from American International Group (AIG). The Courts opinion can be found here.
In overturning the convictions, the Court declared that the trial judge erred in allowing prosecutors to offer evidence that was prejudicial to the executives and in improperly instructing the jury on causation. The Court ordered new trials for Ronald Ferguson, Gen Res former chief executive; Elizabeth Monrad, Gen Res former chief financial officer; Christopher Garand, Gen Res former senior vice president; Robert Graham, Gen Res former assistant general counsel; and Christian Milton, AIGs former vice president.
The five executives were accused of defrauding AIG investors early in the last decade by almost $600 million by masking losses to AIG. AIG later became known to the general public as a big beneficiary of the federal bailout, receiving $182.3 billion. The criminal case against the defendants arose out of investigations in 2005 by the Securities and Exchange Commission and the New York State Attorney Generals office into AIGs accounting. Prosecutors claimed the alleged fraud on the AIG investors centered on a “sham transaction to inflate AIGs loss reserves by $500 million, which preceded by several years the financial crisis of AIG.” The defendants were convicted 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.
However, the three-judge federal appeals court panel said that the trial judge erroneously let prosecutors display three charts with misleading AIG stock-price data. In its 77-page opinion, the panel said that the charts suggested that the “sham transaction” caused AIGs shares to plummet 12 percent during the relevant time period, and that suggestion was without foundation. The charts cast the defendants as causing an economic downturn affecting every family in America.
The Court ordered new trials for the defendants, causing a significant setback to the Department of Justice. The initial convictions in 2008 were seen as a milestone in the governments efforts to prosecute white-collar crime. However, recently, the government has declined to pursue or has failed to win convictions in a number of high-profile cases, particularly those stemming from the financial crisis.
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