The federal fraud trial of Ronald Ferguson, the ex-General Reinsurance chief executive, entered its second day yesterday as Charlene Hamrah, head of investor relations at American International Group (AIG), testified for the prosecution.
Mr Ferguson and four other defendants are accused of using a sham reinsurance deal to help AIG, the world's largest insurer, inflate reserves by $500 million in 2000 and 2001, deceiving investors about the insurer's ability to absorb losses in order to prop up the company's stock.
Ms Hamrah sent an October 2000 memo to AIG's then-chief executive Maurice "Hank" Greenberg, linking a one-day, 6.1 per cent slide in New York-based AIG's share price to a reported drop in reserves, the prosecution said yesterday during opening remarks in federal court in Hartford, Connecticut.
"Greenberg called his friend", Mr Ferguson, for help creating a no-risk transaction to boost the reserves, assistant US attorney Raymond Patricco said opening the prosecution case.
"When Greenberg came calling, Ferguson had a clear choice: take $500 million, no strings attached, or disappoint Gen Re's biggest client," he said.
Mr Greenberg is an unindicted co-conspirator and has denied any wrongdoing.
Accused along with Mr Ferguson (65), are former General Re chief financial officer Elizabeth Monrad (53); Christopher Garand (60), a former senior vice-president; Robert Graham (59), a former assistant general counsel; and Christian Milton (60), AIG's former head of reinsurance.
The defendants are charged with conspiracy, securities and mail fraud, and making false statements.
Defence lawyers say General Re employees believed they had the blessing of supervisors including billionaire Warren Buffett, chairman of Berkshire Hathaway, the insurer's parent company.
Mr Buffett (77) hasn't been charged with wrongdoing at Berkshire, which is based in Omaha, Nebraska, and has denied any knowledge of improper dealings.
Scheduled to testify next for the prosecution is Alice Schroeder, a former Morgan Stanley insurance analyst now working on an authorised biography of Buffett.
If convicted, Mr Ferguson, Ms Monrad, Mr Milton and Mr Graham each face more than 200 years in prison and a $46 million fine, according to the US Attorney's Office.
Mr Garand faces up to 150 years in prison and a $29.5 million fine. - (Bloomberg)
