General Re Corp., the reinsurance unit of Berkshire Hathaway Inc., has agreed to pay $72 million to settle investor claims about its role in a fraudulent transaction involving American International Group Inc. The settlement was announced last month by Ohio Attorney General Richard Cordray, who filed the lawsuit on behalf of three Ohio pension funds. The settlement requires approval by a federal judge in Manhattan.
The case centered on a so-called finite reinsurance transaction with General Re that allowed AIG to improperly boost its loss reserves by $500 million in 2000 and 2001, smoothing and improving results. Attorney General Cordray said in a statement:
When the truth about this fraud and other AIG manipulations was made public, the price of AIG stock declined. Investors, including Ohio’s pension funds, had been deceived and suffered significant financial losses.
The pension fund plaintiffs included the Ohio Public Employees Retirement System, the State Teachers Retirement System and the Ohio Police and Fire Pension Fund. Four former General Re executives, including onetime chief executive Ronald Ferguson, and a former AIG vice president were convicted last February in federal court in Hartford, Connecticut, over the reinsurance transaction. In 2006, AIG paid $1.6 billion to settle civil charges brought by the New York Attorney General’s office, in connection with the case.
Source: Reuters and Insurance Journal
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