The Securities and Exchange Commission charged General Re Corp. for its involvement in separate schemes by American International Group and Prudential Financial, Inc. to manipulate and falsify their reported financial results. Now Gen Re has agreed to pay $12.2 million to settle these charges. In addition, in a non-prosecution agreement with the Department of Justice in connection with a related criminal investigation of Gen Re’s transactions with AIG, Gen Re agreed to pay $19.5 million to the U.S. Postal Inspection Service Consumer Fraud Fund. Gen Re also agreed to pay $60.5 million through a civil class action settlement to AIG’s injured shareholders. Gen Re previously forfeited to the government approximately $5 million in fees it earned for its participation in the scheme with AIG. Andrew M. Calamari, associate director of the SEC’s New York Regional Office, had this to say:
Gen Re arranged to sell financial products to AIG and Prudential for the sole purpose of enabling those companies to manipulate their accounting results and mislead investors.
The SEC previously charged AIG with securities fraud and improper accounting, and the company settled those charges by paying more than $800 million in addition to other relief. The SEC also previously settled charges against AIG former chairman Hank Greenberg and former chief financial officer Howard I. Smith. In addition, the government brought charges against former senior executives of Gen Re for their roles in connection with the scheme with AIG. The SEC separately charged Prudential with securities law violations in 2008.
The SEC said that a foreign subsidiary of Gen Re entered into two sham “reinsurance” transactions with AIG in 2000 to “improperly allow AIG to reverse the declining reserve trend and falsely report additions to both loss reserves and premiums written.” According to the SEC, senior officials at Gen Re helped AIG structure the two sham transactions that appeared to transfer risk to AIG, but did not transfer risk.
According to the SEC, Gen Re separately entered into a series of sham reinsurance contracts with Prudential’s property/casualty division from 1997 to 2002. The contracts had “no economic substance and purpose other than to allow Prudential to build up and then draw down on an off-balance sheet asset or ‘finite bank’ parked with Gen Re,” according to the government. As a result of the sham transactions, the SEC says that Prudential “improperly recognized” more than $200 million in revenues in 2000, 2001, and 2002. Gen Re received fees totaling $8.1 million for structuring and executing the scheme with Prudential. The latest settlement is subject to court approval.
Sources: Securities and Exchange Commission and U.S. Department of Justice
Contact us today for a free legal consultation with an experienced attorney.
Fields marked *may be required for submission.
If you would like to subscribe to the Jere Beasley Report digital edition, simply visit our Subscriptions page and provide the necessary information or call us at 800-898-2034.
Attorney Advertising - Prior results do not guarantee a similar outcome.