Guilty plea may lead to five-year prison term, General Re executive

General Re Corp.’s former executive John Houldsworth’s recent decision to plead guilty to conspiracy concerning the AIG investigation may result in a jail term of up to five years. The term reflects the maximum penalty of the charge made against Houldsworth by the Department of Justice Investigations (DOJ).The Securities and Exchange Commission (SEC) has filed a separate civil complaint against Houldsworth regarding the $500 million loss portfolio deal between AIG and General Re that AIG admits was not related to their insurance results. Under terms of a settlement with the SEC regarding its civil complaint against him, Houldsworth has consented to a partial final judgement that resolves him of all liability without admitting or denying the complaint. However, thereafter Houldsworth is barred from operating as an officer or director of a public company and he will face pending civil penalties. The SEC complaint also names General Re senior VP Richard Napier and former CFO Elizabeth Monrad as accomplices. “With this case,” Linda Chatman Thomsen, director of SEC’s enforcement division, “we are holding accountable an individual who, even though outside AIG, knowingly assisted the company to manipulate its financial results.”According to the SEC complaint, AIG wanted to suppress criticism regarding its loss reserves and therefore approached General Re president Ronald Ferguson for assistance. Consequently, AIG and General Re structured transactions to portray a specific and untrue accounting effect on AIG’s financial statements. The lawsuit further claims no risk transfer was involved in the transaction and that General Re received monetary remuneration of $5.2 million through the commutation of an unrelated reinsurance contract.