Impending guilty plea a big break in AIG probe

[Robbien]

A former top General Re executive agreed Monday to plead guilty to a criminal conspiracy charge for carrying out a $500 million accounting ruse. He allegedly did so to help the company's largest client, American International Group, artificially inflate its reserves. The plea agreement by former Gen Re chief underwriter John Houldsworth is the first major breakthrough in federal investigators' probes of AIG's finances. Court documents show he played a key role in the alleged fraud by executing the wishes of top executives at both insurance giants, including their CEOs.

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Defense attorney Larry Byrne said Houldsworth, who lives near Dublin with his wife and children, wants "to accept full responsibility for his actions and cooperate with the government."

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The deals allowed AIG to inflate its loss reserves by hundreds of millions of dollars at a time when Wall Street securities analysts had discounted the company's stock price because those reserves had eroded. The SEC alleges that former AIG boss Maurice Greenberg asked former Gen Re CEO Ronald Ferguson in October 2000 to structure a deal that would allow AIG to report an increase to its reserves by selling Gen Re $500 million in insurance not subject to any claims.

Regulators say that does not constitute insurance.

The SEC says AIG advanced Gen Re $10 million to buy the bogus insurance and liquidated an unrelated contract to surreptitiously pay Gen Re's fee. In turn, Houldsworth and Gen Re allegedly "created a phony paper trail to make it appear as though Gen Re had solicited" the business with AIG when AIG solicited the deal "to manipulate its financial statements."

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