Former executives of American International Group Inc. and General Re Corp. who were convicted in a $500 million fraud case deserve a new trial, because the judge at their 2008 trial wrongly admitted stock-price data into evidence and gave improper jury instructions, a federal appeals court ruled Monday.
The 2nd U.S. Circuit Court of Appeals threw out the fraud convictions for the five officials and sent the case back to U.S. District Court in Hartford.
Prosecutors had accused the executives of participating in a scheme in which New York-based AIG secretly paid Stamford-based Gen Re to take out reinsurance policies with AIG in 2000 and 2001 to boost AIG's falling stock price. Reinsurance policies are backups purchased by insurance companies to completely or partly insure risk they have assumed for their customers.
Ronald E. Ferguson, Elizabeth A. Monrad, Robert D. Graham and Christopher P. Garand, all former executive officers of Gen Re, and Christian M. Milton, AIG's vice president of reinsurance, were sentenced to prison in 2009 for their involvement in the scheme, which authorities estimate cost AIG shareholders more than $500 million.
Testimony from two cooperating witnesses associated with Gen Re helped convict the five executives of conspiracy, mail fraud, securities fraud and false statements to the Securities and Exchange Commission. They received sentences ranging from one to four years in jail, but remain free on bail pending the outcome of the appeal.
"We are very gratified by the decision, we look forward to a new trail," said Frederick P. Hafetz, a lawyer for Milton.
Messages seeking comment were left Monday with the U.S. attorney's office in Connecticut. AIG declined to comment.
In his ruling, Chief Judge Dennis Jacobs wrote that most of the arguments in the defendants' appeal were without merit. However, he said the verdicts had to be vacated because of how U.S. District Judge Christopher Droney handled stock-price evidence and because Droney gave jury instruction that influenced the verdict.
The lower court was inconsistent in its rulings on displaying stock-price charts, Jacobs said. One chart showing the full decline in stock price was excluded as overly prejudicial, but it was "functionally identical" to another chart shown during prosecutors' opening statement, he said.
"The court's solution, to allow only isolated ranges of stock-price data, did not mitigate the prejudice," Jacobs wrote. "Instead of a downward line, there were three dropping sets of dots; it is inevitable that jurors would connect them."
In instructing the jury, the trial judge erred by offering an ambiguous standard of conviction that allowed the jury to convict without determining what caused the fraud, Jacobs wrote.
General Re is part of Berkshire Hathaway Inc., which is led by billionaire investor Warren Buffett of Omaha, Neb. The executives who were convicted claimed Buffet was involved in the fraud, but he denied the allegations and was never charged. Prosecutors say he did not approve the deal.