Prosecutors in the criminal case against four former General Reinsurance Corp. executives, including ex-CEO Ronald Ferguson, argued at a sentencing hearing in court yesterday that shareholders lost as much as $1.4 billion because of the fraud that led to the convictions of the insurance executives. Bloomberg reports that if U.S. District Judge Christopher Droney agrees with prosecutors’ estimate, he may sentence the four executives to life in prison. The AP reports that the probation department recommends sentences of 14 to more than 17 years for each defendant.
Prosecutors told the court that AIG shares fell between 6 and 15 percent in early 2005 when media and company disclosures began revealing inflated loss reserves, according to Bloomberg, and that the drop “represented the deflation of the stock that was previously inflated by the lies” about the loss reserves. “The defendants have not offered any plausible alternative explanation for why AIG’s stock price dropped,” prosecutors said.
The defendants dispute the loss estimates calculated by the government’s expert. One attorney for defendants, Alan Vinegrad, reportedly told the court that other “confounding” factors contributed to the decline in AIG shares, including the March 14, 2005, announcement of the resignation of former CEO Hank’ Greenberg. Vinegrad argued that
“The market did not care enough about this particular transaction standing in isolation to sell stock.”
Investors drove down AIG’s shares for a variety of reasons, including disclosures about investigations by former New York Attorney General Eliot Spitzer and federal regulators, Vinegrad said.