Accounting & Tax

Former Gen Re Exec Settles AIG Charges

''The defendant helped to structure a sham transaction designed solely to enable AIG to achieve a specific, and false, accounting result.''
Stephen TaubJune 7, 2005

John Houldsworth, a former senior executive of General Re, and the Securities and Exchange Commission have agreed to a partial settlement of charges stemming from transactions with American International Group Inc., according to the SEC. Several published accounts, citing Houldsworth’s attorney, Larry Byrne, also reported that he settled charges with the Department of Justice as well.

Houldsworth is the first individual to face criminal charges in a government probe of accounting abuses at AIG, according to Bloomberg. He is cooperating fully with the DoJ and the commission, his attorney reportedly stated.

“AIG’s fraud did not occur in isolation,” said Linda Chatman Thomsen, director of the commission’s Division of Enforcement, in a statement. “With this case, we are holding accountable an individual who, even though outside AIG, knowingly assisted the company to manipulate its financial results.”

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Added Mark K. Schonfeld, director of the commission’s Northeast Regional Office: “This is another step in our ongoing investigation of the abuse of insurance and reinsurance to falsify a company’s financial results. Here the defendant helped to structure a sham transaction designed solely to enable AIG to achieve a specific, and false, accounting result.”

The commission alleged that Houldsworth and others at General Re worked with individuals at AIG to fashion two sham reinsurance contracts between Cologne Re Dublin — a Dublin-based subsidiary of General Re of which Houldsworth was the chief executive officer — and an AIG subsidiary.

The only purpose of those transactions, the SEC asserted, was to allow AIG to add a total of $500 million in phony loss reserves to its balance sheet in the fourth quarter of 2000 and the first quarter of 2001. According to the commission, those transactions were initiated by AIG in response to criticism by analysts concerning a reduction in the company’s loss reserves in the third quarter of 2000.

Without admitting or denying the SEC’s allegations, Houldsworth consented to the entry of a partial final judgment which resolves all issues of liability against him but defers the determination of disgorgement and penalties until a later date.

In addition, Houldsworth agreed to cooperate fully with the commission in its continuing investigation; agreed to be permanently enjoined from future violations of these provisions; and agreed to a permanent bar from serving as an officer or director of a public company and from appearing or practicing before the commission as an accountant.