Guilty Plea in Probe of AIG Accounting
An executive for Berkshire Hathaway Inc.’s General Re insurance unit will plead guilty this week to a criminal charge that he helped rival American International Group Inc. exaggerate its finances and will cooperate in the continuing investigation, his lawyer said Monday.
John Houldsworth, 46, will plead guilty to one count of conspiring with others to misstate the financial statements of AIG, the nation’s biggest insurance company, said his lawyer, Larry Byrne.
Houldsworth, who was chief executive of Cologne Re Dublin, a General Re unit, from May 1990 to June 2001, would be the first to plead guilty in the multiple probes of whether AIG manipulated its finances to boost the appearance of its financial health. He is on paid leave at General Re.
In a separate civil complaint filed in U.S. District Court in New York on Monday, the Securities and Exchange Commission accused Houldsworth and other senior Gen Re executives of aiding and abetting AIG’s securities fraud.
The SEC said Houldsworth and others helped AIG structure two transactions so AIG could add $500 million to its balance sheet in the fourth quarter of 2000 and the first quarter of 2001.
The SEC said the transactions were initiated by AIG to calm criticism by analysts concerning a reduction in AIG’s loss reserves in the third quarter of 2000.
The case was not about a violation of “technical accounting rules,” the SEC said.
“It involves the deliberate or extremely reckless efforts by senior corporate officers of a facilitator company [Gen Re] to aid and abet senior management of an issuer [AIG] in structuring transactions having no economic substance,” the SEC said.
It said the transactions “were designed solely for the unlawful purpose of achieving a specific, and false, accounting effect on the issuer’s financial statements.”
Byrne said Houldsworth “deeply regrets his actions” and was cooperating fully with investigations by the Department of Justice and the SEC.
The lawyer said Houldsworth “accepts full responsibility for his role in these matters” and “wants to put these regrettable matters behind him and looks forward to returning to the quiet life he shares with his wife and children in rural Ireland.”
Houldsworth is expected to enter the plea to the criminal charge Thursday in U.S. District Court in Alexandria, Va., said Sandi Sonnenfeld, a spokeswoman for law firm White & Case.
Byrne said Houldsworth could face a maximum of five years in prison but that any sentence would be affected by his level of cooperation.
The lawyer said his client also had agreed to consent to a judgment with the SEC that would require him to disgorge any ill-gotten gains, expose him to civil penalties and bar him from serving as an officer of any company required to file reports with the SEC. Cologne Re Dublin, he said, does not file reports with the SEC.
A message left with Gen Re, based in Stamford, Conn., was not immediately returned.
Last month, AIG restated its financial statements for the last five years, acknowledging accounting improprieties.
New York regulators recently filed a civil lawsuit against AIG and the company’s former chief executive, Maurice “Hank” Greenberg, and former Chief Financial Officer Howard I. Smith, saying they orchestrated an accounting scheme that made AIG’s financial picture appear brighter than it was.
