A former executive at Berkshire Hathaway Inc.’s General Re insurance unit pleaded guilty Thursday to helping its top customer, American International Group Inc., concoct a sham transaction that made AIG’s finances appear better than they were.
John Houldsworth, 46, of Dublin, Ireland, who was CEO of Cologne Re Dublin, a General Re unit, from May 1990 to June 2001, admitted in federal court his role in creating a phony deal that made it appear AIG had boosted its loss reserves by $500 million in late 2000 and early 2001.
As part of a plea bargain for the criminal conspiracy charge, Houldsworth has agreed to cooperate in the Justice Department’s investigation of the companies. Prosecutor Thomas Hanusik said Houldsworth has already met with investigators four times, and more meetings are expected.
Houldsworth pleaded guilty to a single count of conspiracy to file false financial reports and could receive up to five years in prison when he is sentenced. U.S. District Judge Claude Hilton set sentencing for Dec. 9 after defense lawyers and prosecutors asked for a sentencing date several months out to allow Houldsworth to continue cooperating with investigators.
Houldsworth also faces charges filed Monday by the Securities and Exchange Commission in federal court in New York City alleging similar misconduct.
AIG, the nation’s biggest insurance company, and Gen Re are major players in the reinsurance industry, which provides insurance to insurers. AIG, according to court documents, had been concerned about insufficient reserves to cover potential losses and approached Gen Re to facilitate a deal that would increase their loss reserves on paper.
Prosecutors have said the deal between the two companies had no substantive value and was designed to cosmetically alter AIG’s books. Gen Re received a $5.2 million fee to arrange the sham transactions. Houldsworth declined comment after Thursday’s hearing.
James W. Heslin Jr., a vice president of General Re, said the company would have no immediate comment on Houldsworth’s plea.
Berkshire Hathaway, the Omaha-based holding company controlled by billionaire investor Warren Buffett, disclosed Monday it had fired Houldsworth after learning about the plea agreement. Houldsworth had been placed on paid leave at General Re last month.
