SEC Press press_release 9 KB 5,055 chars

SEC Charges Gen Re Executive for Aiding in AIG Securities Fraud

Release: 2005-85
Caption: Securities and Exchange Commission v. Enforcement Action, et al.

summary

John Houldsworth, former CEO of Gen Re’s Cologne Re Dublin subsidiary, aided and abetted AIG’s $500 million securities fraud by structuring sham reinsurance transactions to falsely inflate loss reserves in late 2000 and early 2001, settling with the SEC via injunction, a ban from public company leadership and SEC practice, and cooperation in the ongoing investigation.

paragraph

The SEC charged John Houldsworth with aiding and abetting AIG’s securities fraud by helping design two sham reinsurance transactions that artificially added $500 million in phony loss reserves to AIG’s balance sheet in Q4 2000 and Q1 2001. These transactions, orchestrated between AIG and Gen Re’s Dublin subsidiary, had no legitimate risk transfer and were created solely to mislead investors and mask AIG’s declining financial performance. Houldsworth settled without admitting or denying guilt, agreeing to a permanent injunction barring him from serving as a public company officer or director, practicing before the SEC as an accountant, and deferring civil penalties and disgorgement pending further proceedings.

narrative

John Houldsworth, former CEO of Gen Re’s Cologne Re Dublin subsidiary, was charged by the SEC with aiding and abetting AIG’s $500 million securities fraud through the creation of two sham reinsurance transactions in late 2000 and early 2001. These transactions, involving AIG and a Gen Re subsidiary, were deliberately structured to generate false accounting entries that inflated AIG’s loss reserves, masking its deteriorating financial condition after analyst criticism of its Q3 2000 results. All parties, including Houldsworth, understood from the outset that the deals lacked economic substance and were designed solely to manipulate financial statements, with false documentation created to support the fraudulent accounting. AIG later admitted the impropriety in March 2005 and restated its financials in its 2004 Form 10-K, reclassifying the transactions as deposits rather than reinsurance. Houldsworth settled without admitting or denying the allegations, consenting to a permanent injunction that bars him from future securities law violations, serving as an officer or director of a public company, or appearing before the SEC as an accountant under Rule 102(e). Civil penalties and disgorgement were deferred pending further proceedings, and he agreed to fully cooperate with the SEC’s continuing investigation, which also involved coordination with the U.S. Department of Justice and the U.S. Postal Inspection Service.

Enriched metadata

Scheme: financial-fraud (100%)
Court: Southern District of New York
Outcome: settled

Classified financial-fraud(confidence 100%). EDGAR detection: forms 10-K/10-Q/8-K/NT 10-K· recall 67% / precision 23%. detection rule →

Extracted insights

Dollar amounts 1

$500.00M $500 million $100M–$1B

Entities 5

person enforcement action
person financial statements
person john houldsworth
person partial final judgment
scheme_term securities fraud

Triples 11

SEC charges John Houldsworth
SEC filed enforcement action
John Houldsworth aided AIG
AIG committed securities fraud
Commission alleged Houldsworth helped AIG structure sham reinsurance transactions
AIG added $500 million in phony loss reserves
Houldsworth consented to partial final judgment
Houldsworth agreed to cooperate Commission
AIG admitted accounting for transactions was improper
AIG restated financial statements
Commission charges Houldsworth with aiding and abetting violations

View original SEC press releasesec.gov

Extracted body text (5,055c)

SEC CHARGES GEN RE EXECUTIVE FOR AIDING IN AIG SECURITIES FRAUD FOR IMMEDIATE RELEASE 2005-85 Washington, D.C., June 6, 2005 - The Securities and Exchange Commission today announced that it filed an enforcement action against John Houldsworth, a former senior executive of General Re Corporation, for his role in aiding and abetting American International Group, Inc. in committing securities fraud. In its complaint filed today in federal court in Manhattan, the Commission alleged that Houldsworth and others helped AIG structure two sham reinsurance transactions that had as their only purpose 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. The transactions were initiated by AIG to quell criticism by analysts concerning a reduction in the company's loss reserves in the third quarter of 2000. In partial settlement of the Commission's claims, 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. As part of his settlement, Houldsworth has agreed to cooperate fully with the Commission in its continuing investigation of this matter. Linda Chatman Thomsen, Director of the Commission's Division of Enforcement, said: "AIG's fraud did not occur in isolation. With this case, we are holding accountable an individual who, even though outside AIG, knowingly assisted the company to manipulate its financial results." Mark K. Schonfeld, Director of the Commission's Northeast Regional Office, said: "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." AIG's Fraud In its complaint against Houldsworth, the Commission alleges that Houldsworth and others at Gen Re worked with their counterparts at AIG to fashion two sham reinsurance contracts between Cologne Re Dublin, a Gen Re subsidiary in Dublin, Ireland, of which Houldsworth was the Chief Executive Officer, and an AIG subsidiary. The complaint details the conversations of participants in the planning meeting and other conversations that led to AIG's filing of fraudulent financial statements. On the basis of these conversations and other facts alleged, the complaint charges that all parties understood from the beginning that they were engaged in an undertaking to create sham transaction documents for the sole purpose of allowing AIG to make false accounting entries on its books. As Houldsworth and others at Gen Re knew, AIG accounted for the sham transactions as if they were real reinsurance contracts that transferred risk from Gen Re to AIG, when all parties involved knew that was not true. As a result of AIG's accounting treatment for these transactions, the company's financial results showed false increases in reserves that AIG touted in the company's quarterly earnings releases for the fourth quarter of 2000 and the first quarter of 2001. Without the phony loss reserves, AIG's financial results in both quarters would have shown further declines in its loss reserves. In a press release dated March 30, 2005, AIG admitted that the accounting for these transactions was improper and would be corrected. In its 2004 Form 10-K filed with the Commission on May 31, 2005, AIG restated its financial statements to recharacterize the transactions as deposits rather than as reinsurance. The Commission's complaint charges Houldsworth with aiding and abetting the violations by AIG and others of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 of the Securities Exchange Act of 1934. Houldsworth, in addition to undertaking to cooperate fully with the Commission, consented to the entry of a partial final judgment permanently enjoining him from future violations of these provisions, barring him from serving as an officer or director of a public company and deferring the determination of civil penalties and disgorgement to a later date. In addition, Houldsworth has agreed to a Commission administrative order, based on the injunction, barring him from appearing or practicing before the Commission as an accountant, under Rule 102(e) of the Commission's Rules of Practice. Houldsworth is licensed as a Chartered Accountant in England. The Commission's investigation is continuing. The Commission acknowledges the assistance and cooperation by the U.S. Department of Justice Criminal Fraud Division and the U.S. Postal Inspection Service in this matter. Litigation Release Contacts: Mark K. Schonfeld (212) 336-1020 Director, Northeast Regional Office Andrew M. Calamari (212) 336-0042 Associate Director, Northeast Regional Office http://www.sec.gov/news/press/2005-85.htm Home | Previous Page Modified: 06/06/2005

OCR text (5,055c · plain-text · 99% conf)