Acknowledging its role in a fraudulent scheme to manipulate financial statements from American International Group (AIG), Stamford, Conn.–based General Reinsurance Corp. has reached a series of deals totaling $92 million to settle the case.
According to the U.S. Department of Justice, General Re has agreed to pay $19.5 million to the U.S. Postal Inspection Service Consumer Fraud Fund and an additional $12.2 million to settle charges leveled by the U.S. Securities and Exchange Commission. To compensate shareholders of New York-based AIG, General Re will also pay a $60.5 million class action settlement.
As part of its resolution with the Justice Department, General Re has admitted that its most senior management engaged in a scheme from 2000 through 2004 to falsely inflate AIG's reported loss reserves. Furthermore, General Re admitted the managers involved in the scheme knew that the true purpose of the transactions was to permit AIG to falsely report increasing loss reserves in its statements to analysts, investors and in its SEC filings.
According to the statement of facts, the fraud was carried out through the use of two sham reinsurance transactions between subsidiaries of AIG and General Re in response to analysts' criticism of a $59 million decrease in AIG's loss reserves for the third quarter of 2000.
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