Jan. 27 (Bloomberg) -- A former vice president at American International Group Inc. was sentenced to four years in prison for defrauding shareholders, avoiding a possible life term.
Christian Milton, 61, was convicted Feb. 25 with four former executives of General Reinsurance Corp. of using a sham transaction in 2000 to help AIG improve its balance sheet. The judge could have given Milton a life sentence after ruling that the fraud cost AIG shareholders as much as $597 million.
Milton asked U.S. District Judge Christopher Droney for a “minimal” term, citing his good work in the community. Droney said that while life in prison would be too severe, the sentence must deter other executives, and that Milton’s conduct showed a “stark lack of honesty and respect” for investors.
“Mr. Milton’s participation in this fraud was critical to its success, and particularly disturbing,” Droney said in federal court in Hartford, Connecticut. “He surely knew it was a scam from the start.”
Droney also imposed a $200,000 fine and ordered two years of supervised release after Milton’s term ends. Milton, a legal permanent resident of the U.S., faces deportation to his native England after his prison term.
U.S. prosecutors said Milton played a central role in a transaction that began in October 2000 with a phone call from former AIG Chief Executive Officer Maurice “Hank” Greenberg.
“He could have and should have told Mr. Greenberg that this was a shady deal and he would have nothing to do with it,” Assistant U.S. Attorney Raymond E. Patricco Jr. told the judge today. “Instead, he became the point man for the deal.”
Prosecutors have said Greenberg was an unindicted coconspirator in the case. Greenberg, who resigned in 2005, wasn’t charged with a crime and denied any knowledge of an improper transaction.
Milton was fired from AIG in March 2005 and hired within days at C.V. Starr & Co., an insurance and investment company run by Greenberg, Patricco said today. Milton makes $425,000 a year at C.V. Starr, according to Patricco.
“To this day, Mr. Greenberg remains his boss and holds the purse strings” to his deferred compensation, Patricco told the judge.
An attorney for Greenberg who attended today’s hearing, Scott Morvillo, declined comment. Amy Foote, a spokeswoman for C.V. Starr, also declined comment.
Milton will surrender to the U.S. Bureau of Prisons by March 25. He may apply for bail pending appeal. If the judge grants his request, it would delay the start of his prison term.
Milton, who submitted 67 letters to the judge seeking leniency, declined to speak at the hearing.
His attorney, Frederick Hafetz, said Milton deserved leniency for a variety of good acts, including intervening at AIG on behalf of two employees who had contracted AIDS.
“Mr. Milton, time after time, is the individual who stood up and showed compassion and courage when people were in trouble at work,” Hafetz said.
The deal at the center of the fraud arose after New York- based AIG said on Oct. 26, 2000, that premiums increased in the third quarter of 2000 as reserves for claims fell. Five days later, Greenberg asked Ferguson for help with AIG’s loss reserves, a key measure of an insurer’s success, according to trial evidence.
General Re, based in Stamford, Connecticut, agreed in writing to transfer at least $500 million in policies and pay $500 million in premiums, with AIG facing as much as $100 million in losses. AIG improperly booked the deal as posing a risk of loss, while General Re accounted for it correctly, prosecutors said. Secret side agreements corrupted the deal, according to the government.
On Dec. 16, Droney sentenced former General Re Chief Executive Officer Ronald Ferguson to two years in prison and fined him $200,000. He also faced a possible life term.
The case is U.S. v. Ferguson, 06-cr-137, U.S. District Court, District of Connecticut (Hartford).
-----NEW$ UPDATE$ on OTHER CORPORATE CRIMINAL$-----
Lehman Brothers' Richard Fuld "sold" mansion to wife for US$100
Original Post: Christine Seib in New York, The Times, London - January 27, 2009.
The disgraced chief executive of Lehman Brothers transferred ownership of a $14 million Florida mansion to his wife for $100 in a possible attempt to move assets beyond the reach of infuriated investors of the collapsed bank.
Richard Fuld, who led the 158-year-old investment bank to its demise last September, sold the beach-front house to his wife, Kathleen, for $100 (£72) on November 10, according to Marin County real estate records.
The couple had previously jointly owned the Jupiter Island property, which was valued at $13.75million when they bought it in March 2004.
Cityfile.com, the New York website that uncovered the secret sale, speculated: “Could Fuld be worried about the flurry of lawsuits from incensed shareholders and creditors?”
The 3.3-acre property is one of five luxury homes owned by the Fulds, who spend most of their time at their eight-bedroom mansion in Greenwich, Connecticut.
Mr Fuld has been named in at least one lawsuit filed by San Mateo County seeking damages for the collapse of Lehman Brothers. The Californian local authority lost $150 million on its investment in the Wall Street bank.
Lawyers were divided yesterday over whether the decision to move the mansion into Mrs Fuld's name was an attempt to put assets beyond the reach of investors who intend to sue the former chief executive for compensation. Some lawyers cited Florida's unusually generous home protection laws, which could save the Fulds from losing their house in the event of a lawsuit or bankruptcy.
To take advantage of these rules the couple would have to prove that they resided in Florida, which could be difficult because of the amount of time they spent in New York. Also, if a court decided that Mrs Fuld did not pay enough for the mansion, the transfer would be deemed to be “fraudulent conveyance” that would render the move void, lawyers said.
However, Barry Nelson, an attorney who specialises in asset preservation, said that the mansion would have been protected from creditors under Florida law even if it had remained in joint ownership. “As long as the acquisition of the property was not a fraud on creditors, which it wasn't because it was bought when the bank was doing well, and the debt is only his, not hers, then the property would be protected,” Mr Nelson said.
Since the collapse of Lehman Brothers, the 62-year-old banker, whose combative nature earned him the nickname The Gorilla, has become the symbol of everything that was wrong with Wall Street.
Even after overseeing America's largest bankruptcy, Mr Fuld has refused to admit responsibility for the fate of Lehman Brothers. Questioned by a congressional committee last October, Mr Fuld said that he felt
“horrible about what has happened to the company” but insisted that financial regulators and Congress should share the blame for the demise of the bank.
Mr Fuld also insisted that all his decisions in the months before the bankruptcy were “both prudent and appropriate” given the information that he had at the time.
He was paid $22 million in 2007 but did not receive any bonus or severance payment when he left Lehman Brothers last year. Henry Waxman, a Democrat Congressman, calculated that Mr Fuld had collected $480 million in compensation in eight years at the bank - a figure that Mr Fuld disputed, pointing out that he had taken home $300 million.
According to reports, Mr Fuld was running on a treadmill in the bank's gym, on the day he announced that Lehman Brothers was bankrupt, when he was punched in the face by an irate employee.
Mr Fuld's attorney did not return calls for comment yesterday.
- Jan 27, 4:02 PM EST
NEW YORK (AP) -- Pressured by the Obama administration, Citigroup Inc. reversed course and said it will not take delivery of a corporate jet it previously planned to purchase.
The canceled deal comes amid a chorus of concerns from politicians who are worried about how banks that have received federal funds are spending the money. Citigroup has received $45 billion in capital from the government in recent months amid the ongoing credit crisis.
"Citi has no intent to take delivery of any new aircraft," the New York-based bank said in a statement Tuesday.
An official in President Barack Obama's administration reached out to Citigroup on Monday to reiterate Obama's position that such jets aren't "the best use of money at this point," and are "an outrageous use of funds" for a company getting taxpayer dollars, said a White House official who spoke on condition of anonymity to more freely describe private conversations.
In a statement late Monday, Citi said it had placed a deposit in 2005 to acquire a new corporate jet, and said it didn't plan to use government funds for the purchase. The New York-based bank noted that any cancellation of the deal would likely lead to millions of dollars in penalties.
On Monday, the New York Post reported that Citi was set to take possession of a new corporate jet, and was still planning to receive it even after it received the government funding.
With the cancellation of the deal, a deposit on the jet will be lost, but is recoverable once the jet is sold, according to a person familiar with situation. Citi was in the process of purchasing a Dassault Falcon 7X for $50 million, the person said.
Aside from not taking control of a new jet, Citi is also planning to cut the number of corporate jets in its existing fleet to two from five, said the person, who asked not to be identified because those details haven't been made public.
Corporate jets have become a hot-button topic amid the ongoing credit crisis as the cost of owning and operating them has come into question, especially for companies receiving financial support from the government.
In November, executives of automakers Ford Motor Co., General Motors Corp. and Chrysler LLC were roundly criticized for flying on corporate jets to Washington to ask Congress for federal bailout money.
Obama criticized the automakers during the transition, and White House press secretary Robert Gibbs told reporters at his daily briefing on Monday that that view applied in the Citi case as well. So an official from the Treasury Department relayed this privately to Citi, saying it was the feeling of not just the president but also lawmakers on Capitol Hill and the public, according to the White House official who spoke anonymously.
Citi has been among the hardest hit banks by rising loan defaults and souring investments, and been one of the biggest receivers of government support.
The bank has received $45 billion in capital from the government as part of the U.S. Treasury Department's plan to directly invest in banks. The government is also providing guarantees on hundreds of billions of dollars of Citi investments in mortgages and other troubled investments.
Amid the struggles, Citi has been working to streamline its operations and shed assets in an effort to regain profitability. The bank has posted five consecutive quarterly losses, including a fourth-quarter loss of $8.29 billion.
Earlier this month, Citi reached a deal to sell a majority stake in its Smith Barney brokerage unit to Morgan Stanley. Citi has also announced plans split its operations into two units, separating its traditional banking businesses from its riskier operations.
It might take a while for Citi to recover its deposit on the canceled jet deal, as the market for corporate aircraft has softened with the economy.
Before the jet market cooled last year, speculators sometimes placed orders with no intention of taking delivery of the plane. They would sell their position in line.
"There was such a backlog - three or three-and-a-half year waits - people could buy positions and flip them for a profit," said Robert F. Agnew, president and chief executive of aviation consulting firm Morton Beyer & Agnew. "Selling a slot today is probably very difficult."
Agnew said buyers typically pay a few percentage points of the purchase price when placing the order, then a series of payments as production begins and other milestones are reached. They might pay about 35 percent of the cost before taking delivery, then pay the balance when taking the plane, he said. At that rate, Citi could have already spent $17.5 million on a plane it will no longer receive.
Agnew did note that upfront costs can be much lower where a strong relationship exists between buyer and seller, but said he was not familiar with Citigroup's arrangement with Dassault.
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