Reinsurance company General Re Corp. agreed to pay over $92 million to settle charges related to its role in separate schemes with AIG and Prudential Financial to manipulate and falsify their financial results.
According to the SEC, a foreign subsidiary of Gen Re entered into two sham reinsurance transactions with AIG in 2000 to improperly allow AIG to reverse its declining reserve trend and falsely report additions to both loss reserves and premiums written. Senior officials at Gen Re helped AIG structure the two transactions so they would appear to transfer risk to AIG, when they actually did not.
The SEC also accused Gen Re of entering into a separate series of sham reinsurance contracts with Prudentials property and casualty division from 1997 to 2002 that allowed Prudential to build up and then draw down on an off-balance sheet asset parked with Gen Re. As a result, Prudential recognized more than $200 million in revenue in 2000, 2001 and 2002, while Gen Re received fees totaling $8.1 million for executing the scheme with Prudential.
Gen Re agreed to pay $12.2 million to settle the SECs charges, and to pay $19.5 million to the U.S. Postal Inspection Services Consumer Fraud Fund. The company also agreed to pay $60.5 million in a civil class-action settlement to AIGs injured shareholders. Gen Re previously forfeited approximately $5 million in fees it earned for its participation in the scheme with AIG.
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