The U.S. Court of Appeals for the Second Circuit on Monday reversed the high-profile fraud convictions of five former AIG and General Reinsurance executives, concluding that their trial was contaminated by prejudicial evidence and an improper jury instruction. Hogan Lovells represented one of the defendants, former Gen Re chief financial officer Elizabeth Monrad, and developed the winning jury-instruction argument. Hogan Lovells New York partner Ira Feinberg led the appellate representation of Ms. Monrad and argued the case before the Second Circuit.
Writing for a unanimous panel, Chief Judge Dennis Jacobs ruled that the district court had abused its discretion when it admitted charts suggesting that a “loss portfolio transfer,” or “LPT,” in which the defendants were involved caused AIG’s stock price to plummet. “The charts were prejudicial because the LPT was one of several problems besetting AIG at that time,” Judge Jacobs wrote. “Unrelated allegations of bid-rigging, improper self-dealing, earning manipulations, and more, had to be redacted from the articles about the LPT, to avoid prejudicing the defendants.” He concluded that the charts “prejudicially cast the defendants as causing an economic downturn that has affected every family in America,” and that the suggestion that the LPT caused AIG’s stock price to drop was “without foundation.”
The panel also held that the convictions had to be vacated because a jury instruction on “willful causation” had erroneously authorized the jury to convict without actually finding that the defendants caused any fraud. “[T]he court ended up with a charge that allowed the jury to convict without finding causation,” Judge Jacobs wrote. He concluded that the error had not been preserved below but that it was sufficiently plain to require a new trial.
The case involved a reinsurance transaction in which AIG and Gen Re engaged in 2000. Prosecutors argued that the transaction had no real economic substance but instead was a sham designed to boost AIG’s stock price. In 2008, after a six-week trial, a jury convicted the five executives—Ms. Monrad, former Gen Re CEO Ronald Ferguson, former Gen Re assistant general counsel Robert Graham, former Gen Re senior vice president Christopher Garand, and former AIG executive Christian Milton—of conspiracy, mail fraud, securities fraud and making false statements to the Securities and Exchange Commission. The district court sentenced Mr. Milton to four years in prison, Mr. Ferguson to two years, Ms. Monrad to 18 months and Mr. Graham and Mr. Garand to one year and one day. All five were free on bail pending their appeals.
