On Monday, Aug. 1, an appeals court threw out the convictions of former AIG executive Chris Milton and four former Gen Re executives convicted in 2008 in the case, known U.S. v. Ferguson, for actions surrounding a finite reinsurance transaction, and ordered a retrial. We've written in the past questioning whether Milton's conviction in particular was a tragedy or a travesty. The story isn't over, but the appeal raises questions about politically motivated prosecutorial zeal and its effect on business and the fortunes of individuals.
A New York Times article characterizes the three-judge appellate panel as highlighting a "core issue at the heart of the government's case." The Times reports:
Was the transaction in question merely an aggressive accounting technique or something more sinister? In detailing a telephone call in October 2000 between Mr. Ferguson and Mr. Greenberg that discussed the potential transaction, the court noted that it may "have been an unlawful agreement to deceive A.I.G. stockholders."
Or, said the court, "it may have been a high-level brainstorming session about using accounting rules aggressively -- but lawfully -- to achieve an accounting objective."
The appellate court found fault with Judge Christopher Droney's instruction to the jury regarding whether defendants did "willfully cause" a crime to be committed and commented that, in an effort to "accommodate the reasonable phrasings offered by the various parties," Droney "allowed the jury to convict without finding causation."
A Wall Street Journal editorial notes that prosecutors used used the investigation into the AIG/Gen Re finite reinsurance transaction to force the companies to dismiss their CEOs, Hank Greenberg and Joseph Brandon, respectively. The editorial proceeds:
Neither federal nor state prosecutors brought criminal cases against either man, but AIG's stock was losing altitude in early 2005 in part because New York Attorney General Eliot Spitzer was piggybacking on the federal case and demanding that AIG's board fire Mr. Greenberg. AIG's directors complied in March of that year. After Mr. Greenberg's firing, the company dramatically increased its mortgage exposure, and the rest is financial crisis history.
The civil case that Spitzer brought against Greenberg in 2005 is still alive and will not be affected by he reversal of convictions in the federal case, says Spitzer's successor Eric Schneiderman. Bloomberg reports that Greenberg's attorney insists that the reversed convictions U.S. v. Ferguson have in fact "substantially weakened the State's case:
"It's always difficult for a prosecutor to admit that a case is disappearing on them," Boies said in a telephone interview. "But an objective observer would say that there really is not a basis for continuing to waste taxpayer money pursuing it. Anybody who says this doesn't affect their case is whistling past the graveyard."