SEC charges Gen Re for role in AIG accounting fraud

US market watchdogs have charged one of the world's largest reinsurers for its involvement in separate schemes by American International Group and Prudential Financial, Inc to manipulate and falsify their reported financial results.

General Re Corporation, a subsidiary of Warren Buffet's Berkshire Hathaway investment company, agreed to pay $12.2m (£7.5m) to settle the SEC’s charges.

The schemes involved "sham reinsurance contracts" which allowed AIG and Prudential Financial, Inc to puff up their numbers.

"Gen Re arranged to sell financial products to AIG and Prudential [Financial, Inc] for the sole purpose of enabling those companies to manipulate their accounting results and mislead investors," said Andrew M Calamari, Associate Director of the SEC’s New York Regional Office.

Prudential Financial, Inc, a company whose principal place of business is in the US, is not affiliated in any manner with FTSE 100 company Prudential plc.

Gen Re agreed to pay an additional $19.5m after a related criminal investigation of the reinsurer's transactions with AIG by the Department of Justice.

The reinsurer will also pay $60.5m through a civil class action settlement to AIG’s injured shareholders.

The SEC previously charged AIG with securities fraud and improper accounting, and the company settled the charges by paying more than $800m.

Former chairman Maurice R. “Hank” Greenberg and former chief financial officer Howard I Smith, as well as former senior executives of Gen Re for their roles in connection with the scheme with AIG.

The Commission separately charged Prudential Financial, Inc with securities laws violations in 2008.

Further reading:

Former AIG executives accused of accounting fraud