October 9, 2008 4:37 PM
Former Gen Re Lawyer Could Face Life in Prison
Posted by Brian Zabcik
By Sue Reisinger, Corporate Counsel
Robert Graham, a former senior lawyer at General Re Corporation, faces life in prison for doing what his defense attorney calls a "few hours work" on a fraudulent deal. Prosecutors want to sentence Graham to a "substantial" term--up to 230 years behind bars--for his role in a sham insurance deal with American International Group, Inc. The government also wants Graham, who is 60, to pay millions of dollars in fines and restitution.
In February a U.S. district court jury in Hartford convicted Graham--Gen Re's former assistant general counsel--and four other executives of multiple counts of securities fraud. At a September 25 sentencing hearing before Judge Christopher Droney, prosecutors argued that Graham should face a stiff penalty because he abused a position of trust and used his special skills and knowledge as a lawyer to further the fraud. (Download Sentencing Memo)
The government is also asking for similarly harsh prison terms for three of Graham's codefendants--Ronald Ferguson, Gen Re's former CEO; Elizabeth Monrad, the company's ex-CFO; and Christian Milton, the former vice president of reinsurance at AIG. Prosecutors are suggesting a shorter sentence for a fifth defendant--Christopher Garand, Gen Re's former chief underwriter--who was convicted on fewer counts.
The government arrived at the severe prison terms by using a formula in the federal sentencing guidelines which provides for steeper penalties as the amount of loss and number of victims rises. Prosecutors argue that the defendants deserve heavy sentences because more than 250 AIG investors lost at least $544 million from the fake deal with Gen Re. The defendants have countered with an expert who maintains that there was zero loss and no victims.
The issue will be decided by Judge Droney, who has not yet set a sentencing date. He is expected to choose a sentence between what the prosecutors seek, and the 12-17 years recommended for each defendant in a presentencing report.
The fake deal was concocted eight years ago. Gen Re paid a $10 million insurance premium to AIG, which secretly returned the money. AIG then booked $500 million in false loss reserves, to impress analysts and to increase its stock price. Prosecutors say Graham's advice helped to "legitimize bogus documents and to conceal the fraud" by structuring it through a holding company.
Graham's attorney, Alan Vinegrad, a New York-based partner with Covington & Burling, wouldn't comment for this story. But in a September court filing, Vinegrad argued that his client is the "least culpable" of the defendants, and that prosecutors are overstating the seriousness of his misconduct. Graham didn't initiate the scheme, didn't have control over the amount of loss, and didn't personally benefit from it, according to Vinegrad.
Even without jail, the conviction will "wreak havoc with the remainder of Graham's professional and economic life," Vinegrad says in his 71-page reply. Prosecutors have asked for at least $544 million in joint restitution from the five defendants. And Vinegrad added that Graham faces other possible consequences from the fraud. He's under investigation by the Securities and Exchange Commission, which could include significant penalties; he will lose his law license; and he's a defendant in a multimillion-dollar suit by AIG shareholders.
The reply argues that Graham's conduct represents "aberrant behavior" that is not typical of his career and is a "dramatic deviation from an exceptional life." It paints a picture of Graham as a lawyer with "an exceptional record of civic, charitable, and public service, employment related contributions, and prior good works" who is being disproportionately punished.
White-collar defense attorney Michael Cornacchia, who is not involved in the case, says harsh sentences are due to "post-Enron hysteria," which led to sentencing guidelines based on factors like the amount of loss and number of victims. The proposed sentence for Graham "sounds draconian to me," says Cornacchia, a former assistant U.S. attorney and senior litigation counsel in the business and securities fraud section of the U.S. Department of Justice.
If you take a life, Cornacchia adds, a life sentence is appropriate. "This is serious conduct, but it's not taking a life. This is stealing money," he says of Graham's conviction. Cornacchia notes that the federal sentencing guidelines are no longer mandatory, and judges will often impose a penalty more proportionate to the crime.
Among the longest recent sentences for securities fraud, former Worldcom Inc. CEO Bernie Ebbers began serving a 25-year term in 2006, when he was 65, and former Enron Corp. CEO Jeffrey Skilling started a 24-year sentence in 2006, when he was 52. Franklin Brown, the former general counsel of Rite Aid Corporation, is currently the oldest in-house lawyer in jail--he began serving a ten-year sentence for securities fraud in 2005, when he was 77.
Given AIG's recent collapse, Graham's timing is nothing if not lousy. Because of the sham deal, AIG's longtime CEO Hank Greenberg was forced to resign in 2005. Prosecutors said in court that Greenberg initiated the deal, though he was never charged. After AIG agreed to pay $1.6 billion to settle state and federal investigations into the fake deal, the company's stock plummeted. Now, amid the financial crisis, U.S. taxpayers have had to bail out AIG with $122.8 billion in loans while AIG execs are being grilled in congressional hearings.Make a comment