JOHN HOULDSWORTH, whose testimony helped convict five insurance executives of defrauding American International Group (AIG) investors of as much as $597 million (€431 million), has been spared prison for his role in the scheme.

Houldsworth (50), a former chief executive at a General Reinsurance (Gen Re) subsidiary, was sentenced yesterday to two years’ probation and fined $5,000 in a federal court in Hartford, Connecticut, where he testified for eight days in 2008 for the US government. He must also perform 400 hours of community service.

Prosecutors said Houldsworth’s co-operation was “exceptional” after he pleaded guilty in 2005 to conspiracy to commit securities fraud and his testimony was “critical” in helping to secure the five convictions.

US district judge Christopher Droney granted the prosecution’s request for leniency for Houldsworth, who faced up to five years in prison.

“Mr Houldsworth helped the government and ultimately the jury understand the nature and depth of the fraud and its concealment,” Judge Droney said.

The judge said he hoped Houldsworth would set an example for other executives to “blow the whistle” on market fraud.

“I am sorry,” Houldsworth, the former chief executive of Cologne Re Dublin, told Judge Droney at the hearing.

“From the bottom of my heart, I would like to apologise to anyone who suffered as a result of the transaction.”

Judge Droney previously imposed a four-year prison term on former AIG vice-president Christian Milton; two years on former Gen Re chief executive Ronald Ferguson; 18 months on former Gen Re chief financial officer Elizabeth Monrad; and one year on former Gen Re senior vice-president Christopher Garand and former Gen Re assistant general counsel Robert Graham.

“Houldsworth’s co-operation was truly extraordinary,” assistant US attorney Eric Glover told the judge.

“He agreed to co-operate very early in the investigation. He clearly committed a fraud, assisted AIG misstate its financial statements and admitted as much.”

The fraud centred on what prosecutors called a sham transaction to inflate AIG’s loss reserves by $500 million. It preceded by several years the recent financial crisis of New York-based AIG, which received a bailout of $182.5 billion from US taxpayers.

AIG said in October 2000 that premiums increased in the third quarter of that year as loss reserves for claims fell.

Five days later, Maurice “Hank” Greenberg, then AIG’s chief executive, asked Ferguson for help with AIG’s reserves, a key measure of an insurer’s health.

AIG and Gen Re, based in Stamford, Connecticut, engaged in sham transfers of policies and premiums between the companies that allowed AIG to inflate its loss reserves by $500 million, the US government said.

Houldsworth was one of two executives who pleaded guilty and testified as a prosecution witness against his former colleagues.

The other co-operator, former Gen Re vice-president Richard Napier, is scheduled to be sentenced on September 15th.

Houldsworth is a British citizen who lives in Ireland.

Before the US inquiry became public, it had emerged that Houldsworth and another Dublin-based Cologne Re colleague had been barred by the Australian regulator from working at a senior level in the Australian insurance industry. – (Bloomberg)