Lawyers test ex-Cologne Re chief's claims

The sentencing of the former chief executive of the Cologne Re insurance company's Dublin office has been delayed until March while US justice department lawyers test the validity of confidential information that he has supplied to them.

Australian John Houldsworth, who worked in the IFSC, was due to be sentenced in Alexandria, Virginia, yesterday on one count of conspiring with others to misstate financial statements of the insurance giant American International Group (AIG) by $500 million (€423 million).

The Irish Times has learnt that Houldsworth boasted in one conversation that AIG could "cook the books" if it was caught manipulating their accounts. The charges relate to two financial reinsurance contracts AIG entered into with Cologne Re, which is owned by Warren Buffett's Berkshire Hathaway group, in December 2000 and March 2001.

Houldsworth had admitted making a false paper trail to allow AIG make false accounting entries on its books. As a result of AIG's deception, the company's financial results showed false increases in reserves in the company's earnings for the fourth quarter of 2000 and the first quarter of 2001.

Yesterday, Houldsworth's lawyers and the US justice department both sought an adjournment until March, when the court will determine a new sentencing date. A justice department lawyer dealing with the case said that prosecutors wanted more time to test the authenticity of information supplied by Houldsworth against information expected to be obtained from others indicted in the case.

"It's a common practice," he said. "For example, the guys in the Enron case haven't been dealt with yet because the department is pulling back and waiting to see if the information they supplied is correct." He said it could be more than a year before Houldsworth is sentenced.

The Securities and Exchange Commission (SEC), which took a separate case against Houldsworth, said yesterday it was waiting for a court to decide the fine Houldsworth will have to pay. Houldsworth has been charged by the SEC with aiding and abetting AIG to commit securities fraud. He has agreed to be barred from serving as a director.

The SEC action follows a civil action taken by New York attorney general Eliot Spitzer against Cologne Re's parent company, General Re, alleging that the AIG-General Re contracts were a "sham" designed to allow AIG to falsely boost its profits, using $500 million of loss reserves, the provisions that insurers set aside to cover future claims.

Maurice "Hank" Greenberg resigned as AIG chairman and chief executive after Mr Spitzer claimed Mr Greenberg initiated the sham contracts. Mr Spitzer's suit claims Houldsworth created false documents to make it look like General Re approached AIG to buy reinsurance.

Houldsworth was among six General Re executives earlier barred from working at a senior level in the Australian insurance industry following an Australian government investigation. It later emerged Houldsworth and another Australian national working for Cologne Re in Dublin were the only ones still working in the industry.

In a related case, Swiss insurer Zürich Financial has admitted to the Australian authorities that it used reinsurance transactions in Cologne Re's Dublin office to mislead regulators about the poor state of its finances in 2000.