Business Crimes Hotline

CONNECTICUT

Former Gen Re CEO Gets Two-Year Sentence

Former Gen Re Corporation (“Gen Re”) CEO Ronald E. Ferguson was sentenced to two years' imprisonment for his role in a fraud that cost shareholders more than $500 million. The sentence is a substantial downward variance from the life sentence suggested by the U.S. Sentencing Guidelines. According to Bloomberg News, Nora Dannehy, the acting U.S. Attorney for Connecticut, said in an interview after the hearing that she would have been “comfortable” with a term of six to nine years.

Ferguson was Gen Re's CEO from 1987 to September 2001 and was convicted by a federal jury in February 2008 on charges of conspiracy, securities fraud, making false statements to the SEC, and mail fraud. Ferguson and his co-defendants were convicted of participating in a fraudulent scheme to inflate AIG's reported loss reserves through the use of two sham reinsurance transactions between subsidiaries of Gen Re and AIG. In a hearing last year, the presiding judge found that the fraud cost AIG's shareholders somewhere between $544 million and $597 million. In addition to his prison sentence, Ferguson will serve two years' supervised release and pay a fine of $200,000.

NEW YORK

Prosecutors Drop Charges Against Former Collins & Aikman CEO

Federal prosecutors dropped fraud charges against David Stockman, the former CEO of now-bankrupt auto parts supplier Collins & Aikman. Stockman, the former budget director from the Reagan Administration, was charged in March 2007 with bank fraud, conspiracy, and obstruction of justice until prosecutors filed a nolle prosequi, which amounts to a dismissal of the indictment. See United States v. Stockman, 07-CR-220 (S.D.N.Y. Jan. 9, 2009).

Charges were also dismissed against three other former Collins & Aikman executives: J. Michael Stepp, the former chief financial officer; David Cosgrove, a former controller; and Paul Barnaba, ex-director of financial analysis. Prosecutors initially claimed that Stockman and others hid the company's failing financial health from investors, issued false financial reports, and engaged in a phony rebate scheme to raise capital and avoid defaulting on credit agreements. Federal prosecutors indicted Stockman after reviewing the results of an internal investigation conducted by lawyers retained by the company's board of directors but later dismissed the charges after Stockman's counsel presented prosecutors with additional evidence.

TEXAS

Former Willbros Executive and Consultant Charged with Foreign Bribery

The Department of Justice (DOJ) recently unsealed an indictment against a former executive and a consultant of Willbros International Inc., a subsidiary of Houston-based Willbros Group Inc., alleging that the pair paid more than $6 million in bribes to foreign officials in Nigeria and Ecuador. See United States v. Tillery, H-08-CR-022 (S.D. Tex. Jan. 17, 2008) (Indictment).

Willbros Group Inc. is a publicly traded company that provides construction, engineering, and other services in the oil and gas industry. The bribes were allegedly paid to obtain and retain gas pipeline construction and rehabilitation business from state-owned oil companies in Nigeria and Ecuador in violation of the Foreign Corrupt Practices Act (FCPA). James K. Tillery, a former executive of Willbros International Inc., and Paul G. Novak, a former consultant to the company, were charged with one count of conspiracy to violate the FCPA, two counts of violating the FCPA, and one count of conspiring to launder the bribe payments through purported consulting companies controlled by Novak. The Indictment alleges that Tillery, Novak, and other unindicted persons conspired to make millions of dollars in payments to various Nigerian foreign officials so Willbros International Inc. could obtain and retain a major gas pipeline engineering, procurement, and construction project worth approximately $387 million. The DOJ alleges that the Nigerian bribe payments were also laundered through Novak and a Nigerian consulting company partner and that the pair and others agreed to make $300,000 in corrupt payments to officials of state-owned PetroEcuador and a subsidiary to assist in winning a $3 million gas pipeline project in Ecuador.

Last year, Willbros Group Inc. and Willbros International Inc. entered into a deferred prosecution agreement with DOJ for the same course of conduct. The companies agreed to pay a $22-million criminal penalty and to cooperate in the DOJ's investigation.

CALIFORNIA

Former Bechtel Tax Lawyer Acquitted of Charges

Former Bechtel tax manager Mark Muntean, who is also an attorney, was acquitted by a jury in the Northern District of California of criminal tax charges alleging that he caused Bechtel to claim an improper research and development tax credit. The five-day trial focused on a $3.3 million R&D tax credit claimed by Bechtel for a project in Idaho. The project was financed by the government, so the credit was improper, and Bechtel subsequently amended its return. Federal prosecutors claimed that Muntean knew that the tax credit was improper but pushed for it nonetheless. Muntean's defense at trial was that he trusted subordinates to give him all the information he needed to make a decision on the tax credit but they failed to do so.

CONNECTICUT

Former Gen Re CEO Gets Two-Year Sentence

Former Gen Re Corporation (“Gen Re”) CEO Ronald E. Ferguson was sentenced to two years' imprisonment for his role in a fraud that cost shareholders more than $500 million. The sentence is a substantial downward variance from the life sentence suggested by the U.S. Sentencing Guidelines. According to Bloomberg News, Nora Dannehy, the acting U.S. Attorney for Connecticut, said in an interview after the hearing that she would have been “comfortable” with a term of six to nine years.

Ferguson was Gen Re's CEO from 1987 to September 2001 and was convicted by a federal jury in February 2008 on charges of conspiracy, securities fraud, making false statements to the SEC, and mail fraud. Ferguson and his co-defendants were convicted of participating in a fraudulent scheme to inflate AIG's reported loss reserves through the use of two sham reinsurance transactions between subsidiaries of Gen Re and AIG. In a hearing last year, the presiding judge found that the fraud cost AIG's shareholders somewhere between $544 million and $597 million. In addition to his prison sentence, Ferguson will serve two years' supervised release and pay a fine of $200,000.

NEW YORK

Prosecutors Drop Charges Against Former Collins & Aikman CEO

Federal prosecutors dropped fraud charges against David Stockman, the former CEO of now-bankrupt auto parts supplier Collins & Aikman. Stockman, the former budget director from the Reagan Administration, was charged in March 2007 with bank fraud, conspiracy, and obstruction of justice until prosecutors filed a nolle prosequi, which amounts to a dismissal of the indictment. See United States v. Stockman, 07-CR-220 (S.D.N.Y. Jan. 9, 2009).

Charges were also dismissed against three other former Collins & Aikman executives: J. Michael Stepp, the former chief financial officer; David Cosgrove, a former controller; and Paul Barnaba, ex-director of financial analysis. Prosecutors initially claimed that Stockman and others hid the company's failing financial health from investors, issued false financial reports, and engaged in a phony rebate scheme to raise capital and avoid defaulting on credit agreements. Federal prosecutors indicted Stockman after reviewing the results of an internal investigation conducted by lawyers retained by the company's board of directors but later dismissed the charges after Stockman's counsel presented prosecutors with additional evidence.

TEXAS

Former Willbros Executive and Consultant Charged with Foreign Bribery

The Department of Justice (DOJ) recently unsealed an indictment against a former executive and a consultant of Willbros International Inc., a subsidiary of Houston-based Willbros Group Inc., alleging that the pair paid more than $6 million in bribes to foreign officials in Nigeria and Ecuador. See United States v. Tillery, H-08-CR-022 (S.D. Tex. Jan. 17, 2008) (Indictment).

Willbros Group Inc. is a publicly traded company that provides construction, engineering, and other services in the oil and gas industry. The bribes were allegedly paid to obtain and retain gas pipeline construction and rehabilitation business from state-owned oil companies in Nigeria and Ecuador in violation of the Foreign Corrupt Practices Act (FCPA). James K. Tillery, a former executive of Willbros International Inc., and Paul G. Novak, a former consultant to the company, were charged with one count of conspiracy to violate the FCPA, two counts of violating the FCPA, and one count of conspiring to launder the bribe payments through purported consulting companies controlled by Novak. The Indictment alleges that Tillery, Novak, and other unindicted persons conspired to make millions of dollars in payments to various Nigerian foreign officials so Willbros International Inc. could obtain and retain a major gas pipeline engineering, procurement, and construction project worth approximately $387 million. The DOJ alleges that the Nigerian bribe payments were also laundered through Novak and a Nigerian consulting company partner and that the pair and others agreed to make $300,000 in corrupt payments to officials of state-owned PetroEcuador and a subsidiary to assist in winning a $3 million gas pipeline project in Ecuador.

Last year, Willbros Group Inc. and Willbros International Inc. entered into a deferred prosecution agreement with DOJ for the same course of conduct. The companies agreed to pay a $22-million criminal penalty and to cooperate in the DOJ's investigation.