General Re, AIG Fraud Cost $1.4 Billion, U.S. Says

From John Curry, September 26, 2008

Subject: AIG fraud cost 1.4 billion to shareholders (that's also pension investments!)...wonder how much Ohio pension systems lost?

....wonder how much STRS lost? Will STRS tell us OR will we see another "spin?" For those fans of governmental "deregulation"...here's your cake. It doesn't taste so good, does it? John

(Update2)
Bloomberg.com, September 25, 2008
By David Voreacos and Jane Mills

Sept. 25 (Bloomberg) -- American International Group Inc. shareholders lost as much as $1.4 billion because of a fraud that led to the convictions of five insurance executives, U.S. prosecutors told a judge.

U.S. District Judge Christopher Droney may sentence four former General Reinsurance Corp. executives, including ex-Chief Executive Officer Ronald Ferguson, and a former AIG manager to life in prison if he agrees with the estimate. Droney began a sentencing hearing today for the ex-executives, who were convicted in February of fraud and conspiracy charges. Defense attorneys say AIG investors lost no money in the fraud.

A federal jury in Hartford, Connecticut, found in February that the former executives used a sham transaction in 2000 to help AIG add $500 million in loss reserves, a key indicator of an insurer's health. AIG shares fell between 6 and 15 percent in early 2005 when media and company disclosures began revealing the inflated loss reserves, prosecutors said today.

``This 6 to 15 percent stock drop represented the deflation of the stock that was previously inflated by the lies'' about the loss reserves, Assistant U.S. Attorney Raymond Patricco argued. ``The defendants have not offered any plausible alternative explanation for why AIG's stock price dropped.''

The loss amount will help determine the sentences. Any loss larger than $400 million exposes the defendants to a possible life term under advisory sentencing guidelines. Prosecutors say the fraud led to investor losses of between $543 million and $1.4 billion. Droney didn't rule today on the size of the loss, or set specific sentencing dates for the five defendants.

Berkshire Hathaway

AIG, based in New York, is the largest U.S. insurer by assets. The company agreed last week to hand over a 79.9 percent stake to the U.S. government in exchange for an $85 billion loan to avoid collapse. General Re is owned by billionaire Warren Buffett's Berkshire Hathaway Inc.

Jurors convicted Ferguson, 66; ex-Chief Financial Officer Elizabeth Monrad, 53; Christopher Garand, 61, a former senior vice president; Robert Graham, 60, a former General Re assistant general counsel; and Christian Milton, 60, AIG's former head of reinsurance. Each defendant is free on $1 million bond.

The defendants dispute calculations by the government's expert, Jeffry Davis, who used two methods to determine loss. Graham attorney Alan Vinegrad said other ``confounding' factors contributed to the decline in AIG shares, including the March 14, 2005, announcement of the resignation of former CEO Maurice ``Hank'' Greenberg.

``People weren't happy that Hank Greenberg wouldn't be running the company anymore,'' Vinegrad said. ``He was a giant in the industry and now he's gone. It was a powerful, confounding factor.''

`Cared So Much'

Vinegrad said prosecutors must prove that ``investors cared so much that they actually sold their shares of stock'' because of the disclosures about the loss reserves.

``That's where the government's analysis falls apart,'' said Vinegrad, who spoke on behalf of all five defendants. ``The market did not care enough about this particular transaction standing in isolation to sell stock.''

Investors drove down AIG's shares for a variety of reasons, including disclosures about investigations by former New York Attorney General Eliot Spitzer and federal regulators, Vinegrad said. In a Sept. 5 court filing, prosecutors disputed the analysis of defense expert Rene Stulz, who said Greenberg's resignation helped cause the stock decline.

``Rather than responding to the Greenberg void, it is far more likely that the market reacted because it lost faith in the integrity of the company's management and the accuracy of its past financial statements as a result of the reports that its CEO personally participated'' in the fraud, prosecutors wrote.

Unindicted Coconspirator

Prosecutors, who didn't charge Greenberg with a crime, said he was an unindicted coconspirator. Greenberg has denied wrongdoing. Greenberg spokeswoman Amy Foote declined to comment on the government's arguments.

At the hearing, prosecutors also argued that Droney should order the defendants to pay restitution to 154 institutional investors. Monrad attorney Bruce Bishop countered that it was too unwieldy for Droney to determine the victims. He said any victims could be repaid through ``ample civil litigation.''

The case is U.S. v. Ferguson, 06-cr-137, U.S. District Court, District of Connecticut (Hartford).

To contact the reporters on this story: Jane Mills in Hartford, Connecticutt ; David Voreacos in Hartford, Connecticut, at dvoreacos@bloomberg.net.

Minutes of CORE Meeting on Sept. 18, 2008

The monthly meeting of the Concerned Ohio Retired Educators (CORE) was held Thursday, Sept. 18, 2008 at the STRS Building in Columbus.

President Dave Parshall opened the meeting at 11:45 a.m. The first order of business was the approval of minutes from the August meeting. Treasurer C.J. Myers gave the treasurer's report and thanked all members for our improved financial status, since the campaign for last spring's STRS Board election had greatly depleted our funds.

Dave read a letter of appreciation from John Lazares, thanking CORE members for their support, help and friendship.

A motion to amend a constitutional bylaw, assessing a $10.00 membership fee and waiving dues for people who donate more than $10.00 to CORE, was made by Kathie Bracy, seconded by Ruby Fisher. The motion passed.

The group was given an update on the status of HB 315. The bill more than likely will not survive this session and will resurface (under a new number) when the new legislature is in place.

The slate of new officers and trustees was presented to the membership; President: Dave Parshall; Vice-President: Kathie Bracy; Treasurer: Herman Fisher; Secretary: Marie M. Fetters; Trustees: Jim N. Reed, Mary Thomas, George Justice and Donna Seaman; Co-trustees: Nancy Boomhower and Chuck Chapman. Betty Bell moved to approve the entire slate; Mary Ellen Angeletti seconded it. It was unanimously passed.

The officers and trustees who were present (Dave, Kathie, Herman, Marie, Nancy, and Chuck) then were sworn in by Mary Ellen.

New CORE brochures were handed out for proofreading by the group. A few errors and/or concerns were noted, so the next set of brochures will include the group-recommended changes.

Dave mentioned our need for new members and more support. The membership brainstormed possible ways to increase our numbers.

Other items discussed: updating our website; possible bi-monthly meetings with the executive director; Steve Mitchell's willingness to talk to CORE members; inviting the new STRS Executive Director, Mike Nehf, to join us for lunch; problems getting highly qualified active teachers elected to the STRS Board; and working with ORTA.

The meeting was adjourned at 1:00 p.m. so that interested members could attend the afternoon session of the STRS Board Meeting.

The next CORE meeting will be on Thursday, October 16, 2008 at 11:45 a.m.

Respectfully submitted,
Marie M. Fetters
Secretary

Hope she never gets picked up for speeding!

Kathie Bracy to Laura Ecklar, September 23, 2008
Subject: Re: [News] September Board News Details Retirement Board Actions and Discussions

Thanks, Laura, for your response. Many STRS readers are aware of the volatile financial markets, as they read about it every day in the newspapers. However, STRS members who read STRS communications are unaware of the $13 billion loss in the time period since last November.

Suppose you're driving your car out on the freeway and you're picked up for speeding. How understanding is that officer going to be when you tell him your average speed is 55 miles per hour, after he clocked you at 80 mph? Your 55 mph average doesn't tell him the whole story. In this case, "smoothing" just doesn't seem to tell the whole story, nor does it with STRS investments. We need to see a little more "bottom line" information. $13 billion is a HUGE amount, and I don't see that mentioned anywhere.

Kathie Bracy

From Laura Ecklar, September 23, 2008
Subject: Re: [News] September Board News Details Retirement Board Actions and Discussions

Dear Ms. Bracy:

If I may respectfully disagree with you, I do not believe that STRS Ohio members who read our communications are unaware that the volatile financial markets have negatively impacted the return on STRS Ohio investments during the past several months. We provided an update on investment returns in our member newsletters in both the March and July 2008 issues, as well as several times throughout the year in Board News, including the January, March, August and September 2008 editions. Investment performance is a topic that is also always addressed in meetings with active and retiree groups throughout the year.

At the end of each fiscal year, STRS Ohio posts the market value of its total investment assets, as well as the return on those assets, for the one-year period. At this time, the preliminary figures for the fiscal year that just ended on June 30, 2008, show total investment assets of approximately $70.3 billion. The fiscal year-end asset figure is used throughout the year in communicating with all STRS Ohio stakeholders, including members, legislators and the media, for consistency due to the day-to-day volatility in the markets. Market gains or losses that occur during the fiscal year are reflected as percentage gains or losses against the asset base that STRS Ohio began the year with. By using the same period of time (July 1-June 30) in assessing and reporting investment returns and the market value of investments each year and over the long term, we ensure we are always comparing "apples to apples." The latest issue of Board News reiterated last year's return of -5.44% that had already been communicated to members, as well as this year's return-to-date (through Aug. 31, 2008) of -1.2%.

From fiscal year 2007 to fiscal year 2008, preliminary results show total investment assets declining by $6.5 billion, mirroring primarily the decline in the markets. Also, the fact that we pay more in benefits than we collect in member and employer contributions on an annual basis also reduces pension assets. As you know, negative return years such as this are offset by positive return years, such as the +20.7% return experienced in fiscal year 2007. The fact that STRS Ohio is a long-term investor with a diversified portfolio helps us to ride out market downturns. I hope that I have adequately answered your question. Thanks so much.

Laura Ecklar
Director, Communication Services

And another prescription issue faces the American Public

From John Bos, September 23, 2008

Joann had her yearly review by The Cleveland Clinic. As usual, they did a review of her medications, etc. Surprise, Surprise, Surprise. One of her Generic medications was made in CHINA!!!!!

Cleveland Clinic now uses the WATER TEST! I AM SERIOUS! If the medication is made in a country where there are warnings regarding the public drinking water, Cleveland Clinic says that the drug is not appropriate for human consumpution.

Apparently the U.S. Government does NOT INSPECT the sanitary conditions or the water supply where drugs are manufactured and shipped to the United States. This was a drug company that contracts with others to manufacture their generic products.

After our appointment we have decided to not consume ANY food that comes from China.

Many of our prescriptions come from Puerto Rico. These are in facilities that are approved and are manufactured in a clean environment. Brazil, Canada, and most European countries would also be acceptable.

Do you know where your generic drug is manufactured? We did not!!!!

John & Joann Bos

Seniors Hit Hard by Financial Crisis Collapsing home prices, tight credit, dwindling investment income a lethal brew

By James R. Hood
ConsumerAffairs.com
September 21, 2008

Collapsing real estate values and an imploding Wall Street are making life uncertain for everyone, but seniors are being hit especially hard.

The economic upheaval has shattered many seniors' retirement plans and, even worse, has cut into the income of many of those who have already retired and has sharply reduced the value of most seniors' primary asset -- their home. Lenders are cutting seniors no slack, as a growing list of complaints to ConsumerAffairs.com illustrates.

"Lost everything when my business failed and now, at 63, working two parttime jobs and getting $563 a month in early retirement pay," said Elwood of Sinking Spring, Pa., who also supports two family members.

Elwood's situation became desperate when he was unable to complete a "short sale" of his home. In a short sale, the buyer pays less than the remaining amount on the seller's mortgage. In some cases, lenders will forgive some or all of the difference but lately, banks have been squeezing consumers for every last cent.

Elwood said he found a buyer for his home but Chase Mortgage rejected the deal and began foreclosure proceedings.

"I am now on anxiety medication, been in the emergency room at the Veterans Administration hospital with panic disorder. I am working for minimum wages just to live," he told ConsumerAffairs.com.

Lethal mixture The combination of tight credit and falling property values has foiled the plans of seniors who want to stay in their homes but are being forced out by rising interest payments as well as for those who had planned to sell their homes and retired to a warmer or less expensive locale.

It is also forcing many, like Elwood, to stay in the workforce or go back to work. A government study last month found 16.4% of Americans aged 65 or over were still working -- the highest percentage in 38 years.

And, like Elwood, many seniors are having trouble keeping up with their mortgage payments. A study by AARP finds that seniors account for an estimated 28% of all delinquencies and foreclosures. Many more may be on the brink of falling behind on their payments.

In Encino, Calif., a couple in their late 60s put their home on the market after they lost their furniture store business because of the credit crunch. Their realtor, Karin, told ConsumerAffairs.com she presented Chevy Chase Bank with 15 offers, six of them for more than the home's appraised value.

The couple owed $640,000 on their mortgage and the highest offer was $575,000. Karin said that when Chevy Chase rejected the deal, she offered to reduce her commission and the buyer offered to increase the price but "no one at Chevy Chase took notice or cared."

"When I first called to announce a short sale, the person in loss and mitigation told me outright, 'Why don't they just foreclose?'"

In St. Petersburg, Fla., Nancy found a cash buyer willing to pay the full amount of the outstanding loan on her home but she said Chase Mortgage insisted on a $6,800 prepayment penalty.

"Their greediness is taking years off my life," Nancy said. "The company is getting their full amount of the mortgage but are so greedy that they want their extra prepayment penalty. They don't give any alternatives or consideration to their customers."

Consumers 55 and over accounted for nearly a quarter of all bankruptcies last year, another AARP study found, further evidence that for all too many seniors, the golden years are turning to dust.

From John Curry, 9/21/08