Five former insurance executives whose conduct led to the resignation of Hank Greenberg, the head of American International Group (AIG), were convicted of fraud and conspiracy to defraud by a court in Connecticut yesterday.

The executives were found guilty of misleading investors by creating a phoney loss portfolio in order to inflate reserves. Four of the directors had worked for General Re, part of Warren Buffett’s Berkshire Hathaway empire. The other director involved in the affair had been an executive in AIG, the insurance giant built up by Mr Greenberg over the past 30 years.

All five could serve custodial sentences. They were accused of conspiring to create a reinsurance deal between the two companies that allowed AIG to artificially boost the group’s reserves by $500 million in 2000 and 2001.

The court was told that the deal had been designed to address concerns from analysts about AIG’s reserve levels. It transferred no risk of loss to AIG and involved an unwritten agreement that AIG would refund General Re’s $10 million premium and pay it a fee of $5 million.

Defence lawyers had argued that no such unwritten agreement existed and that the defendants had believed the transaction to be a legitimate, finite deal and should not be held responsible for AIG’s accounting decisions.

AIG has already acknowledged accounting improprieties and restated $3.9 billion in earnings from 2000 to 2004. It agreed to a $1.64 billion regulatory settlement in 2006.

Mr Greenberg has denied any wrongdoing. He was ousted in February 2005 after running the group for three decades and still faces civil fraud charges brought by Eliot Spitzer, the former New York attorney-general, over allegations that he sought to manipulate the insurer’s earnings.

Convicted in the case were Ronald Ferguson, General Re’s chief executive from 1987 to September 2001, Elizabeth Monrad, General Re’s former chief financial officer, Robert Graham, a former Gen Re senior vice-president and assistant general counsel, and Christopher Garand, a former General Re senior vice-president and head of General Re’s reinsurance operations in America. Christian Milton, AIG’s former vice-president of reinsurance, was also found guilty. All five had previously pleaded not guilty to the charges. Lawyers for Mr Garand and Mr Milton yesterday said that they would appeal against the verdict.

AIG’s shares closed up 3 per cent at $50.38 after the verdicts. Berkshire Hathaway shares were little changed.

Mr Greenberg, the biggest single shareholder in AIG, with a 13 per cent stake, had planned to use his holding to force a change of management and a buyout. AIG had challenged that right. Mr Greenberg had sought to rally other shareholders to his cause.

AIG’s shares have fallen from $72 at the start of 2007, dragged down by the credit crisis during the summer that hit all financial stocks on Wall Street. In 2001, the shares hit $100 each.

Explore Law

• Corporate Law

• Public Law

• Columnists

• Law Panel

• Student Law

• Law Reports

Times Recommends

• Are top lawyers worth their huge fees?
• Solicitor forced to retire claims 'ageism'
• Drug case failure may be last straw for SFO