American International Group Inc. shareholders lost as much as $1.4 billion because of a fraud that led to the convictions of five insurance executive

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.