Farmer vs. Harmon - Witness Houghton "Buck" Freeman

David C. Farmer, Successor-Trustee vs. Harmon

(Formerly Woo vs. Harmon & Nicholson vs. Harmon)

CV05-00030 DAE KSC

U.S. District Court For the District of Hawaii

Judges: David A. Ezra; Kevin S. Chang

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DEFENDANT’S WITNESS

HOUGHTON “BUCK” FREEMAN

4133 Blackpoint Rd.
Honolulu, HI

A Legacy of Friendship: The Freeman Foundation

For generations the Freeman family has worked to find answers to some of the world's most pressing issues, both global and local. Guided by wisdom, humility, and faith in people, the Freeman family has created a legacy of friendship. Though their philanthropy has taken many forms, as is evident in the following pages, each story shares common objectives. Mansfield Freeman stated the Foundation's goal this way: "to strengthen the bonds of friendship . . . to develop a greater appreciation . . . and to stimulate an exchange of ideas . . . ." The Freeman Foundation has both fulfilled and expanded upon this purpose.

Houghton Freeman, chair of the Foundation, and his son, Graeme, the executive director, trace their Vermont heritage back to the late 1700s, when the first Freemans moved north from Massachusetts and settled in Essex to farm the land now known as the Lang Farm Nursery. Unlike the three generations before him, Mansfield Freeman was not raised on this farm; his father's work as a minister moved the family throughout the United States. However, the Freemans' Vermont roots would draw Mansfield back to Essex periodically. The farm in Greensboro that Houghton bought in the 1940s, and where Mansfield would later retire, still sustains one of the family's land-based connections to Vermont.

As a young man in 1919, Mansfield accepted a teaching position at Tsinghua University in Beijing. Deeply impacted by Far East cultures, he and his wife, Mary, remained in China for the next 22 years, raising a family and pursuing their interests in Asian languages and philosophies. In 1923, two years after the birth of their son, Houghton, Mansfield partnered with C. V. Starr to manage a successful international insurance company, eventually called the American International Group (AIG). He remained with AIG for 37 years, not to retire until 1960, nearly 20 years after his return to the United States.

In 1978, Mansfield created a trust that upon his death would fund one of the most influential philanthropic organizations in the country. Its mission is to bridge the gap between western and eastern worlds; more specifically, to promote positive intercultural relationships, educational opportunities and economic exchanges aimed to "lessen the danger of such frictions and disagreements as lead to war." Thanks to his years in Greensboro, Mansfield also provided a stipulation for "the preservation and protection of Vermont's forests, farmlands, waterways, and natural resources." Shortly after Mansfield's death in 1993, the Freeman Foundation was fully funded to fulfill his vision.

After 11 years, the Foundation has contributed nearly $500 million in grants to dozens of educational, cultural, and conservation projects. Included on this list are numerous undergraduate Asian studies programs, humanitarian efforts in Asia, programs introducing Asian culture through children's museums and Asian art museums, as well as Asian immigrant and refugee assistance in the United States. The Freeman Foundation's 2003 annual report states, "Perhaps nowhere has the Foundation's mission been more fully realized than in its support of the National Consortium For Teaching About Asia. . .a collaboration of the East Asian Studies programs of five major academic institutions." From in-school seminars to study tours in Asia, thousands of K-12 teachers have broadened their perspectives and are integrating globally inspired lessons into their own classes.

In Vermont, the Freeman Foundation has partnered with the Vermont Land Trust to aid in the conservation of more than 300,000 acres of public and private land across the state. The Foundation has also worked with the Preservation Trust of Vermont to restore historic structures--the cultural monuments of our changing rural and social landscape. Statewide public library improvements, for example, have enhanced community centers from Brattleboro to St. Johnsbury. Additionally, scholarships have supported Vermont students pursuing careers in nursing and medicine. The Freemans' interest in education has also led to the Foundation's funding of state literacy programs.

In a single year the Freeman Foundation facilitates approximately 125 land and historic preservation projects. Multiply this by 11 years and you begin to grasp the significance of this family's commitment to the health and welfare of so many diverse people and places. In Houghton Freeman's words, "It always has been our conviction that a focused approach can mean greater effectiveness--and that a foundation with a carefully articulated purpose and a willingness to stay the course has the best chance of success."

Though the Freemans have maintained this conviction, they have managed to spread their stewardship across oceans, civilizations and deep political divides.

Much of this success is due to Mansfield Freeman's original vision. Characterized by his grandson, Graeme, as a "warm and generous human being. . .an intellectual who always challenged us," Mansfield was dedicated to the idea that the elimination of misunderstanding promotes the truest understanding. He had faith in friendship between nations and earnest hopes for a less violent world. Most important, Mansfield practiced what he preached, and he did so intelligently, with an eye for the bigger picture of life.

Today, the Freemans maintain the family legacy. Houghton, also known as Buck, and his wife, Doreen, take a personal interest in Foundation projects. As chair of the board and board member, respectively, Buck and Doreen play an integral part of maintaining the vision of the Foundation. In addition to reviewing proposals and grant reports, the Freemans are very proactive with the day-to-day function of the Foundation and visit many grant recipients through the course of the year. Buck, Doreen, and Graeme have visited all conserved and preserved properties and have familiarized themselves with the places and people.

The influence of the Freemans' work is evident in a collection of stories about dairy farms, community spaces and recreation sites, wildlife habitat and managed forestland, old mills and new cultural treasures, and housing for the elderly. "Our greatest hope," says Graeme, " is that the work we've done will be sustained."

http://www.vlt.org/freeman-support.html

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January 7, 2008

Trial Opens for 5 Former
Insurance Execs

By JOHN CHRISTOFFERSEN, Forbes, AP

HARTFORD, Conn. - The former chairman and CEO of the world's largest insurer initiated a deal that led to five ex-executives being charged with participating in a scheme to manipulate the company's financial statements, a federal prosecutor said Monday during opening arguments at their trial.

Four former executives of Berkshire Hathaway (nyse: BRKA - news - people )'s General Re Corp. and a former executive of American International Group Inc. (nyse: AIG - news - people ) are charged in the scheme involving AIG's financial statements.

Prosecutor Raymond Patricco said former AIG CEO Maurice "Hank" Greenberg, who has not been charged in the case, started the scheme in 2000, after AIG's stock price dropped 6 percent, representing a loss of $12 billion to shareholders. The price dropped because loss reserves had declined.

"Greenberg and AIG came to Gen Re for this deal," Patricco said.

Attorneys for the defendants denied their clients did anything wrong Monday and said the case involved complex, subjective accounting. They attacked government witnesses - two senior Gen Re executives who pleaded guilty to conspiracy to falsify SEC filings - as out to save themselves.

They also said their clients did not benefit financially from the scheme.

"This is not Enron or WorldCom," said Anthony Pacheco, attorney for former General Re Senior Vice President Christopher P. Garand, referring to two of the biggest recent business scandals.

Greenberg, who headed New York-based AIG for nearly 40 years, has denied any wrongdoing. He was referred to as an unindicted coconspirator in an indictment.

Allegations of accounting irregularities, including the Gen Re transactions, led to his resignation in 2005.

At issue in the trial of the former executives are two reinsurance transactions between AIG and Stamford-based General Re. Reinsurance policies are backups purchased by insurance companies to completely or partly insure the risk they have assumed for their customers.

Prosecutors said the transactions were initiated by an AIG senior executive to quell criticism by analysts of a reduction in AIG's loss reserves in the third quarter of 2000. The indictment alleges that the aim was to make it appear that AIG increased its loss reserves by about $500 million in 2000 and 2001, pacifying the analysts and investors and artificially boosting the company's stock price.

"But the evidence in this case will show that deal was nothing more than a sham transaction," Patricco said. "The defendants in this case knew what appeared in the contracts was a lie."

Prosecutors said Greenberg called his friend, former General Re CEO Ronald Ferguson, who is one of the defendants, and told him that AIG wanted to increase its loss reserves by $500 million, but did not want to bear the risk.

Ferguson agreed to the deal Greenberg proposed, Patricco said.

For a reinsurance transaction to be legitimate, there must be a transfer of risk, which was lacking in the deal in question, prosecutors said.

"The evidence in this case will show the defendants knew this would be a no-risk deal for AIG," Patricco said.

Greenberg and the company later reported that the loss reserves had gone up.

"Plain and simple, ladies and gentlemen, the statements about AIG's loss reserves were lies," Patricco said.

In opening arguments, Patricco never mentioned billionaire investor Warren Buffett, who could play a role in the trial. Some of the executives say they believed Buffett was involved and supported the deal that led to the charges. Buffett leads Berkshire Hathaway.

But prosecutors say they only named Buffett, who has not been charged with any wrongdoing, as a potential witness to rebut any suggestion by the defense that he was involved in or approved the deal.

Michael Horowitz, Ferguson's attorney, said Monday that his client told Buffett and others about the requested transaction.

"Not a single red cent went into his pocket," Horowitz said.

The former General Re executives charged were Ferguson, chief executive officer from about 1987 through September 2001; Elizabeth Monrad, chief financial officer from June 2000 through July 2003; Robert Graham, a senior vice president and assistant general counsel from about 1986 through October 2005; and Garand, a senior vice president from 1994 until 2005.

Also charged was Christian Milton, AIG's vice president of reinsurance from about April 1982 until March 2005. Patricco said Monday that he lost $360,000 when the stock price dropped.

The defendants have pleaded not guilty to the charges.

AIG filed a restatement in 2005 related to the transactions and agreed to pay a record $1.64 billion in a settlement with federal and New York authorities.

In 2005, two senior Gen Re executives, John Houldsworth and Richard Napier, pleaded guilty to conspiracy to falsify SEC filings in connection with the investigation and are awaiting sentencing.

If convicted of all the charges, Ferguson, Monrad, Milton and Graham each face up to 230 years in prison and a fine of up to $46 million. Garand faces up to 160 years in prison and a fine of up to $29.5 million.

The trial is expected to last about two months.

The indictment:

www.usdoj.gov/usao/ct/Documents/FERGUSON_SS_Indictment.pdf

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October 22, 2007

For the birds

By Diana Leone, Star-Bulletin

To know the wedge-tailed shearwater is to love it, says Holly Freifeld, a U.S. Fish and Wildlife Service biologist.

That's what apparently happened to Houghton Freeman, who has a home on Oahu's Blank Point peninsula, an upscale residential area that also is one of the few urban nesting areas for the seabird known in Hawaiian as 'ua'u kani.

Freeman, a philanthropist and retired insurance industry executive, and his wife recently donated a 1-acre vacant lot in Black Point to the birds, with the Hawaii Audubon Society as designated caretakers.

The bird-loving community is aflutter with the prospect of a donation worth $7 million. The land marks the first time since its founding in 1939 that the Hawaii Audubon Society has had its own property to help birds, said Wendy Johnson, a society vice president.

"Residents of Hawaii rarely have opportunities for close encounters with the native animals and plants we share these islands with," Freifeld said. "This spot represents a remarkable opportunity for the residents of Black Point to have a neighborhood seabird colony in a setting where they, their kids and their friends can watch and listen to the birds as well as enjoy the spectacular view."...

The 1-acre parcel that will now be the Freeman Seabird Preserve had a house on it until it was torn down several years ago, said Johnson. The shearwaters, which had been gradually increasing in numbers at Black Point in the last decades, moved into the large lot with enthusiasm.

Though it is in the middle of houses, "the area is completely wild. It's quite amazing," Johnson said.

Freeman is a former vice chairman of American International Group (AIG), an international insurance giant that his father helped start. He is also the founder of the Freeman Foundation, a national group fostering the study and understanding of Asia.

The Freemans were not reachable for comment for this article.

Audubon treasurer John Harrison called their donation "an extraordinary gift. We're very grateful to them for this unique piece of property, which we envision remaining more or less as it was hundreds of years ago into the future -- so our children and grandchildren can have a point of reference."

http://starbulletin.com/2007/10/22/news/story03.html

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December 15, 2005

US: Report Says Ex-A.I.G. Chief
Defrauded Foundation 35 Years Ago

by Gretchen Morgenson, The New York Times

Eliot Spitzer, the New York attorney general, submitted a report yesterday as part of his lawsuit against Maurice R. Greenberg, the former chief executive of American International Group, contending that Mr. Greenberg unfairly enriched himself and other A.I.G. executives in a series of transactions that violated the will of Cornelius Vander Starr, the company's founder, and defrauded a foundation he created.

The questionable transactions took place more than 35 years ago as the far-flung insurance operations built by Mr. Starr starting in 1919 were being melded into A.I.G., the report said. After Mr. Starr died in 1968, Mr. Greenberg and his colleagues, as executors of his estate, benefited by selling assets at fire-sale prices to companies they controlled, it stated.

Almost immediately, the report said, these executives turned around and sold the assets at far higher prices to A.I.G., which then set some of them aside for use as a compensation pool for the company's executives. Because those shares ultimately amounted to 12 percent of A.I.G.'s outstanding stock, Mr. Greenberg was able to cement his control of the company.

According to the report, Mr. Greenberg and his associates cheated the Starr Foundation, set up by Mr. Starr to benefit educational and cultural institutions, by selling assets that were worth more than $30 million for just $2 million. The Starr Foundation is one of the largest charitable organizations in the nation, with $3.5 billion in assets.

"Mr. Greenberg and the other executors directed a series of transactions that advanced their own interests in controlling A.I.G. at the expense of the foundation," said Michele Hirshman, first deputy attorney general. The attorney general's office represents the beneficiaries of all foundations operating in the state.

Yesterday's report turns up the volume in an already vehement battle between Mr. Spitzer and Mr. Greenberg, who was ousted by the A.I.G. board in March, when he refused to testify to regulators about a questionable insurance transaction.

Mr. Spitzer has decided not to pursue possible criminal charges against Mr. Greenberg. But he still has a civil case against him, as well as against Howard I. Smith, the former chief financial officer of A.I.G., and A.I.G. itself, contending that they manipulated financial statements and misled regulators and investors. The company, which is in settlement talks with Mr. Spitzer's office, has restated its financial results for the last five years to reflect accounting practices it now says were improper.

Mr. Greenberg, however, maintains that he has done nothing wrong. And yesterday, he and the three former Starr executors who are still alive called Mr. Spitzer's report shameful, outrageous and insulting. (The other Starr executors are Houghton Freeman, John J. Roberts and Ernest S. Stempel.)

"The people of New York deserve an attorney general who is intent on fighting crime and solving the state's problems, not harassing its citizens and philanthropic organizations," the four men said in a statement. "Each of us fulfilled our duty to Mr. Starr and the foundation without compensation and in accordance with his wishes and the law. Our decisions were reviewed and approved nearly 30 years ago by Mr. Spitzer's own office, the Internal Revenue Service and the New York State Surrogate's Court."

Even though the transactions occurred more than three decades ago, Ms. Hirschman of the attorney general's office said that the six-year statute of limitations relating to actions taken by a fiduciary starts running only when the fiduciary resigns from a position of trust. Mr. Greenberg remains chairman of the Starr Foundation, a title he has had since 1981.

Many of the facts cited in the attorney general's report emerged in documents that Mr. Spitzer's office seized in March from A.I.G.'s offices in Bermuda. Mr. Spitzer secured the documents after receiving a tip that lawyers for Mr. Greenberg were removing boxes from A.I.G.'s offices.

The documents, in some 80 boxes, included meeting minutes and correspondence that "raised questions about whether the estate had been appropriately compensated for certain assets," the report said.

Among those documents was a memo written by a trustee of the Starr Foundation stating that just before his death in December 1968, Mr. Starr "was planning to change drastically the nature of the foundation, including its personnel, and to divorce it entirely" from C. V. Starr & Company affairs. To achieve this end, certain unidentified board members tendered their resignations in September 1968, the report said, but in February 1969, two months after Mr. Starr died, they returned to the foundation's board.

Mr. Starr left almost his entire holdings to his foundation. The executors of his estate were Mr. Greenberg and the other directors of C. V. Starr, who controlled a majority of the shares of all three Starr entities. As president of C. V. Starr, Mr. Greenberg oversaw the disposition of Mr. Starr's assets under the gaze of the Surrogate's Court. Mr. Starr had been Mr. Greenberg's mentor, giving him his first job in the insurance industry.

Most of the other Starr executors were also directors of the Starr Foundation, which by law could not own stakes in private companies. This put the executors in a position of conflict - they had a duty to sell the Starr assets for the highest price to benefit the foundation but they also had an interest in keeping the price low because they owned the entities buying the shares.

Mr. Spitzer's report contends that three asset sales victimized the Starr Foundation. In one deal, Mr. Starr's executors sold shares in a company known as Far East for $1 million in cash to the company they controlled, even though the holding was worth $7.2 million.

The second transaction involved Mr. Starr's 24 percent stake in C. V. Starr, a domestic insurer. According to the report, Mr. Greenberg said the foundation should buy the shares using a formula that the directors of C. V. Starr had decided upon without independent advice. The cash proceeds were $1.08 million, even though Morgan Stanley at the time had estimated the value of the stake at $25 million to $30 million.

Finally, the sale of shares in Starr International, a unit that owned foreign insurers, appears to have defrauded the foundation, Mr. Spitzer's report said. Those shares, which constituted a 20 percent stake in a company that in September 1970 was worth $100 million, were sold back to Starr International, controlled by Mr. Greenberg and other executors, for $3,000.

Mr. Greenberg also misled the Surrogate's Court overseeing Mr. Starr's estate, the report said. His sworn statement, filed in 1978, failed to disclose critical facts on all three transactions; there was no mention of Morgan Stanley's estimated value of the C. V. Starr stake, for example.

The former executors said the Morgan Stanley estimate was irrelevant. It showed a higher value, they said, because it reflected synergies that would result if C. V. Starr combined with A.I.G.

In addition to the report, Mr. Spitzer sent a letter yesterday to Florence A. Davis, president of the Starr Foundation. In the letter, he asked Ms. Davis to create a committee to evaluate possible remedies that the foundation could pursue to recover some of the money that he contends it should have received under Mr. Starr's will. Mr. Spitzer also asked that the foundation change its structure "to guarantee it the independence needed to advance its charitable mission into the future."

In a statement, Ms. Davis said, "While the Starr Foundation respects the authority of the attorney general to supervise charitable foundations, and to investigate alleged improprieties, the foundation is concerned that allegations concerning a judicial proceeding closed more than 25 years ago and the negative publicity attendant thereto may adversely affect the value of the assets of the foundation, without discernable purpose."

http://www.corpwatch.org/article.php?id=12895

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The following is a listing of named witnesses in this case who have factual connections with the subject entity. Each underlined name has been linked to a detailed description of that witness to enable the reader to more easily CONNECT THE DOTS TO...

The American International Group (AIG)

Investors Equity Insurance Company

Reliance Insurance Group