UPDATE 3-Former General Re exec gets probation in AIG fraud

* Sentenced to two years probation, fined $10,000

* Judge commends cooperation with prosecutors (Adds comment from law professor in paragraphs 8-9)

HARTFORD, Conn., Sept 15 (Reuters) - A former executive of reinsurer General Re Corp was sentenced to two years probation and fined $10,000 after pleading guilty to helping American International Group Inc AIG.N cook its books.

U.S. District Judge Christopher Droney, imposing the relatively mild sentence on Richard Napier, said he was taking into account the defendant’s extensive cooperation with prosectors.

Napier’s testimony helped convict four former General Re executives and one former AIG executive in February 2008, according to prosecutors.

Napier in 2005 pleaded guilty to a conspiracy charge, admitting that he agreed to deals between General Re and AIG that allowed the former insurance heavyweight to artificially inflate its profits. Napier served as senior vice president of General Re, a reinsurance unit of Warren Buffett's Berkshire Hathaway Inc BRKa.N.

“The words ‘I’m sorry’ really do not begin to capture my feelings,” Napier told the judge before hearing his sentence. “I wish there was a way to turn back the hands of time.”

He could have been sentenced to up to five years in prison and fined $250,000.

“Mr. Napier’s cooperation with the government ... was of exceptional assistance,” Droney said. “His testimony showed the extent of the sham reinsurance conspiracy.”

Paul Radvany, a clinical associate professor of law at Fordham Law School in New York and a former prosecutor, said, “It’s helpful to the system for people to cooperate, and for them to cooperate they need an incentive, which is usually a lighter sentence.”

He added that the judge may have weighed the fact that Napier did not directly profit from the fraud in making his sentencing decision.

The government had alleged that several AIG and General Re executives engineered a sham reinsurance transaction in 2000 that inflated AIG’s loss reserves by $500 million, without actually transferring risk.

Napier had been an account representative for the AIG account.

Former AIG Vice President Christian Milton was sentenced to four years in prison for his role in the scheme.

Former General Re Chief Executive Ronald Ferguson was sentenced to two years in prison, former General Re Chief Financial Officer Elizabeth Monrad to 18 months, and former General Re Senior Vice President Christopher Garand and Assistant General Counsel Robert Graham to one year each.

For Napier, the government asked for a lesser sentence than what the sentencing guidelines allowed, citing his “substantial and indeed extraordinary” help to prosecutors.

John Houldsworth, a former chief of a General Re subsidiary who also cooperated with prosecutors, was sentenced in June to two years’ probation and fined $5,000. General Re is based in Stamford, Connecticut, and AIG in New York.

The transaction at issue preceded by several years a series of federal bailouts totaling roughly $180 billion for AIG. It helped lead to the 2005 ouster of AIG’s longtime chief executive, Maurice “Hank” Greenberg.

AIG subsequently restated $3.9 billion of earnings for the period 2000-2004 and agreed to a $1.64 billion regulatory settlement in 2006.

Buffett, who runs Berkshire, was interviewed by regulators about the reinsurance transaction but was neither charged nor accused of wrongdoing.

The case is U.S. v. Napier, U.S. District Court, District of Connecticut (Hartford), No. 06-310. (Reporting by Scott Malone in Hartford and Jonathan Stempel in New York; editing by Dave Zimmerman and John Wallace)