Robert Graham, a former staff lawyer at General Re Corp., could spend the rest of his life in jail for helping another company commit fraud. On Feb. 25 a federal jury convicted Graham and four other defendants for aiding a sham deal at American International Group Inc.

A subsidiary of Berkshire Hathaway Inc. (Warren Buffett’s holding company), Gen Re sells reinsurance — in essence, insurance for insurance companies. New York-based AIG, the world’s largest insurer, is a frequent customer. But in 2000 the two businesses concocted a fake transaction to make it appear as though Gen Re was buying reinsurance from AIG. According to federal prosecutors, AIG needed the fraudulent deal to make Wall Street think that it was in better financial shape than it really was.

And Graham — Gen Re’s associate general counsel at the time — played a key role in the fraud, prosecutors claimed. They argued that he drafted contracts for the transaction even though he knew it was phony and then tried to hide the evidence. “Far from doing his job here in making sure that Gen Re complied with the law, he violated it,” Assistant U.S. Attorney Eric Glover told a packed courtroom during closing arguments.

Graham’s defense attorney, Alan Vinegrad of Covington & Burling, maintained that his client had no idea that the deal with AIG was fake. But after a five-week trial in federal district court in Hartford, jurors believed the government. Graham and four co-defendants — the former CEO, CFO, and senior vice president of Gen Re, and the former head of reinsurance for AIG — were convicted of securities fraud, mail fraud, conspiracy and making false statements to the Securities and Exchange Commission. Four of the defendants, including Graham, face up to 210 years in prison; Gen Re’s former senior VP faces up to 150 years.

Sentencing is scheduled for May 15. All of the defendants have announced that they will appeal their convictions. “The case has been a terrible tragedy for Rob Graham,” Vinegrad said in a post-trial interview. “He is obviously disappointed in the verdict, and we will continue to fight vigorously on his behalf.” Graham, 58, worked at Gen Re for about nine years until he resigned in 2005.

According to both the prosecution and the defense, AIG chairman Maurice “Hank” Greenberg initiated the deal with Gen Re. AIG’s stock price fell 6 percent in October 2000 after the company announced a reduction in its loss reserves-the amount of money it had on hand to pay out insurance claims. To reassure Wall Street, Greenberg persuaded Ronald Ferguson, then the CEO of Gen Re, to help him orchestrate a deal that would make it appear as though AIG had increased its loss reserves by $500 million. (Ferguson was one of the four defendants charged and convicted with Graham. Greenberg, named by the government as an unindicted coconspirator, has denied any wrongdoing.)

Prosecutors claimed that Graham was involved in conference calls discussing the deal, and that he drafted two contracts in which Gen Re seemed to pay $500 million to AIG for reinsurance. But in reality, AIG had no obligation to pay out any liabilities, and the transaction only served to increase AIG’s loss reserves. The government also said that Graham negotiated a secret side deal in which AIG paid a rebate of $10 million to Gen Re for the premiums, as well as a $5 million fee.

According to the prosecution, Graham knew the deal was improper. But rather than stopping it, he created a paper trail to deceive auditors and make it appear as though Gen Re, not AIG, had initiated the transaction. “Mr. Graham didn’t want a curious outside party to deduce a link,” prosecutor Glover said. “He didn’t want anyone to connect the dots.”

Defense attorney Vinegrad countered that Graham always believed the deal was legitimate and only did what he was asked to do. Vinegrad added that there was nothing secret about AIG’s agreement to return the premium and pay Gen Re a fee — he maintained that noncontractual “handshake” deals are common in the reinsurance business. “Rob Graham is not a criminal,” Vinegrad told the jury. “He didn’t act like one because he isn’t one.”

Both the prosecution and the defense hinged their arguments on an e-mail that Graham sent on Dec. 22, 2000, to his boss, general counsel Timothy McCaffrey. Graham warned that insurance and securities regulators could “attack” the deal. “Our group will book the transaction as a deposit,” Graham wrote, then added, “How AIG books it is between them, their accountants, and God.” Graham’s words proved that he knew the deal was a sham, the government maintained.

Vinegrad countered that the e-mail proved Graham’s innocence. “It is absolutely clear that Rob was acting in good faith, trying to do the right thing, sharing his concern with the No. 1 lawyer in the entire company, a man who Rob had every reason to trust and to respect,” Vinegrad told jurors.

McCaffrey, who left Gen Re in 2005, was named by the government as an unindicted co-conspirator. McCaffrey says that he would have testified as a defense witness if he had been granted immunity. But prosecutors denied the request.

Graham’s conviction is further proof that in-house lawyers can’t do something that they suspect may be wrong just to please company executives, says Ira Lee Sorkin. A former federal prosecutor, Sorkin is now a partner with Dickstein Shapiro in New York. “It may not scare people way from the job,” Sorkin says. “But it will heighten the awareness that it’s not just a 9-to-5, rubber-stamp, do-what-I’m-told kind of job anymore. [Corporate counsel] deal with issues that border on illegal or unethical, and there are many, many risks.”

Many in-house attorneys have already learned this the hard way. At least 25 have faced criminal prosecution since passage of the Sarbanes-Oxley Act in 2002, according to a report issued last October by the American Bar Association.

Seth Levine, a former federal prosecutor now with Foley & Lardner in New York, says that Graham’s conviction exemplifies “the government’s increasingly aggressive approach to lawyers and other so-called gatekeepers.” But Levine adds that the growing number of in-house lawyers under indictment raises a legitimate question: Does the increase in prosecutions go beyond deterrence and hurt the ability of corporate counsel to do their job?

Possibly, says Robert Mintz, a former federal prosecutor who heads the white-collar criminal defense group at McCarter & English in Newark. A business deal that turns into a criminal case can have “a chilling effect” on in-house lawyers, he says. According to Mintz, “It leads to a much more conservative business environment, where corporate management has to spend as much time watching their own backs as they do trying to do their job.”