NEW YORK (Bloomberg) — US prosecutors may appeal the two-year prison sentence imposed this week on Ronald Ferguson, the former chief executive officer of General Reinsurance Corp., for helping American International Group Inc. deceive shareholders.

Ferguson, 66, had faced life in prison under advisory sentencing guidelines after US District Judge Christopher Droney ruled the fraud cost AIG shareholders as much as $597 million. At a hearing on December 16, prosecutors asked for a "substantial" prison term.

Droney cited 379 letters of support seeking mercy for Ferguson, who is studying for the ministry, and noted Ferguson's "history and character" in ruling that two years was sufficient. Droney also ordered Ferguson to pay a $200,000 fine and serve two years of supervised release after prison.

Nora Dannehy, the acting US Attorney for Connecticut, said in an interview after the hearing that she would have preferred six to nine years. "It's under consideration by the government whether or not to file an appeal", said Tom Carson, a spokesman for Dannehy.

Prosecutors must seek permission from the US solicitor general to appeal the sentence. Ferguson previously said he intended to appeal his February 25 conviction with four other insurance executives. He has hired an appellate lawyer, Seth Waxman, a former solicitor general who has argued more than 50 cases before the US Supreme Court.

If Droney followed the proper procedure at sentencing, the government's chances of winning an appeal are "not good", said Leonard Orland, a law professor at the University of Connecticut in Hartford.

Appeals judges "will not with a microscope overanalyse a sentence to decide if it is too harsh or too lenient", Orland said. Ferguson was given an "appropriate" punishment, he said, adding that to punish a white-collar defendant as if he were a murderer or terrorist would be "grotesque".

Waxman and Ferguson's trial attorney, Michael Horowitz, didn't immediately return calls seeking comment.

A series of Supreme Court rulings have made guidelines by the US Sentencing Commission advisory and no longer binding on federal judges. While judges still must consider the guidelines, they have considerable discretion, according to appeals courts.

On December 9, the 2nd US Circuit Court of Appeals upheld a three-and-a-half-year sentence imposed on Richard Adelson, the former president of Impath Inc., who faced up to life for leading a $260 million fraud. Prosecutors argued that he deserved a sentence of 20 to 25 years.

"We are in a transition period where things are somewhat up for grabs as to what the optimal sentence should be in white- collar cases," Sara Beale, a law professor at Duke University in Durham, North Carolina, said in an interview.

She said that while she didn't hear all the evidence against Ferguson, she disagreed with the sentence.

"It's shorter than what I would think is optimal to deter people and recognise the severity of the fraud," she said.

Ferguson was the highest-ranking of five executives convicted for using a sham transaction in 2000 to help AIG improve its balance sheet. Ferguson, General Re's CEO from 1987 to 2001, was convicted of conspiracy, securities fraud, false statements and mail fraud. The sham transaction let AIG add $500 million in loss reserves, a key indicator of an insurer's health, prosecutors said. Ferguson asked the judge for mercy, saying he began to study for the ministry after surviving a brain haemorrhage in 1999.

Ferguson's 379 letters depicted him as someone who would never knowingly commit a crime.

Ferguson was convicted with ex-chief financial officer Elizabeth Monrad, 54; Christopher Garand, 61, a former senior vice president; Robert Graham, 60, a former General Re assistant general counsel; and Christian Milton, 61, AIG's former head of reinsurance.

Droney ordered Ferguson to surrender to the US Bureau of Prisons by February 18. The judge said he would consider Ferguson's request for bail pending appeal after reviewing legal filings.

Milton is scheduled for the next sentencing on January 27.