Douglas Healey/Bloomberg News

A federal appeals court has thrown out the criminal convictions of five former insurance executives, delivering a blow to the Justice Department in one of the prominent cases brought during last decade’s corporate accounting scandals.

Ronald E. Ferguson, the former chief executive of General Re, which is owned by Warren E. Buffett’s company, Berkshire Hathaway, was convicted by a jury of fraud and conspiracy in a closely watched trial in 2008. Convicted alongside Mr. Ferguson were the Gen Re employees Elizabeth A. Monrad, Robert D. Graham and Christopher P. Garand; and Christian M. Milton of American International Group.

A panel of the United States Court of Appeals for the Second Circuit in Manhattan said in an opinion issued Monday that the trial judge had unfairly prejudiced the defendants by admitting certain evidence related to fluctuations in A.I.G.’s stock price.

It is unclear whether federal prosecutors will retry the five former executives. A spokesman for the United States attorney’s office in Connecticut, which tried the case, did not return requests for comment.

The trial centered on a complex reinsurance transaction initiated more than a decade ago. In October 2000, Gen Re helped A.I.G. structure an accounting maneuver that the government said had artificially manipulated A.I.G.’s financial statements. The deal increased A.I.G.’s loss reserves — a crucial indicator of performance for insurance companies — by $500 million in 2000 and 2001.

The controversial transaction, combined with other accounting issues at A.I.G., led to the resignation of Maurice R. Greenberg, the insurance giant’s longtime chief executive. Mr. Greenberg, who left the company in 2005, was not charged in the case. He still faces a separate civil action brought by the New York attorney general’s office.

In Monday’s ruling, Chief Judge Dennis G. Jacobs, writing for a unanimous three-judge panel, said that the trial judge erred in admitting evidence showing that news of the reinsurance deal caused a 12 percent decline in A.I.G.’s stock price.

Judge Jacobs wrote that a number of other problems at A.I.G., including accusations that it had manipulated its earnings, could have factored into the company’s stock price drop.

By allowing prosecutors to link the decline in A.I.G. shares to the questionable transaction “prejudicially cast the defendants as causing an economic downturn that has affected every family in America,” Judge Jacobs wrote.

“The defendants’ substantial rights were affected,” he wrote.

The appeals court also said that the Federal District Court Judge Christopher F. Droney, of Connecticut, had erred in his jury instructions.

The five defendants were sentenced to prison terms of one year to four years but were all on bail pending appeal. Befitting a prominent corporate-fraud trial, the defendants were represented by some of the country’s most highly regarded appellate lawyers, including Seth P. Waxman, the former solicitor general of the United States.

“We’re very gratified by the decision and we look forward to a new trial,” said Frederick P. Hafetz, a lawyer for Ms. Monrad.

The 77-page opinion surveyed the history of the prosecution and highlighted a core issue at the heart of the government’s case: Was the transaction in question merely an aggressive accounting technique or something more sinister? In detailing a telephone call in October 2000 between Mr. Ferguson and Mr. Greenberg that discussed the potential transaction, the court noted that it may “have been an unlawful agreement to deceive A.I.G. stockholders.”

Or, said the court, “it may have been a high-level brainstorming session about using accounting rules aggressively — but lawfully — to achieve an accounting objective.”

In 2006, A.I.G. paid $1.64 billion to resolve government investigations into its accounting practices.