AIG Buffett faces questioning over AIG deal

David Teather in New York
Saturday April 9, 2005
http://www.guardian.co.uk/business/story/0,,1455534,00.html

Warren Buffett, the famed American investor, will appear before investigators and regulators on Monday seeking the facts behind a questionable transaction at the heart of a widening inquiry into the insurance business.

The suspect transaction was between the world's largest insurer, American International Group, and General Re, a reinsurance division of Mr Buffett's Berkshire Hathaway.

Investigators believe it was structured to create the impression that AIG's books were stronger than they really were.

The allegedly improper transaction cost the job of AIG's chairman and chief executive Maurice "Hank" Greenberg last month. Mr Greenberg faces questioning on Tuesday.

According to the New York Times, authorities regard Mr Buffett as a cooperating witness in the investigation rather than a target.

The Wall Street Journal reported yesterday that Mr Buffett's firm tipped regulators off about the AIG deal in return for leniency in a separate, unrelated case.

Mr Buffett is widely regarded for his common sense and integrity. His annual shareholder meetings, in which he dispenses nuggets of advice, have become a pilgrimage for budding millionaires.

A statement issued by Berkshire last week denied that he had any detailed knowledge of the reinsurance transaction. The investigation said Mr Buffett was not briefed on the structure of the deal "or on any improper use or purpose".

Investigators, including New York attorney general Eliot Spitzer and the securities and exchange commission, are trying to establish whether AIG deliberately manipulated its books. Analysts fear the investigation could widen to other parts of the industry.

Last week AIG said inaccurate accounting would probably reduce the book value of the group by up to $1.7bn. The firm said it had examined transactions going back 14 years but was "not yet able to determine" whether it would need to restate prior earnings. It has delayed the filing of its annual results to the SEC by up to a month.

The deal in question to boost AIG's reserves was structured between a Dublin division of General Re and a Bermuda division of the insurer. At the time of the deal, there were concerns on Wall Street about AIG's level of reserves.

According to the Journal, General Re transferred a block of business to AIG, allowing it to add $500m in premiums to its reserves. AIG paid General Re $5m in return. The report said an email had been uncovered from a General Re employee to a colleague urging that a file relating to the transaction be kept "locked in a drawer".

Regulators this week issued a court order to ensure all documents related to the investigation are secured in the Bermuda office. Other General Re transactions could also come under further scrutiny.

Reports suggest the deal was initiated by Mr Greenberg and done with Ronald Ferguson, the former head of General Re.

All logos and trademarks in this site are property of their respective owner. FAIR USE NOTICE: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: www.law.cornell.edu/uscode/17/107.shtml