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Buffett to Talk To Regulators About AIG, Gen Re Deals

By Carrie Johnson
Washington Post Staff Writer
Wednesday, March 30, 2005; Page E01

Warren E. Buffett has agreed to meet with investigators probing deals between a Berkshire Hathaway Inc. subsidiary and troubled insurance giant American International Group Inc., but a spokesman for New York Attorney General Eliot L. Spitzer said Buffett is not a target of the investigation.

Omaha-based Berkshire Hathaway and its General Re Corp. insurance unit are cooperating with regulators. The Securities and Exchange Commission, the New York attorney general's office and the Justice Department are probing whether AIG improperly used certain reinsurance deals to make its financial statements look better. Gen Re has turned over documents and e-mails in response to investigators' subpoenas.

Warren E. Buffett will meet with regulators to answer questions on April 11. (Anthony P. Bolante -- Reuters)

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In recent weeks, several Berkshire and Gen Re officials have voluntarily met with regulators. Buffett has agreed to answer questions about his knowledge of the deals, which date to late 2000, next month. The April 11 meeting was reported in Tuesday's editions of the Wall Street Journal.

"Buffett is a witness," Darren Dopp, a spokesman for Spitzer, said in a telephone interview. "He is not a target, and his cooperation has been appreciated."

Buffett, a longtime board member of The Washington Post Co., rarely speaks publicly about his businesses or his investment decisions. Instead, he typically communicates by way of an annual letter to shareholders. Yesterday, however, his company issued a statement saying assorted recent news reports describing Buffett's role at the company and his conduct related to the AIG deals had been "inaccurately reported."

"Mr. Buffett was not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions," the release said of transactions in 2000 and 2001.

A spokeswoman for Berkshire Hathaway did not return phone calls.

For months, investigators have examined the use of policies known as "finite risk" insurance. The deals, which help insulate insurers from potentially burdensome claims by spreading risk, are not by themselves improper. But securities regulators say the transactions can be used to hide losses, inflate earnings or otherwise manipulate corporate financial statements by companies that use them for no real business purpose and with no real money at risk. In those instances, accounting experts say, the policies really serve as disguised loans.

Regulators have focused much of their attention on a particular deal between AIG and Gen Re in late 2000. Under the terms of the deal, Gen Re paid AIG $500 million, which AIG added to its reserves in two installments, in 2000 and early 2001.

The deal allowed AIG to boost insurance reserves at a time when shareholders and analysts were questioning whether reserves were adequate, according to sources familiar with the investigation who declined to be identified because it is months from completion. The transaction allegedly helped keep AIG's stock price high, they said.

The probe already has cost longtime AIG chief executive Maurice R. "Hank" Greenberg his job. This week, Greenberg, 79, said he would resign as non-executive chairman of the company. Under pressure from AIG's board, two weeks ago he stepped aside as chief executive, a post he had held for more than 35 years. Greenberg is scheduled to meet with regulators next month, one day after Buffett's interview.

Greenberg will probably face questions about his role in initiating the 2000 Gen Re deal. Greenberg's lawyers did not return calls yesterday. But AIG's stock rebounded, closing at $58.20 yesterday, up 2 percent, after word came that Greenberg had severed ties with the company.

AIG told investors earlier this month that it hoped to file its 2004 annual report by March 31. Internal investigators hired by the company's board notified regulators Monday that they had turned up dozens of questionable transactions that could lead the company to restate previous financial reports by $1 billion or more.

Investigators continue to probe current and former AIG officials, as well as offshore reinsurance entities that may have entered into other questionable deals with AIG.

Berkshire Hathaway class A stock closed at $87,000 yesterday, up less than 1 percent. Berkshire said it does not expect to restate its financial reports based on the ongoing insurance probe.

© 2005 The Washington Post Company