American International Group Inc. said yesterday that it could not file its annual report by today's deadline and for the first time described as "improper" a transaction with a subsidiary of Berkshire Hathaway Inc. that captured the interest of federal investigators.
The troubled New York insurance giant, which already had received a two-week extension of the deadline for filing the report, said board members and new managers continue to examine AIG's books in hope of filing by April 30. AIG said it has not yet determined whether accounting errors will result in an earnings restatement. The company said in a news release that the maximum effect of any accounting changes on its capital would be about $1.7 billion, or 2 percent.
The Securities and Exchange Commission, the New York attorney general and the Justice Department are investigating deals that may have been used to burnish the company's finances and mislead investors about AIG's financial health.
The investigation, which began in February when AIG received subpoenas from the SEC and the office of Attorney General Eliot L. Spitzer, led to the resignation of the company's longtime chairman and chief executive, Maurice R. "Hank" Greenberg. It also has pushed investor Warren E. Buffett, the chairman of Omaha-based Berkshire Hathaway, into the spotlight.
Regulators are particularly interested in the origins of a deal that Berkshire's General Re Corp. subsidiary struck with AIG in late 2000. The deal allowed AIG to boost its reserves for potentially burdensome insurance claims by $500 million at a time when investors were asking questions about the company's reserves. AIG said in yesterday's news release that "in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance."
The wide-ranging investigation covers AIG's relationship not just with General Re, but also several offshore insurance companies that may have taken part in similar deals. Securities regulators for months have been investigating a type of insurance policy in which companies are paid premiums but do not take on real risk. Such policies can be used to obscure corporate financial statements. SEC spokesman John Nester declined to comment on the investigation.
Spitzer spokesman Darren Dopp said Buffett is cooperating with investigators and that they are treating him as a witness, not a subject or target of the investigation. Buffett, a longtime Washington Post Co. board member, will be interviewed by regulators next month. Other Berkshire and General Re executives, including former General Re chief executive Ronald E. Ferguson, have consented to interviews and turned over documents. Three AIG executives were fired for violating the company's cooperation policy by invoking their Fifth Amendment right not to incriminate themselves.
A source familiar with the investigation, who spoke on condition of anonymity because it is far from complete, said regulators consider Buffett to be a source of information about the 2000 deal but that they do not think he knew it was used to manipulate AIG's books.
A spokeswoman for Buffett declined to comment and referred a reporter to a statement issued Tuesday, in which Berkshire Hathaway said Buffett "was not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions."
AIG said yesterday that investigators employed by the company continue to investigate several other deals "which appear to have been structured for the sole or primary purpose of accomplishing a desired accounting result."
"Without commenting on the specific transactions identified in today's announcement, the board's decision to provide this information represents a welcome step toward transparency and accountability as our investigation proceeds," a spokesman for Spitzer said.
AIG's share price, which had fallen more than 20 percent since mid-February, closed at $57.16 yesterday, down $1.04. Standard and Poor's yesterday lowered the company's credit rating to AA+, from AAA, citing the investigations.
