Probe on Buffett company widens

WARREN Buffett’s Berkshire Hathaway Inc, which is under investigation for its role in improper reinsurance accounting at American International Group Inc, said over the weekend that the American government is inquiring about its own books.

Some of Berkshire’s insurance units, which include General Re Corp, were asked how they accounted for a type of reinsurance contract that can be abused to polish financial results, the company said. Second-quarter profit at Omaha, Nebraska-based Berkshire rose 13% as investment income from the insurance businesses cushioned a loss from foreign-currency holdings.

The disclosure suggests state and federal prosecutors may be widening their probe beyond General Re’s role in a four-year-old reinsurance contract that allowed AIG to overstate reserves for claims by $500 million (€410 million). At issue was whether General Re executives knew AIG would use the contract improperly.

In June, two former executives pleaded guilty to charges of conspiring to violate securities laws by helping AIG distort its books.

“Berkshire Hathaway has always been viewed as a company that’s above the fray and operates on a higher level,” said Christopher Bebel, a former federal prosecutor who now practices law in Houston. “This suggests there could be significant storm clouds on the horizon.’

Berkshire also said the government is reviewing whether General Re and its subsidiaries conspired with others to misstate financial statements, suggesting the probe has expanded from certain individuals.

Shares of Berkshire, an insurance and investment company, are down 8.9% since AIG disclosed subpoenas from New York Attorney General Eliot Spitzer and the U.S. Securities and Exchange Commission on Feb. 14. The stock fell $495, or 0.6%, to $83,500 on Friday.

Buffett, the world’s richest man after Microsoft Corp. founder Bill Gates, has run Berkshire since 1965, buying undervalued assets to accumulate dozens of companies selling products such as paint, carpet and mobile homes.