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February 6, 2008

Witness says Buffett was told of bad insurance deal

A former top executive for General Reinsurance Corp. e-mailed billionaire investor Warren Buffett in 2000 about a reinsurance transaction with American International Group Inc. that triggered a criminal trial, a government postal inspector testified.

The testimony emerged in the second month of a federal court trial of five ex-employees of AIG and General Re, a division of Buffett-led Berkshire Hathaway. Buffett has not been accused of wrongdoing and has said he was not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions.

Prosecutors filed papers before the trial listing Buffett as a potential witness in the federal court trial so he could possibly rebut any suggestion by the defense that he was involved in or approved the deal, but it's unknown if he will be called to testify.

Postal inspector James Tendick testified Tuesday that a team of postal inspectors reviewed e-mails, letters and bank records, including an e-mail sent in the fall of 2000 by former General Re CEO Ronald Ferguson to Buffett and General Re's current CEO, Joseph Brandon. In the e-mail, Ferguson recounted a telephone conversation he had with former AIG CEO Maurice "Hank" Greenberg. Ferguson said Greenberg was eager for a proposed reinsurance deal between the companies to go forward, Tendick said.

Ferguson said he told Greenberg that Buffett and Brandon wanted him to be involved in the deal, Tendick testified. He boasted that he had cemented an ongoing role with Gen Re's largest trading partner and that he could continue in that role.

Reinsurance policies are backups purchased by insurance companies to completely or partly insure the risk they have assumed for their customers.

Federal authorities allege the deal was a sham transaction to artificially prop up AIG's financials. Prosecutors say Greenberg started the reinurance transactions after AIG's stock price dropped 6 percent, representing a loss of $12 billion to shareholders.

Allegations of accounting irregularities, including the General Re transactions, led to Greenberg's resignation in 2005. Greenberg, who headed the New York-based company for 37 years, has denied any wrongdoing.

On trial are Ferguson, former General Re Corp., Senior Vice President Christopher P. Garand; Elizabeth Monrad, chief financial officer from June 2000 through July 2003; and Robert Graham, a senior vice president and assistant general counsel from about 1986 through October 2005.

Also charged is Christian Milton, AIG's vice president of reinsurance from about April 1982 until March 2005.

If convicted of all the charges, Ferguson, Monrad, Milton and Graham each face up to 230 years in prison and a fine of up to $46 million. Garand faces up to 160 years in prison and a fine of up to $29.5 million.

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