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Buffett's Berkshire faces probe

*Wonder how the investment community would feel if Buffet is somehow connected with some sort of Wall-Street gimmick or scheme? Would it have a bigger effect than Greenspan's famous words "Irrational Exuberance?"...

Buffett's Berkshire faces probe
Aug 08
George Stein / Bloomberg / New York

Warren Buffett's Berkshire Hathaway, which is under investigation for its role in improper reinsurance accounting at American International Group, has said that the United States government is inquiring about its own books.

Some of Berkshire's insurance units, which included General Re Corporation, had been asked how they accounted for a type of reinsurance contract that could be abused to polish financial results, the company said in a regulatory filing on Friday.

Second-quarter profit at Berkshire, which is based in Omaha, Nebraska, rose 13 per cent as investment income from the insurance businesses cushioned a loss from foreign-currency holdings.

The disclosure suggests that 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 $US500 million ($651 million). At issue is whether General Re executives knew that 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 also revealed that the government is reviewing whether General Re and its subsidiaries conspired with others to misstate financial statements, suggesting that the inquiry's ambit has been extended beyond certain individuals.

Shares in Berkshire are down 8.9per cent since AIG disclosed subpoenas from New York Attorney-General Eliot Spitzer and the US Securities and Exchange Commission on February 14. The stock fell $US495, or 0.6 per cent, to $US83,500 on Friday.

The company reported that second-quarter profit had risen to $US1.45 billion from $US1.28 billion a year earlier, on higher investment income at its insurance units and greater earnings from apparel and building products divisions.

Profit rose 11 per cent to $US1.61billion, or $US1045 a share, excluding the currency loss and other changes in the value of investments.


LINK: http://afr.com/articles/2005/08/07/1123353203813.html