Replies to post #5992 on FinancialAdvisor's College Class (FACC)

[FinancialAdvisor]

AIG's Phony Books Go Back 14 Years

AIG's Phony Books Go Back 14 Years
By RICHARD WILNER

March 31, 2005 -- Red-faced and reeling insurance giant AIG admitted yesterday its balance sheet reflected shoddy accounting going back as far as 14 years.

The improper treatment of dozens of reinsurance deals, with Warren Buffett's General Re and other companies, resulted in shareholder equity being inflated by as much as $1.7 billion, or 2 percent of market capitalization, the company said.

AIG said the accounting for the deals with General Re in 2000 and 2001 "was improper" because there was no evidence any transfer of risk existed.

"Therefore, AIG's financial statements will be adjusted," the company said in a statement.

The mea culpa comes less than 24 hours after Buffett went on the offensive and declared that he wasn't fully briefed on what AIG's Hank Greenberg planned to do with the finite insurance deals.

The Securities and Exchange Commission, Attorney General Eliot Spitzer and the state insurance department are each probing AIG's deals to lay off some insurance exposure to reinsurance companies.

The regulators are trying to determine if there was a transfer of risk and therefore real insurance deals undertaken, or if AIG was merely looking to primp its balance sheet.

Hank Greenberg, who headed the No. 1 insurance company for nearly 40 years, was forced from his CEO position earlier this month and will resign as chairman when he returns to the country from a trip to Asia.

In addition, AIG said it would need to extend, for a second time, the time needed to file its 10-K.

Because of its ongoing internal investigation, the year-end report will not be filed until April 30, the company said.

While the false accounting for the non-insurance deal would have a minimal effect on the company's net worth, it is certain to rip a gaping hole in the company's reputation.

"The depth and breadth of troubles and apparent lack of accounting controls at AIG is alarming," William Wilt, who follows AIG for Morgan Stanley, said in a note to investors.

For example, AIG said it had no idea that Union Excess, a Barbados-based insurer that AIG subsidiaries did business with, was not an independent company.

In the Byzantine, interlocking corporate world created by Greenberg, AIG recently discovered that a "significant portion" of the interests of Union Excess shareholders are tied indirectly to the business of Starr International Co., it said.

Starr is a private holding company that owns 12 percent of AIG shares, and counts Greenberg and several other AIG execs on its management team.

AIG shares slipped $1.04, or 1.8 percent, to $57.16.


LINK: http://www.nypost.com/business/22834.htm

[FinancialAdvisor]

Buffett's Australian arm faces APRA probe

*Personal Comments: Ever since my bear call for Berkshire Hathaway back on February 17th, it seems Buffet's name keeps showing up... and it's not necesarily it positive fashion... now wouldn't the icing on the cake be a sharp rally in the USD?... that would really take his stock under... NO?... will continue to report on an unwinding story of which seems to be Buffet vs. the world... literally!

Buffett's Australian arm faces APRA probe
Apr 14 15:46
AAP

Financial services regulators are to investigate the Australian arm of US billionaire Warren Buffett's global reinsurance business, General Reinsurance Australia, as ripples from the HIH Insurance collapse spread.

The Australian Prudential Regulation Authority announced on Thursday that it would investigate reinsurance practices involving General Re. The announcement coincided with the jailing of former HIH Insurance direct Rodney Adler.

The authority recently had asked the company to show cause why it should not be investigated over the activities, believed to be linked to HIH's $5.3 billion collapse.

APRA deputy chairman Ross Jones said the authority aims to protect policyholders by ensuring that Australia's general insurance industry and maintains a rigorous approach to risk management, liability valuation and reporting.

"This includes ensuring that any transactions entered into are properly recorded and are appropriately treated in regulatory and financial reporting," he said in a statement. Last month, it was revealed that HIH liquidator Tony McGrath was looking into claims of deceptive conduct by General Re, a subsidiary of Buffett's investment company Berkshire Hathaway.

The collapse of HIH Insurance in in 2001 was partly attributed to its 1998 takeover of a heavily overvalued rival, Rodney Adler's FAI Insurance.

Berkshire said the liquidator alleged that General Re and another Berkshire subsidiary engaged in deceptive conduct that helped FAI improperly account for transactions such as reinsurance, and that the deception led to the failure of HIH.

Last October, APRA disqualified four former employees of General Re's operations in Australia from being directors of a general insurer.

All were involved in a financial reinsurance transaction between General Re and FAI, which APRA said improperly boosted FAI's 1997/98 earnings.