AIG fesses up
The mega-insurer admits to a slew of accounting no-nos, ensnaring Warren Buffett's Berkshire Hathaway
In coming clean, legal experts say, AIG took a big step to protect itself against criminal prosecution. In recent years, the Justice Department has made clear its policy of not prosecuting corporations if they cooperate in probes of potential wrongdoing. For that reason, AIG may be looking at a settlement, in which it would have to pay penalties and agree to new controls and compliance measures.
Risky talk. Things look a bit more dicey for Greenberg. Even in cases where evidence of wrongdoing is weak, meetings with prosecutors can prove hazardous--ask Martha Stewart. Especially since that case, New York securities lawyer Gregory Wallance says, attorneys are advising clients to keep mum unless they get some hard assurances. "If a lawyer feels the client could potentially become a target," Wallance says, "in those circumstances, there's no benefit and a lot of risk" to talking to investigators.
It's not yet known how much officials at General Re knew about the questionable AIG transaction. Buffett's firm can't be held responsible if it merely sold a product--the loss portfolio--to AIG that was later misused, says David Schiff, editor of Schiff's Insurance Observer. But questions have been raised as to whether there was a separate side agreement that made it clear that AIG was assuming no risk. "Now that's dangerous," says Andrew Barile, an insurance industry consultant. "I've tried to tell buyers and sellers that side agreements are red flags because why can't you put whatever it is in the agreement itself."
As for Buffett, Spitzer's office has emphasized that the Oracle of Omaha, who will meet with the investigators the day before Greenberg, is a witness in the inquiry--not a target of it. So far, Buffett's reputation as a corporate do-gooder--he was a major critic of mutual fund directors during the fund scandals of 2003--remains intact. "Warren Buffett has a record that is absolutely unblemished," says David Dreman, chairman of Dreman Value Management. Any criticisms of Buffett are all conjecture, says Dreman. But, he hastens to add, "if it turns out he was hypocritical in any way, it would disillusion a lot of people."
On its website, Berkshire has rejected allegations of Buffett's knowledge of the "nature" of the General Re transaction, a rare move for a company that has no official public relations department. Berkshire stated that Buffett was "not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions." The company stressed that Buffett speaks infrequently with his business unit managers and leaves operating decisions to them. The comments suggest that Buffett is offering a defense now common among beleaguered CEOs--that he simply didn't know of improprieties by his companies.
It remains to be seen whether AIG has the same reservoir of goodwill with investors that Buffett enjoys. One investor-friendly move, says Argus Research's Anthony, would be to increase the company's dividend or repurchase shares as a way of compensating shareholders "for putting up with all this crap for the past two or three months." The company might also work to become more transparent, as AIG is far less forthcoming with financial data than many of its peers. After all, better your shareholders ask questions about your numbers than the feds.
With Paul J. Lim
advertisement
