Saturday, February 13, 2010

Another SEC Nothingburger-2

"A reinsurance firm owned by Warren Buffet's Berkshire Hathaway Inc. reached a $92 million settlement with the federal government that will allow the firm to avoid prosecution for its role in a fraud scheme involving [AIG]. As part of the deal, Berkshire agreed to several coporate-governance concessions. ... It will also pay $12.2 million to settle charges by the [SEC] in connection with the fraud and for helping another company falsify its reported financial reults. ... Several former GenRe executives, including Ronald Ferguson, the former chief executive, and Elizabeth Monrad, the former chief financial officer, were convicted in 2008 on charges that in 2000 and 2001 they helped AIG--which was then a client--improperly inflate its loss reserves, a key indicator of financial health, by $500 million", Amir Efrati at the WSJ, 21 January 2010:

Corporate governance is a scam. This is another joint SEC-DOJ failure to enforce the law.


Anonymous said...

Buffet is accumulating a growing stink around himself... I guess it's his penchant for rotting, corrupt business models.

*Gen Re purchase
*Goldman Sachs preferreds
*Moody's investment

That old man is too clever by half.

Hubert said...

Yes, but what about Greenberg?

Berkshire helped with accounting fraud but who did commit it?
Why does the real guilty one go totally unpunished? Isn´t this the bigger scandal?

Kevin said...

If you have been following this Berkshire / Gen Re / AIG case, you might know that Buffett approved the transaction in question, insisted on a fee, set the amount, inquired repeatedly about the status of the transaction, asked about its accounting, was told about its low level of risk, and more. Prosecutors knew all this yet they attacked a lot of Buffett's decisions in their case against Buffett's underlings, while those same prosecutors were artful in understating Buffett's true role in the transaction before the judge and jury.

By the way, this transaction was more of a case about misunderstandings between Gen Re and AIG rather than about some fraud. AIG accounted for the transaction just fine the first time under some pretty complex rules that no unfamiliar jury should be expected to interpret. AIG only changed its accounting for the transaction in question after Spitzer chased the original decision-making accountants out of AIG and then let his lieutenants pressure the new AIG accounting team to book the transaction differently and declare some sort of impropriety.

Justin said...

There was no fraud. It's pretty clear that Greenberg intended no wrong-doing - nor did anyone else other than that one Gen Re executive in Ireland who deceived everyone about the transaction he assembled - but then he lied about his colleagues in court to help secure errant conovictions.