A.I.G. Documents Said to Be Altered
By TIMOTHY L. O'BRIEN and JENNY ANDERSON
The New York Times
April 8, 2005
Documents for a transaction that is at the center of a wide-ranging insurance investigation were doctored two months after the deal was struck, executives with direct knowledge of the transaction said this week.
The 2000 deal, between American International Group and General Re, a unit of Berkshire Hathaway, served to spruce up A.I.G.'s financial reports, ultimately bolstering its stock price. Regulators, and now the companies, say the way that the deal was accounted for was improper. Why the documents were altered by midlevel General Re employees is not entirely clear, but one regulator said it was done in a way that allowed A.I.G. to account for the transaction in a favorable way.
Signs that the paperwork had been altered drew the attention of lawyers for the Berkshire unit this year, when they were examining possibly questionable insurance transactions at General Re. The lawyers brought the transactions to the attention of law enforcement authorities, prompting a fresh round of subpoenas at A.I.G. in February that led to the downfall of Maurice R. Greenberg, who had been A.I.G.'s chief executive for nearly four decades.
Mr. Greenberg will appear before regulators and law enforcement officials in New York on Tuesday to discuss a series of suspect financial transactions. Mr. Greenberg has been the subject of intense investigative scrutiny in recent months and he will testify under oath.
Another titan of corporate America, Warren E. Buffett, will appear before regulators and investigators on Monday, but his role in the investigation is very different. To begin with, the transactions meant far less to Berkshire financially than they did to A.I.G., causing executives on the Berkshire side of the deals to place far less weight on their importance. Authorities also regard Mr. Buffett, the chairman and chief executive of Berkshire Hathaway, as a cooperating witness in the investigation, not a target, and regulators describe his appearance as an interview.
Mr. Buffett and Mr. Greenberg have been friendly rivals over the years, and they joined forces in 1998 in an unsuccessful attempt to buy the portfolio of Long-Term Capital Management, the hedge fund that rocked financial markets when it nearly collapsed that year. A copy of the letter that Mr. Buffett; Mr. Greenberg; and Jon S. Corzine, then the chief executive of Goldman Sachs, wrote offering to buy Long-Term Capital hangs on a wall in Mr. Buffett's office in Omaha.
But the two men have very different temperaments. Mr. Buffett is self-effacing and gentle, while Mr. Greenberg is considered dictatorial and abrasive. Although the two men have interacted over the years on business matters, and A.I.G. was an important client of General Re, Mr. Buffett is said to have generally kept some distance between himself and Mr. Greenberg.
Mr. Greenberg is also said to have treated Mr. Buffett with an unusual amount of deference. While Mr. Greenberg is said to have routinely shouted at other executives, he never raised his voice to Mr. Buffett.
On a number of occasions when Mr. Greenberg tried to push Ronald E. Ferguson, the former head of General Re, into transactions that Mr. Buffett found unacceptable, Mr. Buffett is said to have told Mr. Ferguson to refuse them. But, people acquainted with all three men said, Mr. Ferguson was intimidated by Mr. Greenberg and acceded to Mr. Greenberg's demands whenever possible. And when he did so, said these people, he was often reluctant to inform Mr. Buffett.
But for all of their differences, Mr. Greenberg's and Mr. Buffett's appearances before regulators are united by a deal that Mr. Greenberg initiated on Oct. 31, 2000, with Mr. Ferguson.
Mr. Ferguson first mentioned the possibility of an A.I.G. transaction to Mr. Buffett during a brief telephone call a few days after that date, according to two people briefed about the call. Mr. Ferguson called Mr. Buffett that November to discuss General Re's third-quarter earnings, these people said, and the A.I.G. deal, which was under consideration but not completed, was discussed only fleetingly.
According to an e-mail message Mr. Ferguson wrote on Nov. 6, 2000, he said that he asked Mr. Buffett if the A.I.G. transaction "passed the NYT test," in a reference to The New York Times. According to a person who has read the message and described it over the telephone to a reporter, it stated that Mr. Buffett told Mr. Ferguson that the deal passed that test, "but not by a huge margin."
But a person with direct knowledge of the communications between Mr. Buffett and Mr. Ferguson said that no such e-mail message was ever sent to Mr. Buffett and that Mr. Buffett never passed judgment on the transaction's propriety. Two people who have read the message, and are knowledgeable about Mr. Buffett's relationship with Mr. Ferguson, said that Mr. Ferguson may have inaccurately described his interactions with Mr. Buffett in his e-mail messages and memos to make it appear that he had cleared things with Mr. Buffett.
Berkshire said in a statement last week that Mr. Buffett was never briefed on the nature or the structure of the transactions with A.I.G. Nor, the statement said, was Mr. Buffett briefed on "any improper use or purpose of the transactions."
Mr. Buffett has not been accused of wrongdoing and a person involved in the investigations said that he was confident that no information would surface to implicate Mr. Buffett in any malfeasance. Mr. Ferguson could not be reached for comment.
Both General Re and American International Group are cooperating with the investigation.
Two General Re executives, Elizabeth A. Monrad and Rick Napier, handled details of the deal with Christian M. Milton, an A.I.G. executive. A.I.G. recently fired him for not cooperating with investigators.
Mr. Milton's lawyer declined to comment yesterday. Mr. Napier, who is still employed by General Re, referred a reporter to General Re's general counsel, who did not return phone calls seeking comment. Chris Winans, a spokesman for A.I.G., declined to comment.
Ms. Monrad, who is now the chief financial officer of the TIAA-CREF pension fund, said in an interview yesterday that she believed that A.I.G. intended to account for the transaction properly and that Mr. Napier directed her involvement in the transaction. Ms. Monrad, along with Mr. Ferguson, sits on the board of the Colgate-Palmolive Company and they are both members of that corporation's audit committee.
In mid-November 2000, Ms. Monrad and Mr. Napier asked John Houldsworth, head of General Re's Dublin office, to organize the A.I.G. transaction, according to Ms. Monrad. General Re's Dublin office has been linked to several insurance improprieties, and Australian regulators recently banned Mr. Houldsworth from the insurance market there. Mr. Houldsworth declined to be interviewed yesterday.
Regulators are examining Ms. Monrad's and Mr. Napier's roles in the A.I.G. transaction. Ms. Monrad said that she might have been sent copies of e-mail messages relating to the transaction but that she was unaware of any improprieties. She also said that relative to the volume of business A.I.G. conducted, the transaction was so small that it would not typically have required heavy scrutiny on her part.
After Mr. Houldsworth was asked to manage the A.I.G. transaction, a decision was apparently made at General Re to doctor the paperwork surrounding it. Mr. Buffett had no knowledge of that decision, according to a person involved in the investigation. Ms. Monrad said she might have been the recipient of e-mail messages relating to the decision, but that she had no knowledge of it either. Several other people with direct knowledge of the A.I.G. transactions said Mr. Houldsworth oversaw the changes to the documents, which took place in December 2000.
A.I.G. initially paid General Re $5 million for services on the transaction. The revised paperwork, known in the insurance industry as a repapering, made it appear instead that General Re paid $10 million to A.I.G.
One person involved in the investigation suggested that the transactions might have been deployed to mask the activities of murky off-shore entities that A.I.G. used extensively during Mr. Greenberg's long tenure at the company.
Two people who read e-mail messages circulated among General Re employees discussing the repapering of the A.I.G. transaction described the messages as comically inept in content and tone. One person called them examples of "amateur hour."
Correspondence uncovered by investigators examining the transaction shows that Mr. Milton was aware of the repapering and approved of it, according to insurance industry executives.
When lawyers from Munger, Toles & Olson, a Los Angeles firm representing Berkshire and General Re, discovered the doctored A.I.G. transactions this January, they brought them to the attention of law enforcement authorities, prompting more subpoenas to A.I.G. in February.
Munger, Toles had been scouring General Re's books as part of due diligence related to the firm's defense of General Re in a Justice Department investigation of possible insurance fraud in the Southeast.
Now Mr. Buffett and Mr. Greenberg are expected to be asked a long list of questions about what transpired between Oct. 31, 2000, and this past January as investigators continue sorting thorough the chronology, participants and various reasons for deals that authorities believe amounted to dressing up financial statements at A.I.G. Other General Re transactions apart from the deals with A.I.G. are also expected to be discussed with Mr. Buffett.
Authorities plan to interview Mr. Buffett on Monday at the S.E.C.'s regional offices in New York. Mr. Greenberg will be deposed at the New York attorney general's office on Tuesday. Mr. Greenberg's interview will be on the record, and people close to him say he has not determined whether he will invoke his right against self-incrimination. One person briefed on the investigation said Mr. Greenberg's lawyers had not yet received many of the documents in A.I.G.'s control, making that decision tougher.
While A.I.G.'s interests and those of Mr. Greenberg are aligned in defending the overall transactions as legitimate, transactions like the General Re deal could pit Mr. Greenberg against his former company. A person involved in the matter said Mr. Greenberg and others involved in the deal at A.I.G. would have incentives to blame one another for improprieties.
Regulators are likely to question Mr. Greenberg about his involvement with other A.I.G.-related entities, including C. V. Starr, Starr International and the Starr Foundation.
People involved in the investigation say that there are two unanswered mysteries surrounding the transaction between General Re and A.I.G. The first is exactly why General Re repapered the deal. The second is why A.I.G. chose to push regulatory limits by entering into a complex reinsurance contract with General Re when A.I.G. could have bolstered its reserves through other transactions that would have been perfectly legal and would also have conformed with accounting guidelines.