Transcript: Warren Buffett under fraud suspicion

Reporter: Stephen Long
ABC (Australia) Local Radio
March 30, 2005 8:28 AM


TONY EASTLEY: He's been called the "world's greatest investor", but now the world's second richest man, American Warren Buffett, is caught up in corporate investigations in Australia and the United States.

Overnight, Warren Buffet's company, Berkshire Hathaway, said that it was cooperating fully with an investigation by US regulators and prosecutors into suspect re-insurance contracts.

The US investigation takes in the Berkshire Hathaway subsidiary, General Reinsurance, which was involved in the HIH collapse here in Australia.

General Reinsurance was asked earlier this month by the Australian Prudential Regulation Authority to show why it should not face a formal investigation into its financial dealings.

Finance Correspondent Stephen Long reports.

STEPHEN LONG: He's been called the "Oracle of Omaha", the world's ace investor, with an estimated personal wealth of US$30 billion.

And Warren Buffett's dubbed the annual meeting of his company Berkshire Hathaway as "Woodstock for Capitalists" – a three day celebration of love, worship and money. But Warren Buffett is also known as a pillar of ethics, a man who pays himself a modest salary, lives a simple lifestyle, and attacks excessive corporate greed.

And he's humble about his own success.

WARREN BUFFETT: You know, as my friend Gates says, if I'd been around a few thousand years ago, I'd have been some animal's lunch. You know, I mean, I can't run very fast and I can't climb trees and all that. Incidentally, he can't run that fast or climb trees either, so maybe he would have been too.

But in any event, the market system really produces some incredibly strange payoffs. I am wired in such a way that I am… I get paid an incredible amount in the market system for allocating capital, and I've gotten paid that way since I was 20 years old or so.

STEPHEN LONG: But now Warren Buffett's reputation is under siege. Investigators in the US are examining whether the world's biggest insurance company, American Insurance Group, manipulated its finances.

And General Re, a subsidiary of Warren Buffett's Berkshire Hathaway, is implicated in the probe. General Re would be familiar to many of the hapless investors in HIH.

Its reinsurance contracts were part of the story of the Australian insurer's spectacular collapse. And there's an eerie similarity with the US investigation. General Re issued contracts to Rodney Adler's insurer FAI, which allowed it to boost its profit and loss statement in the year before it was sold to HIH.

General Re is now facing allegations its contracts allowed the world's biggest insurer in the US to doctor its accounts and artificially boost reserves.

Overnight Berkshire Hathaway issued a statement about the US probe. It said it was cooperating with the US investigation and Warren Buffett would give a voluntary interview to authorities.

But it denied Mr Buffett had any knowledge of how American Insurance Group intended to use its reinsurance contracts.

General Re is also helping an inquiry by the Australian Prudential Regulation Authority, which sent it a letter this month asking it to show cause why it should not face a formal investigation.

Warren Buffet didn't own the company at the time of the HIH affair, and he must be ruing the day he bought it. The General Re scandals might yet fulfill this prophecy by Warren Buffett at his shareholders' meeting.

SHAREHOLDER: I think we've had every kind of failure, haven't we Warren?

WARREN BUFFETT: Well, we will before we're done.

(Laughter)

TONY EASTLEY: Finance Correspondent Stephen Long reporting there, and the laughter, of course, was Warren Buffett, the US investor.

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