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January 20, 2010 Wednesday 1:59 PM EST
SECTION: PERSONAL FINANCE; Banking
LENGTH: 359 words
HEADLINE: Berkshire unit settles charges from AIG fraud case
BYLINE: Alistair Barr, MarketWatch mailto:ABarr@marketwatch.com.
Alistair Barr is a reporter for MarketWatch in San Francisco.
SAN FRANCISCO (MarketWatch) — Berkshire Hathaway reinsurer General Re agreed to pay almost $100 million to settle several charges and a lawsuit related to its involvement in accounting frauds by American International Group and Prudential Financial, the Securities and Exchange Commission said Wednesday.
Gen Re agreed to pay $12.2 million to settle SEC charges that it helped AIG (AIG) and Prudential (PRU) manipulate and falsify their financial statements, the regulator said.
Gen Re will also pay $19.5 million to the U.S. Postal Inspection Service Consumer Fraud Fund as part of a nonprosecution agreement unveiled by the Department of Justice, the SEC said. That was related to a criminal investigation into Gen Re’s transactions with AIG.
Gen Re also agreed to pay $60.5 million to settle a class-action lawsuit on behalf of injured AIG shareholders. Gen Re also forfeited to the government roughly $5 million in fees it got from helping AIG falsify its financial statements, the SEC said.
Berkshire (BRK.A) (BRK.B) bought Gen Re in 1998. The acquisition has been one of Chairman Warren Buffett’s most troubled deals.
The settlements stem from an accounting scandal that erupted at AIG during the previous decade, before the insurance giant almost collapsed and had to be bailed out by the government. The controversy led to the departure of longtime AIG Chief Executive Maurice “Hank” Greenberg.
The SEC alleges that a foreign subsidiary of Gen Re entered into two “sham” reinsurance transactions with AIG in 2000. The contracts allowed AIG to falsely report rising loss reserves and premiums written, the regulator claimed. AIG paid more than $800 million to settle the charges.
Gen Re also arranged a series of “sham” reinsurance contracts with Prudential’s property and casualty division from 1997 to 2002. The deals helped Prudential improperly recognize more than $200 million in revenue in 2000, 2001 and 2002, the SEC said. Prudential was separately charged with securities law violations in 2008, the regulator noted.
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