Greenberg reportedly takes Fifth at inquiry

Regulators question deal with Buffett's General Re

April 13, 2005|By James Bernstein | James Bernstein,NEWSDAY

NEW YORK - Maurice R. "Hank" Greenberg took the Fifth Amendment "dozens of times" when he was questioned yesterday about possibly illegal transactions between the giant insurance firm he headed for nearly 40 years and a unit of Warren E. Buffett's Berkshire Hathaway Inc., sources told Newsday.

Greenberg, 79, who stepped down last month as chief executive officer of the world's largest insurer, American International Group Inc., invoked his right against self-incrimination to all questions except his name during an approximately 45-minute session with state and federal regulators, the sources said.

The session took place at New York Attorney General Eliot Spitzer's Broadway offices. Regulators from the New York State Insurance Department and federal prosecutors also questioned Greenberg.

Brad Maione, a spokesman for Spitzer, declined to comment. Robert Morvillo, one of Greenberg's lawyers, also declined to comment.

Spitzer, state insurance officials and federal prosecutors are examining a five-year-old investment transaction between Berkshire Hathaway's General Re Corp. unit and Manhattan-based AIG. Regulators are questioning whether Greenberg put together a deal in 2000 to boost reserves in a way that hid AIG's true financial condition. Such a move, if it occurred, would have misled investors and regulators.

Buffett, a billionaire and legendary figure in the investment world, appeared before state and federal regulators Monday. The sources said Buffett admitted that he knew Greenberg was concerned about a decline in AIG's reserves when the transaction took place. Reserves are the cash insurance companies compile to pay claims.

Spokesmen for Buffett could not be reached yesterday. On Sunday, Spitzer said Buffett was not a target of the probe.

Greenberg had been advised to take the Fifth by his attorneys, who have argued that he has not been given enough time to prepare for questioning. Former federal prosecutors said Greenberg took the right action, but some cautioned that he should consider contacting Spitzer soon to tell his side of the story.

"It's becoming increasingly apparent Greenberg will be indicted," said Christopher Bebel, who had been a prosecutor for the Justice Department and the Securities and Exchange Commission and now practices law in Houston. Bebel gave as evidence some of Spitzer's comments on a television news program Sunday.

But Robert Heim, former assistant regional director of the SEC's New York City office, said he believed the investigation is in too early a stage to say whether Greenberg will be indicted.

"I think Mr. Greenberg's attorneys are going to prepare him to go back to Eliot Spitzer's office and answer questions," Heim said. "The attorneys can call Spitzer back, but they can't wait too long," because Spitzer could decide to file charges.

The investigation turns on a relatively arcane point - why the transaction between General Re and AIG was not properly recorded - but there is much at stake, and not only for Greenberg, but for AIG as well. AIG could face heavy fines and be forced to reduce staff. That's what happened at Marsh & McLennan Cos., the nation's largest insurer, which agreed to return $850 million to customers to settle an investigation into whether it engaged in bid-rigging.

Spitzer must also decide whether pursuing an indictment against Greenberg is appropriate, given the evidence, or whether doing so would cast the 45-year-old attorney general, who is preparing to run for governor next year, in an unfavorable light as a prosecutor who files charges against executives for actions that are routine in a complex industry such as insurance.

Newsday is a Tribune Publishing newspaper.

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