HARTFORD, Conn. (Reuters) - A transaction at a reinsurance unit of Berkshire Hathaway Inc that federal prosecutors say defrauded American International Group Inc (AIG.N) investors was endorsed by Warren Buffett, a lawyer for one of five defendants on trial for fraud said on Monday.
Executives at Berkshire’s (BRKa.N)(BRKb.N) General Re Corp unit and AIG did not conspire to hide the 2000 transaction, which prosecutors say improperly bolstered AIG’s loss reserves, defense lawyer Reid Weingarten told a jury in opening arguments. He said the executives had no reason to suspect the transaction was improper because Buffett approved of it.
“He knew about the transaction, he was mightily interested in AIG,” said Weingarten, who represents the defendant and former General Re Chief Financial Officer Elizabeth Monrad. “There is not a chance in this world that this transaction would have proceeded if Warren Buffett hadn’t wanted it.”
Prosecutors, in contrast, argued the defendants knew the transaction was illegal and conspired to hide it.
“The deal appeared to be legitimate, but evidence in reality showed the deal was nothing but a sham transaction to deceive analysts and shareholders — and these five defendants knew it,” Assistant U.S. Attorney Raymond Patricco told jurors in his opening statement at their criminal trial.
Buffett, the chairman of Omaha, Nebraska-based Berkshire, could be called to testify in the trial of the defendants, four of whom worked at General Re and the other at AIG.
Berkshire has said Buffett was not briefed on the structure of the AIG transaction and was unaware it might have had any improper purpose. A spokeswoman for Buffett was not immediately available on Monday to comment on Weingarten’s statement.
The defendants, including former Gen Re Chief Executive Ronald Ferguson, are on trial at the U.S. District Court in Hartford, Connecticut.
They are charged with conspiracy, fraud and making false statements in connection with the reinsurance transaction, which prosecutors say allowed AIG to improperly boost reserves by $500 million in 2000 and 2001. Prosecutors say this misled investors about the amount of losses the insurer could withstand and artificially inflated AIG stock.
AIG has acknowledged accounting improprieties and in May 2005 restated $3.9 billion in earnings from 2000 through 2004. It agreed in 2006 to a related $1.64 billion regulatory settlement.
The restatement came two months after the ouster of AIG’s long-time chief, Maurice “Hank” Greenberg, who is an unindicted, alleged co-conspirator in the government’s case. Greenberg has denied wrongdoing.
Prosecutor Patricco said the defendants crafted the deal after Greenberg called Ferguson, who was then running Stamford, Connecticut-based Gen Re, and said he needed help bolstering AIG’s loss reserves by $500 million.
“When Greenberg came calling, Ferguson had a clear choice: Take $500 million, no strings attached, or disappoint Gen Re’s biggest client,” he said.
In a statement, a Greenberg spokesman said that “there is no evidence that Mr. Greenberg initiated, participated in, or knew of a conspiracy or fraudulent scheme.”
Others on trial include former Gen Re Senior Vice President Christopher Garand, former Gen Re Assistant General Counsel Robert Graham, and former AIG head of reinsurance Christian Milton.
A lawyer for Ferguson, Michael Horowitz, told jurors there was no motive for his client to participate in any fraud. “Ron is not guilty of the charges in this case,” he said. “The government can’t prove guilt beyond reasonable doubt.”
The first day of trial ended with the first government witness, Charlene Hamrah of AIG investor relations, on the stand.
If convicted, Ferguson, Monrad, Milton and Graham could each face more than 200 years in prison and a $46 million fine, prosecutors have said. Garand could up to 150 years in prison and a $29.5 million fine, prosecutors have said.
Writing by Martha Graybow and Jonathan Stempel, editing by Gary Hill/Andre Grenon