Risk Management

General Re Settles with Ohio over AIG Case

Agreement calls for the insurance unit of Buffett's Berkshire Hathaway to pay $72 million for investor claims.
Stephen TaubFebruary 26, 2009

General Reinsurance Corp. agreed to pay $72 million to settle investors’ claims, according to Ohio Attorney General Richard Cordray.

The lawsuit stemmed from transactions between General Re, a subsidiary of the Warren Buffett-controlled Berkshire Hathaway Inc., and American International Group, the badly wounded insurance giant that continues to struggle along even after receiving $150 billion in federal government money. Several Ohio pension funds claimed that  they had lost money on AIG’s stock.

According to the state’s attorney general, Gen Re allegedly participated in a fraudulent $500 million reinsurance transaction with AIG that allowed AIG to improperly inflate its loss reserves, a key indicator of financial health to investors and insurance industry analysts.

“When the truth about this fraud and other AIG manipulations was made public, the price of AIG stock declined,” said Cordray. “Investors, including Ohio’s pension funds, had been deceived and suffered significant financial losses.”

The lawsuit was brought by the Ohio Public Employees Retirement System, the State Teachers Retirement System and the Ohio Police and Fire Pension Fund. It sought damages for investors purchasing AIG securities between Oct. 28, 1999 and April 1, 2005.

In February 2008 four former Gen Re executives and one former AIG vice-president were convicted in federal court in Hartford, Conn., on charges of conspiracy and securities fraud in connection with the phony reinsurance deal. Evidence presented at trial showed that each of the defendants understood that the true purpose of the deal was to allow AIG to falsely report increases in loss reserves to analysts and investors in its filings with the Securities and Exchange Commission, according to the Ohio statement.

In October 2008 the Ohio attorney general announced a $97.5 million settlement with PricewaterhouseCoopersLLP as part of the AIG case. PricewaterhouseCoopers was alleged to have violated securities laws by providing auditing services and unqualified audit opinions on AIG’s financial statements during the years at issue in the case.

Representatives of General Re in Stamford, Conn., didn’t immediately return a phone call from CFO.com seeking comment.