Joseph Brandon, chief executive of Berkshire Hathaway's General Reinsurance and one of Warren Buffett's closest confidants, is facing civil charges from the Securities and Exchange Commission for his alleged role in overseeing a controversial re-insurance transaction with the American International Group.
News that Mr Brandon has received a so-called Wells notice, which indicates regulators are considering bringing civil charges against him, comes six months after Maurice "Hank" Greenberg was ousted as the chief executive of AIG after regulators accused him of misleading investors by arranging this deal.
Mr Brandon could be barred by the SEC from serving as an officer and director of a public company and face civil penalties, according to a statement from Berkshire. Two former senior General Re executives have been fired by Berkshire after pleading guilty to fraud charges for their part in arranging the deal.
Possible charges against Mr Brandon are an indication that federal regulators are taking a tough stance over Berkshire Hathaway's alleged involvement in inappropriate accounting practices in the insurance industry.
Eliot Spitzer, New York State attorney-general, opted not to investigate General Re because Mr Buffett and other senior executives at Berkshire had co-operated with his inquiries into potential accounting irregularities at AIG, a person familiar with the regulatory inquiries said.
In April, Mr Buffett told regulators he did not have detailed knowledge of the transaction, which Mr Greenberg arranged by placing a call to Ronald Ferguson, former chief executive of General Re, in 2000. Mr Brandon, who joined Berkshire Hathaway in 1989, was picked by Mr Buffett to take over as chief executive of General Re, Berkshire's struggling reinsurance group, in 2001.
The transaction, involving General Re paying AIG $500 million in premiums in 2000 and 2001 to take on the payment of claims General Re incurred in earlier years, served to inflate the figures of the world's biggest insurer.
At the same time, AIG took on the obligation for paying $500 million of claims. As AIG had an obligation to pay these claims, it set up a $500 million reserve to meet the future liabilities.
In early afternoon trade yesterday A-shares in Berkshire Hathaway fell $200 to $84,200.
