Berkshire Hathaway 2007 Annual Report Download - page 48

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(19) Contingencies and Commitments
Berkshire and its subsidiaries are parties in a variety of legal actions arising out of the normal course of business. In particular,
such legal actions affect Berkshire’ s insurance and reinsurance businesses. Such litigation generally seeks to establish liability
directly through insurance contracts or indirectly through reinsurance contracts issued by Berkshire subsidiaries. Plaintiffs
occasionally seek punitive or exemplary damages. Berkshire does not believe that such normal and routine litigation will have a
material effect on its financial condition or results of operations. Berkshire and certain of its subsidiaries are also involved in other
kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties in substantial amounts.
a) Governmental Investigations
Berkshire, General Re Corporation (“General Re”) and certain of Berkshire’ s insurance subsidiaries, including General
Reinsurance Corporation (“General Reinsurance”) and National Indemnity Company (“NICO”) have been continuing to cooperate
fully with the U.S. Securities and Exchange Commission (“SEC”), the U.S. Department of Justice, the U.S. Attorney for the Eastern
District of Virginia and the New York State Attorney General (“NYAG”) in their ongoing investigations of non-traditional products.
General Re originally received subpoenas from the SEC and NYAG in January 2005. Berkshire, General Re, General Reinsurance
and NICO have been providing information to the government relating to transactions between General Reinsurance or NICO (or
their respective subsidiaries or affiliates) and other insurers in response to the January 2005 subpoenas and related requests and, in
the case of General Reinsurance (or its subsidiaries or affiliates), in response to subpoenas from other U.S. Attorneys conducting
investigations relating to certain of these transactions. In particular, Berkshire and General Re have been responding to requests from
the government for information relating to certain transactions that may have been accounted for incorrectly by counterparties of
General Reinsurance (or its subsidiaries or affiliates). The government has interviewed a number of current and former officers and
employees of General Re and General Reinsurance as well as Berkshire’ s Chairman and CEO, Warren E. Buffett, in connection with
these investigations.
In one case, a transaction initially effected with American International Group (“AIG”) in late 2000 (the “AIG Transaction”),
AIG has corrected its prior accounting for the transaction on the grounds, as stated in AIG’ s 2004 10-K, that the transaction was done
to accomplish a desired accounting result and did not entail sufficient qualifying risk transfer to support reinsurance accounting.
General Reinsurance has been named in related civil actions brought against AIG. As part of their ongoing investigations,
governmental authorities have also inquired about the accounting by certain of Berkshire’ s insurance subsidiaries for certain assumed
and ceded finite reinsurance transactions.
In June 2005, John Houldsworth, the former Chief Executive Officer of Cologne Reinsurance Company (Dublin) Limited
(“CRD”), a subsidiary of General Re, and Richard Napier, a former Senior Vice President of General Re who had served as an
account representative for the AIG account, each pleaded guilty to a federal criminal charge of conspiring with others to misstate
certain AIG financial statements in connection with the AIG Transaction and entered into a partial settlement agreement with the
SEC with respect to such matters.
On February 25, 2008, Ronald Ferguson, General Re’ s former Chief Executive Officer, Elizabeth Monrad, General Re’ s
former Chief Financial Officer, Christopher Garand, a former General Reinsurance Senior Vice President and Robert Graham, a
former General Reinsurance Senior Vice President and Assistant General Counsel, were each convicted in a trial in the U.S. District
Court for the District of Connecticut on charges of conspiracy, mail fraud, securities fraud and making false statements to the SEC in
connection with the AIG Transaction. These individuals have the right to appeal their convictions. Each of these individuals, who
had previously received a “Wells” notice in 2005 from the SEC, is also the subject of an SEC enforcement action for allegedly aiding
and abetting AIG’ s violations of the antifraud provisions and other provisions of the federal securities laws in connection with the
AIG Transaction. The SEC case is presently stayed. Joseph Brandon, the Chief Executive Officer of General Re, also received a
“Wells” notice from the SEC in 2005.
Berkshire understands that the government is evaluating the actions of General Re and its subsidiaries, as well as those of their
counterparties, to determine whether General Re or its subsidiaries conspired with others to misstate counterparty financial
statements or aided and abetted such misstatements by the counterparties. Berkshire believes that government authorities are
continuing to evaluate possible legal actions against General Re and its subsidiaries.
Various state insurance departments have issued subpoenas or otherwise requested that General Reinsurance, NICO and their
affiliates provide documents and information relating to non-traditional products. The Office of the Connecticut Attorney General has
also issued a subpoena to General Reinsurance for information relating to non-traditional products. General Reinsurance, NICO and
their affiliates have been cooperating fully with these subpoenas and requests.
Kolnische Ruckversicherungs-Gesellschaft AG (“Cologne Re”) has also cooperated fully with requests for information and
orders to produce documents from the German Federal Financial Supervisory Authority (“BaFin”) regarding the activities of Cologne
Re relating to “finite reinsurance” and regarding transactions between Cologne Re or its subsidiaries, including CRD, and certain
counterparties. The BaFin has concluded its investigation of Cologne Re concerning these matters.
In April 2005, the Australian Prudential Regulation Authority (“APRA”) announced an investigation involving financial or
finite reinsurance transactions by General Reinsurance Australia Limited (“GRA”), a subsidiary of General Reinsurance. An
inspector was appointed by APRA under section 52 of the Insurance Act 1973 to conduct an investigation of GRA’ s financial or
finite reinsurance business. GRA and General Reinsurance cooperated fully with this investigation. On June 28, 2007, APRA
announced that it had concluded its investigation and imposed a condition on GRA’ s license that requires it to maintain a majority of
independent directors on its local board.
CRD is also providing information to and cooperating fully with the Irish Financial Services Regulatory Authority in its
inquiries regarding the activities of CRD. The Office of the Director of Corporate Enforcement in Ireland is conducting a preliminary
evaluation in relation to CRD concerning, in particular, transactions between CRD and AIG. CRD is cooperating fully with this
preliminary evaluation.