Billionaire investor Warren Buffett has long been revered in the business world, but his importance at a trial involving the world’s largest insurer is hotly contested.
The trial starts Monday in federal court in Hartford for four former executives of Berkshire Hathaway’s General Re Corp. and a former executive of American International Group Inc. who are charged with participating in a scheme to manipulate AIG’s financial statements.
Some of the executives say they believed Buffett was involved and supported the deal that led to the charges. Buffett leads Berkshire Hathaway, drawing at least 25,000 people to his annual shareholder meetings.
"Buffett is an iconic figure," Reid Weingarten, attorney for one of the defendants, said at a pretrial hearing, according to a transcript. "He is known throughout the land as a person of great integrity."
But federal prosecutors accused defense attorneys in court papers of trying to create "a trial-within-a-trial about Warren Buffett." Prosecutors say they only named Buffett as a potential witness to rebut any suggestion by the defense that he was involved in or approved the deal.
U.S. District Court Judge Christopher F. Droney agreed Thursday to allow one of the defendants to present an exhibit during opening statements that lists Buffett as among those involved in the transaction. But Droney warned that he may later tell jurors to disregard such references if supporting evidence is not presented during the trial, or if the evidence was mischaracterized in the exhibits.
Buffett, who has not been charged with any wrongdoing, has said he was not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions. His attorney, Ronald Olson, said in a recent statement that Buffett "denies that he passed judgment in any way" on the challenged deals.
Buffett has never testified at a criminal trial involving allegations of corporate fraud, Olson said.
At issue are two reinsurance transactions between AIG and Stamford-based General Re. Reinsurance policies are backups purchased by insurance companies to completely or partly insure the risk they have assumed for their customers.
Prosecutors said the transactions were initiated by an AIG senior executive to quell criticism by analysts of a reduction in AIG’s loss reserves in the third quarter of 2000. The indictment alleges that the aim was to make it appear as if AIG increased its loss reserves by about $500 million in 2000 and 2001, pacifying the analysts and investors and artificially boosting the company’s stock price.
The former General Re executives charged were Ronald Ferguson, chief executive officer from about 1987 through September 2001; Elizabeth Monrad, chief financial officer from June 2000 through July 2003; Robert Graham, a senior vice president and assistant general counsel from about 1986 through October 2005; and Christopher P. Garand, a senior vice president from 1994 until 2005.
Also charged was Christian Milton, AIG’s vice president of reinsurance from about April 1982 until March 2005.
The defendants have pleaded not guilty to the charges.
The trial, expected to last about two months, also could shed light on what AIG’s former chairman and chief executive, Maurice "Hank" Greenberg, knew about the transactions. Allegations of accounting irregularities, including the General Re transactions, led to Greenberg’s resignation in 2005.
Greenberg, who headed the New York-based company for 37 years, has denied any wrongdoing.
Prosecutors also plan to play taped telephone conversations of the defendants. Unlike other corruption cases involving wiretaps, these calls were recorded internally by one of the companies and obtained by subpoena.
AIG filed a restatement in 2005 related to the transactions and agreed to pay a record $1.64 billion in a settlement with federal and New York authorities.
In 2005, two senior Gen Re executives, John Houldsworth and Richard Napier, pleaded guilty to conspiracy to falsify SEC filings in connection with the investigation and are awaiting sentencing.
If convicted of all the charges, Ferguson, Monrad, Milton and Graham each face up to 230 years in prison and a fine of up to $46 million. Garand faces up to 160 years in prison and a fine of up to $29.5 million.