Berkshire Hathaway, the Omaha holding company controlled by Warren E. Buffett, said yesterday that regulators had notified Joseph P. Brandon, the chief executive of a Berkshire subsidiary, the General Reinsurance Corporation, that they planned to file a civil fraud complaint against him in connection with a wide-ranging investigation of insurance industry abuses.
The so-called Wells notice, issued by the Securities and Exchange Commission, allows Mr. Brandon several weeks to fashion a response that might convince regulators not to take formal action against him. Berkshire said that regulators also issued Wells notices to Robert Graham, a current General Re executive, and Christopher Garand, a former company executive, on Thursday, the same day that they notified Mr. Brandon. All three men face penalties that may include fines, asset forfeitures and a prohibition from serving as an officer or director of a public company.
While regulators have now issued Wells notices to at least six General Re executives, Mr. Brandon is the most senior General Re executive to receive one, raising the possibility that testimony he might provide would possibly implicate Mr. Buffett in the investigation.
Mr. Brandon briefed Mr. Buffett a few years ago on some elements of improper transactions involving another major insurer, the American International Group, according to people involved in the investigation. But regulators have repeatedly described Mr. Buffett as a cooperating witness and have said he is not a subject of the investigation. Individuals with direct knowledge of the inquiry have said that no evidence has emerged thus far indicating that Mr. Buffett knew about the structuring of questionable transactions before they occurred.
A Berkshire spokeswoman declined to comment yesterday beyond the news releases the company issued outlining the S.E.C.’s actions. Mr. Brandon did not return a phone call seeking comment. Mr. Garand and Mr. Graham could not be reached.
A.I.G. forced its former chairman and chief executive, Maurice R. Greenberg, to retire in March because of improprieties associated with transactions by General Re and A.I.G. that artificially inflated A.I.G.’s reserves by $500 million in 2000 and 2001. Those are the transactions that the S.E.C. and Justice Department are now examining. The New York attorney general, Eliot Spitzer, is also investigating improprieties at A.I.G. and has filed fraud charges against Mr. Greenberg and A.I.G.’s former chief financial officer. Lawyers representing both executives have repeatedly denied any wrongdoing by their clients.
Although corporate records indicate that Mr. Brandon had knowledge of some elements of transactions that A.I.G. has acknowledged as improper, a person involved in the investigation said Mr. Brandon was not aware that the transactions were eventually handled improperly or were part of a larger effort to manipulate A.I.G.’s accounts. Another person involved in the investigation said that while Mr. Brandon signed off on some transactions in question he knew very little about the mechanics of the deals.
Mr. Brandon’s predecessor as General Re’s chief executive, Ronald E. Ferguson, set the transactions in motion, along with Mr. Greenberg, according to documents filed in federal court in Alexandria, Va. In May, Mr. Ferguson invoked legal protections against incriminating himself and declined to respond to regulators’ questions after he was subpoenaed by the S.E.C. and the Justice Department, according to Berkshire Hathaway. So far, however, Mr. Ferguson, who has not returned phone calls seeking comment, has not been cited for any wrongdoing. Mr. Ferguson served as General Re’s chief executive from 1987 to 2001, when Mr. Brandon succeeded him.
On occasions when Mr. Greenberg tried to push Mr. Ferguson into transactions that Mr. Buffett found unacceptable, Mr. Buffett is said to have told Mr. Ferguson not to undertake them. But, said people acquainted with all three men, Mr. Ferguson was in awe of Mr. Greenberg and routinely acceded to his demands. And when he did so, said these people, he was hesitant about informing Mr. Buffett.
Berkshire said in April that Mr. Buffett was never briefed on the nature or the structure of the transactions with A.I.G. Nor, the statement said, was Mr. Buffett briefed on “any improper use or purpose of the transactions.”
In June, two former senior General Re executives, Richard Napier and John Houldsworth, pleaded guilty to criminal fraud charges filed by the United States attorney’s office in Alexandria. Both men acknowledged helping A.I.G. manipulate its accounts.
According to a person involved in the investigation, Mr. Houldsworth, planned to provide evidence to prosecutors that might implicate Mr. Brandon. Mr. Houldsworth, who has an incentive to provide prosecutors with information so he can receive a lighter prison sentence, once oversaw a General Re office in Dublin that investigators have described as a processing center for sham insurance transactions.
Court documents say that Mr. Houldsworth had spoken with an unidentified General Re executive about the “reputational risk” involved in the A.I.G. deal but had been told that Mr. Ferguson, not Mr. Brandon, had personally approved it.
A person involved in the investigation said Mr. Brandon did not know that Mr. Houldsworth planned to fabricate documents, nor did he know the exact structure of fees associated with the transaction until investigators informed him about those details this year, four years after A.I.G. and General Re exchanged money in the deal.
Accounting standards required General Re executives to make sure that they were properly booking their transactions with A.I.G, but they were not required to make sure that A.I.G. also accounted for them properly. Even so, the Alexandria court filings indicate that General Re executives, including Mr. Napier and Elizabeth A. Monrad, the company’s former chief financial officer, knew that A.I.G.’s transactions were questionable. Ms. Monrad, who has also been served with a Wells notice, has not been charged with wrongdoing. She previously said in an interview that she had done nothing wrong while working at General Re and that she acted only at Mr. Napier’s direction.