NASHVILLE, TENN. – Bershire Hathaway Inc.’s General Re Corp. conspired to fool regulators into allowing a failing insurance firm to stay in business, according to a $1 billion (U.S.) fraud lawsuit by the Tennessee insurance commissioner.
Reciprocal of America, which insured doctors, hospitals and lawyers, told regulators before it went bankrupt last year that General Re back 70 per cent of the policies it sold in Tennessee, Commissioner Paula Flowers said. In fact, General Re agreed to reinsure only 30 per cent of the policies and helped Reciprocal conceal the lack of coverage, Flowers said.
Bershire Hathaway is based in Omaha, Neb., and run by billionaire Warren Buffett.
Tennessee is the second state to file a fraud suit against General Re and former executives of Richmond, VA.-based Reciprocal. Virginia Insurance commissioner Alfred Gross filed a similar suit in November. Reciprocal executives including former chief executive Kenneth Patterson made secret agreements and set up shell companies to mask Reciprocal’s financial situation, according to the suits.
“This is like Enron of the insurance industry,” Dee Miles, a lawyer for the state of Tennessee.
Richard McCarty, assistant general counsel of General Re Corp., rejected the allegations. General Re has more than $52 billion in assets and the highest possible credit rating.
“We don’t believe that General Re or its employees did anything wrong,” McCarty said.
The suit, filed in U.S. District Court in Nashville last week, also names Reciprocal’s auditors, PriceWaterhouseCoopers LLP, the world’s largest auditor, and Wachovia Corp., the fourth-largest U.S. bank, which maintained a trust for the Tennessee companies that was meant to cover Reciprocal’s expenses.
The suit accuses the auditor, the bank and executives for Reciprocal, its units, its lawyers and General Re of fraud and conspiracy under the Racketeer Influenced and Corrupt Organizations Act of 1970.