General Re, the reinsurance company owned by Berkshire Hathaway, yesterday agreed to pay $92 million to settle federal charges that the company entered in to a shady reinsurance transaction with insurance major American International Group (AIG) that helped AIG inflate profits by nearly $500 million.
AIG was charged in 2006 with arranging one of the largest financial frauds in US history and was ordered to pay over $1 billion in fines and penalties.
According to the US Department of Justice, General Re has agreed to pay $19.5 million to the US Postal Inspection Service Consumer Fraud Fund and an additional $12.2 million to settle charges leveled by the US Securities and Exchange Commission.
To compensate shareholders of New York-based AIG, General Re will also pay a $60.5 million class action settlement.
Warren Buffett, the promoter of General Re's corporate parent, Berkshire Hathaway, was never charged in the case.
As part of its resolution with the Justice Department, General Re admitted that its most senior management engaged in a scheme from 2000 through 2004 to falsely inflate AIG's reported loss reserves.