Let’s review the landscape of regulating business for a moment.
Various former executives of disgraced and insolvent Enron Corp. are under indictment for using structured finance transactions that independent lawyers and accountants approved to mislead investors regarding Enron’s true financial condition. Although such transactions came to light almost four years ago, no such Enron executive has yet to be tried on such charges. In the meantime, Enron has been effectively liquidated.
Several years ago, General Reinsurance Corp., a unit of Berkshire Hathaway, and American International Group, Inc. entered into at least one large structured finance transaction with each other. As with Enron’s structured finance transactions, numerous executives, lawyers, accountants and perhaps even consultants for both companies reviewed and approved the deal. Here are the previous posts on the saga involving AIG and Berkshire.
New York Attorney General Eliot Spitzer, the new Lord of Regulation, believes that the companies did not account for the transaction properly and, as a result, that the transaction made AIG and Berkshire’s financial performance appear better to each company’s investors than it really was. Despite not having heard his side of the story, the Lord has already concluded that former AIG chairman and CEO Maurice “Hank” Greenberg — a rather hard-knuckled executive — committed a crime in regard to the transaction.
Yesterday, as this NY Times article reports, the Lord had a nice chat with the avuncular Oracle of Omaha, the chairman of Berkhsire, in which he questioned the Oracle over his knowledge of the transaction. The Oracle replied that he knew about the deal generally, but that others at General Re handled the details of the transaction. The Oracle also stated that he understood that the deal had been properly accounted for, but again, he did not really know much about the details of all that.
By the way, the Oracle agreed to chat with the Lord because the Lord assured him that — unlike the dastardly Mr. Greenberg — the popular Oracle is not a target of the Lord’s investigation. In appreciation for the Lord’s courteous gesture, the Oracle served up some more juicy tidbits of AIG’s involvement in the transaction for the Lord to chew on.
In the meantime, former Enron chairman and CEO Ken Lay’s defense of the criminal charges against him relating to Enron’s structured finance transactions is precisely the same as the Oracle’s above explanation of his role in the transaction with AIG.
In the wake of almost unprecedented negative publicity — much of which has been flamed by prosecutors pursuing him — Mr. Lay is facing the prospect of spending much of the remainder of his life in jail. The same is probably true for Mr. Greenberg.
Meanwhile, another large company that engaged in similar structured finance transactions — and which collapsed at about the same time as Enron — announced yesterday that it had settled civil charges with the SEC over its involvement in such transactions. No criminal charges were ever filed in regard to that matter.
And the Oracle returns to Omaha to work on his next letter to shareholders.
Quare: Is this any way to regulate business?