General Re Corp., a subsidiary of Warren Buffett’s Berkshire Hathaway Inc (NYSE:BRK), has agreed to pay to settle charges by the Securities and Exchange Commission that it allegedly entered into sham reinsurance contracts.
The SEC said Gen Re agreed to pay it $12.2 million. In addition, the agency said Gen Re agreed to pay $19.5 million to the U.S. Postal Inspection Service Consumer Fraud Fund. The company also agreed to pay $60.5 million to settle a civil class action suit brought forward by injured AIG shareholders.
The allegedly fraudulent contracts with American International Group (NYSE:AIG) and Prudential Financial Inc (NYSE:PRU) had no economic value and did not transfer any risk from the insurance buyer to General Re, the SEC said.
The regulatory agency alleged that General Re pocketed fees for its involvement while AIG and Prudential were able to overstate their revenues and their loss reserves.
Prudential overstated revenues by more than $200 million from 2000 to 2002 and Gen Re was paid $8.1 for its involvement, while AIG overstated its loss reserves by $500 million from sham contracts, the SEC states.