Legal News

Prosecutors Pressuring Buffett to Oust General Re Chief

By Dan Slater

Surely, most executives would prefer replacing a top executive to finding their company indicted. But, as we were reading Law Blog colleague Amir Efrati and Karen Richardson’s WSJ story this morning about federal prosecutors pressuring Warren Buffett to replace the CEO of General Re, the reinsurance unit of Berkshire Hathaway, we thought, why does it have to be one or the other?

A bit of background: In February, four former executives of General Re were found guilty by a Connecticut jury for fraud for allegedly using reinsurance deals to inflate the reserves of AIG, General Re’s biggest client, by $500 million, thereby artificially boosting its stock price.

In 2005 General Re’s current CEO, Joseph P. Brandon, received notice from securities regulators that they were looking into whether he violated securities laws, but neither the SEC nor prosecutors have charged Brandon with any wrongdoing. However, at the trial of the four convicted General Re execs, prosecutors identified Brandon as an unindicted alleged co-conspirator. And after the trial, according to the report, prosecutors said they would “work up the ladder” in a continued effort to ferret out wrongdoing. Now they’re pressuring Buffett, Berkshire’s legendary chairman, to remove Brandon. Neither Buffet nor Brandon nor the DOJ commented for the story.

As it becomes more common for companies to avoid prosecution by striking deals with the government, the practice of prosecutors suggesting personnel changes as part of a settlement is becoming more common, say defense lawyers. Still, the practice of prosecutors’ trying to influence corporate management is controversial. “It’s not the business of prosecutors to dictate who runs a company when they don’t have sufficient evidence to bring a case against the executive,” said Jim DeVita, a Bryan Cave partner who used to be a federal prosecutor in New York.

LB Readers, what do you think? Is it proper for prosecutors to pressure personnel changes without bringing charges?

Full post as published by Law Blog - WSJ.com on April 07, 2008 (boomark / email).