Buffett's Weak Defense

Updated from 7:11 a.m. EST

This can't be Warren Buffett's best defense.

Berkshire Hathaway (BRKA Quote - Cramer on BRKA - Stock Picks), of which Buffett is CEO, is being targeted by regulators because its insurance subsidiaries have been involved in deals that look like they were designed to give an artificial boost to the financial statements of other companies.

Tuesday, Berkshire released a statement disputing details of recent press coverage of the deals. The Berkshire release also commented on a reinsurance deal that General Re, one of its subsidiaries, did with American International Group (AIG Quote - Cramer on AIG - Stock Picks) in 2000. The reinsurance transaction is currently being investigated by New York Attorney General Eliot Spitzer and the Securities and Exchange Commission.

The plot thickened Wednesday when AIG conceded the deal shouldn't have been treated as an insurance transaction. For that story, click here.

Buffett rarely gives interviews to the press and almost never responds to criticism of his company with a press release like this. As a result, Berkshire fans were hoping this communication would win back some ground for Buffett.

But Tuesday's response from Berkshire should come as a big disappointment to the legions of investors, small and large, who have held up the billionaire Buffett as a model investor and a clean corporate citizen.

The painfully careful wording and the narrow focus of the release suggest that Berkshire isn't able to mount a wide-ranging and robust defense of the reinsurance policies being probed. It also shows that Berkshire now realizes that Buffett's position as CEO could be threatened.

Berkshire stock rose $200 to $87,000 Tuesday.

The most important part of the release is the comment on the AIG deals, which are being probed to see whether they were done simply to give an artificial boost to AIG's financial statements. A Wall Street Journal report said Tuesday that Buffett is scheduled to be interviewed by the SEC and Spitzer's office on April 11. Citing an unnamed source, the article added that the regulators have "documents and witnesses that they believe indicate [Buffett] was involved early on in discussions about the transaction between General Re and AIG, including its structure."