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Berkshire's In for a Bruising

Someone please tell Eliot Spitzer that no one -- not even the nation's second-richest man -- should receive preferential treatment under the American system of justice.

One of the most glaring and disconcerting features of the current insurance scandal is New York Attorney General Spitzer's insistence that Warren Buffett, the CEO of Berkshire Hathaway (BRKA), is merely a witness in his insurance probe -- and not a target. Just this Sunday on ABC's This Week, Spitzer said that Buffett was "not a subject or a target of our investigation," even though Buffett knew about a Berkshire deal that is being examined by Spitzer and other regulators.

The deal, which Berkshire subsidiary General Re did with insurance giant AIG (AIG), is a type of finite reinsurance, a product that regulators are targeting because it is often used to give a fake boost to the financial statements of insurance companies.

Due to Berkshire's involvement in a number of finite reinsurance transactions, and the refusal of other regulators to give Buffett an easy ride, Spitzer's kid-gloves approach won't look tenable for much longer. It's almost impossible to see how Berkshire can emerge from the insurance scandals without suffering some legal penalty and a dent in its reputation. And as Berkshire's finite deals come under greater scrutiny, Buffett will likely be called on again to say whether he was personally involved in them.

Berkshire stock fell $460 Wednesday to $87,490.

Hot Seat

At a Securities and Exchange Commission office in New York Monday, Buffett answered regulators' questions about the AIG deal, which was put together in late 2000. AIG, conducting an internal probe, now says the deal was "improper." It appears to have been done simply to help AIG give an artificial $500 million boost to the reserves it keeps against future insurance payouts. AIG's former CEO Hank Greenberg, who left the company in a storm last month, played a hands-on role in the transaction. On Tuesday, Greenberg was questioned by regulators in New York, but invoked his constitutional right not to testify.

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