In the November 17th newsletter, I mentioned some of AIG's legal problems. AIG is not only a giant, multinational insurance company, but they were a market maker in gold and silver until their abrupt departure in June of 2004. The corporation didn't explain its decision, but analysts have speculated that AIG's management feared the explosive potential of silver in the face of a historically large short position. Recent events indicate that senior officers were more afraid of investigations by New York Attorney General Spitzer than silver market action.

Since February, AIG's board of directors has fired many senior executives for failing to cooperate with investigators. Maurice "Hank" Greenberg, the CEO for almost 38 years, was also removed in March due to the scandal. Despite Greenberg's firing, he still has a great deal of influence in AIG. He is the director of Starr International, a private company that owns 12% of AIG stock, and decides deferred compensation for senior executives.

Regulators have called Greenberg to testify on April 12th, to determine his role in questionable transactions. Greenberg is expected to invoke the Fifth Amendment during his deposition, as his lawyers state that the ex-chairman requires more preparation time before testifying. Spitzer has focused his investigation on the former chairman, stating that Greenberg managed AIG as "a black box run with an iron fist by a CEO who did not tell the public the truth." Although Greenberg's attorneys have characterized the "improper" transactions as errors, the Attorney General has stated that there is "overwhelming" evidence of accounting fraud. Despite this strong language, Spitzer asserted that he hoped for a "civil resolution" of the case.

Many of Spitzer's questions center on an agreement between Berkshire Hathaway's insurance unit General Re and AIG. Regulators suspect that AIG signed a $500 million contract with the reinsurer to boost its financial statements. General Re allegedly purchased reinsurance, but this classification was inaccurate as AIG did not assume any risk. There is some evidence that documents were altered after the deal was finalized, but neither company has admitted to changes.

Since the scandal began, AIG has already revised its earnings lower by $1.7 billion. Its stock reached $52.10 today, a drop of 29% since the company acknowledged subpoenas from the SEC and Attorney General's office on February 14th.

Warren Buffett spoke to authorities on Monday regarding the relationship between Berkshire Hathaway's subsidiary General Re and AIG. The Wall Street Journal has reported that Buffett directed his lawyers to bring documents of the transaction to Spitzer's office. The Attorney General has confirmed that Buffett is not a target of the investigation, just a witness. After speaking to the regulators, Buffett stated that he "told them everything I know."

Considering the link between Berkshire Hathaway, AIG, and silver, it's interesting to note that Warren Buffett purchased 129.7 million ounces of silver in 1997 and 1998. Since silver is so cheap, this was less than 2% of Berkshire Hathaway's investment capital. Buffett and his vice chairman Charlie Munger studied the silver market, and determined that inventories of silver bullion were plunging. As value investors, they believed that supply and demand would rebalance in the future at a higher price. As smart buyers, they announced their acquisition once they had bought all the silver they needed. Their interest caused a spike in the market to about $7.50 an ounce. Although the market declined for the next couple of years, I don't think that discouraged Munger and Buffett. They have always invested long-term, so I think they will hold onto their silver as long as this bull market looks healthy.

If you want to invest like Buffett, Bill Gates and George Soros, pick up some silver today!