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Around 10 o'clock this morning, legendary investor Warren Buffett entered a side door at the Woolworth Building in lower Manhattan where the Securities and Exchange Commission has a regional office.

Buffett, avoiding more than two dozen reporters and camera crew members at the front entrance, was heading to an unusual meeting to answer questions from the SEC, federal prosecutors from the Eastern District of Virginia and investigators from New York Attorney General Eliot Spitzer's office.

The regulators and prosecutors are all probing a number of highly complex insurance transactions, including a deal between General Re Corp., a unit of Buffett's Berkshire Hathaway holding company, and New York-based insurance giant American International Group.

Spitzer stressed on Sunday on ABC's "This Week" that Buffett was "not a subject or a target of our investigation," but said, "There are some ambiguities that will be hopefully addressed in our discussion with Mr. Buffett."

Buffett was subpoenaed in January and has said he would cooperate.

Sources say he's a cooperating witness who, along with other Berkshire executives, has played a key role in helping investigators understand the AIG deal as well as other complex reinsurance deals that regulators think some companies, including AIG, used to inflate their bottom line.

General Re's involvement in the investigation dates to October 2003, when the U.S. Attorney for the Eastern District of Virginia first subpoenaed the company seeking information about transactions it executed with Reciprocal of America, a Virginia professional liability insurer that collapsed that year during allegations of major accounting fraud.

Sources say that in complying with the request, General Re ultimately provided prosecutors with scores of documents on a number of potentially questionable transactions. One that especially caught the eye of both General Re and investigators involved AIG, the world's largest business insurer and a firm whose complicated finances have long drawn regulatory interest. The Wall Street Journal on Friday reported on General Re turning information about the AIG transaction over to prosecutors.

The AIG deal took place in two parts, in December 2000 and March 2001. Under terms of the agreement, described in a March 30 AIG press release, a unit of General Re sent $500 million in potential liabilities to AIG in addition to $500 million in premiums. AIG used the money to increase the cash it holds in reserve to pay claims, an amount some investors had criticized as too low, and added $500 million in revenue to its balance sheet.

The transaction was intended to be a reinsurance deal, a common transaction in which an insurer buys insurance to guard against potentially huge losses, such as from a class-action lawsuit or major accident. But in order to be legitimate, the provider of reinsurance, in this case AIG, must be taking on potential risk.

But regulators say the $500 million premium transfer to AIG indicates the deal may have involved little or no risk for AIG, and therefore the $500 million was really a loan and should not have been counted as revenue. In the March 30 statement, AIG said it had "concluded that the Gen Re transaction documentation was improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance."

AIG has said it may have inflated its net worth by as much as $1.7 billion through the General Re deal and other transactions.

While Buffett is by all accounts a cooperating witness and not a target, regulatory sources say they still have some serious questions for the Berkshire chief, who has earned a reputation as a plain-spoken advocate of straightforward accounting, reasonable executive compensation and overall good corporate governance.

Jacob Frenkel, an attorney at Shulman & Rogers in Rockville, Md., and a former SEC enforce ment lawyer, said it is possible for one side of a transaction to account for a deal properly without knowing whether the other side is doing so.

He said he thought Buffett's testimony would serve twin purposes for regulators: to provide more information about the transactions and to raise the overall profile of what is at bottom a highly complex, even arcane, probe.

On March 29, Berkshire released a statement saying Buffett "was not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions."

Legal experts say Buffett could be helped by his reputation as a hands-off manager who lets executives at the many companies Berkshire owns operate with autonomy.

Buffett is a major shareholder and longtime director of the Washington Post Co. The Buffalo News is a Berkshire division, and Buffett is its chairman.

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