May 7 (Bloomberg) -- Warren Buffett's Berkshire Hathaway Inc. said an unidentified executive at its General Re unit may be sued by the Securities and Exchange Commission as the regulator investigates reinsurance accounting.

The SEC sent a notice on May 2 to a senior vice president at General Re's U.S. unit saying the regulator was considering a civil suit and penalties, Berkshire said yesterday in its first- quarter earnings release. Profit at the insurance and investment company fell 12 percent as Buffett's $21.8 billion bet against the dollar spurred $307 million in pretax losses.

Berkshire, run by Buffett for four decades, has become embroiled in accounting probes as the SEC, New York Attorney General Eliot Spitzer and regulators as far away as Australia examine at least three of its reinsurance clients. The SEC's notice is the first indication the agency may take action against an employee of Berkshire itself.

``The very worst that could happen is that one or two individuals are found to have done something wrong,'' said Guy Spier, who manages $50 million at New York-based Aquamarine LLC, including about $10 million of Berkshire shares. ``There is absolutely no question in my mind that Buffett acted properly.''

General Re Chief Executive Officer Joseph Brandon declined to identify the individual or comment on the SEC's so-called Wells notice. SEC spokesman John Heine declined to comment.

Buffett, the world's second-richest man in a ranking by Forbes magazine, has accumulated dozens of subsidiaries and thousands of followers with folksy investment advice and a knack for identifying undervalued assets. Berkshire shares have risen an average 22 percent a year since 1987 and are down 4.4 percent this year amid the reinsurance probes.

Beating Estimates

Net income at the Omaha, Nebraska-based company fell to $1.36 billion, or $886 a share, from $1.55 billion, or $1,008, a year earlier, the company said yesterday.

Profit excluding the currency bet and other changes in the value of investments climbed 27 percent to $936 a share, exceeding a $906 estimate by Fox-Pitt Kelton Inc. analyst Gary Ransom and a $914 projection by Credit Suisse First Boston's Charles Gates.

Investigators are looking at non-traditional reinsurance that may have been improperly used to mask losses or smooth profit. Regulators in Australia are probing transactions between a General Re unit and a failed insurer. Berkshire said yesterday that the U.K.'s Financial Services Authority is investigating a current officer and a former officer of two separate General Re units in connection with non-traditional sales.

Connecticut Attorney General Richard Blumenthal has also asked for information, the company said yesterday. Investigators for Spitzer, the SEC and the Department of Justice interviewed Buffett on April 11, and Spitzer has said he is a ``cooperating witness'' not a target.

Bet Against Dollar

Buffett, who has bet on a slumping dollar because of concerns about the U.S. trade deficit, increased his position in the quarter even as the currency's gain produced losses. Overall, Berkshire's wager has resulted in $2.65 billion in gains since 2002.

Speaking at Berkshire's shareholder meeting on April 30, Buffett said his insurance units were earning more than he had expected. The company's subsidiaries include auto insurer Geico, the fifth-largest U.S. auto insurer.

``Particularly in insurance underwriting, it's been a considerably better quarter than I would anticipate,'' Buffett, 74, told about 20,000 investors and admirers in Omaha last week. ``We won't earn at the rate of the first quarter throughout the year.''

Underwriting profit at Geico rose 40 percent to $312 million, before taxes. The company cut prices in some states in the last year, and those lower rates will likely reduce profitability in future quarters, Berkshire said.

Cash

Berkshire's cash swelled to $46.7 billion as Buffett said he saw few values in stocks and bonds, and said buyout and hedge funds drove up the price of assets. Cash excluding funds held in his financing businesses was $44.1 billion.

``In the next two to five years, there is a very high probability Berkshire will put at least $20 billion or $30 billion to work,'' said Mohnish Pabrai, who oversees more than $200 million as managing partner at Pabrai Investment Funds in Buffalo Grove, Illinois, including Berkshire shares. ``Warren is going to have a chance to swing a few times.''

Berkshire sells most of its non-traditional insurance policies at businesses run by Ajit Jain in Stamford, Connecticut. In the first quarter, Jain didn't sell any non-traditional policies. The first quarter of 2004 also had no activity.

Premium income at Jain's businesses rose 23 percent to $985 million, while pretax underwriting profit climbed more than six- fold to $143 million from a year ago, when the company had a $100 million loss on a single policy.

GE Purchase

Berkshire yesterday agreed to buy General Electric Co.'s medical malpractice insurer for about $825 million. Last month, Anheuser-Busch Cos., the world's biggest brewer, said Berkshire had bought a ``significant'' stake.

Shares of Berkshire fell $200.10 to $83,999.90 in New York Stock Exchange composite trading yesterday. The results were announced after the close of regular trading. The shares have fallen 8.2 percent in the past 12 months, compared with a 9.7 percent gain in the NYSE Composite Index.

To contact the reporter on the story: David Plumb in New York at dplumb@bloomberg.net

Last Updated: May 7, 2005 00:02 EDT