Jonathan Stempel

NEW YORK (Reuters) – U.S. authorities charged a former IRB Brasil Resseguros SA executive with creating a false story about Warren Buffett’s Berkshire Hathaway (NYSE) Inc having made a substantial investment in Brazil’s reinsurer.

According to the U.S. Department of Justice, Fernando Passos (39), was IRB’s chief financial officer. This story was fabricated in 2020 to support IRB’s stock prices, which were falling after a short-seller questioned its financial results.

Passos of Sao Paulo fabricated a false shareholder list that showed Berkshire had 28 million IRB shares. They then spread the news to analysts, investors and the media.

Passos said that Passos texted an investor relations colleague, “I will spread the story that Berk bought 28MM shares.” Then, it is true.

Passos was convicted of securities fraud and wire fraud. Passos faces up to 80 years in prison.

Related civil charges were filed by the U.S. Securities and Exchange Commission.

Passos remains at large. Berkshire and IRB didn’t immediately reply to comments requests.

IRB shares rose 6.7% after the news about a fake Berkshire stake was made public. This is a supposed vote to confidence by Buffett’s company, which owns many insurers, including Geico, General Re, and Geico.

IRB shares plunged by 43% in two days, after Berkshire stated on March 3, 2020 that it wasn’t, hadn’t been, and would not become an IRB shareholder.

Passos said that authorities had told them “Damn… We’re…” [expletive]!”” Before trying to trick IRB directors into thinking that the custodian bank of the reinsurer had supplied the shareholder list.

Indictment stated that Passos falsely sent email to Berkshire Vice Chairman Ajit Jains, informing him of the error in Brazilian press reports.

Jain was not indicted, but was named as manager for Berkshire’s insurance operations.

IRB declared that Passos, and Jose Carlos Cardoso, its Chief Executive had resigned on March 4, 2020. Three months later, the IRB updated its financials for 2019, to correct accounting mistakes.

Brazil’s securities regulator CVM announced in November that it will file civil charges against Passos for market manipulation, and Cardoso for leaking false information.