By Jonathan Stempel
WASHINGTON (Reuters) - A Brazilian reinsurer entered a nonprosecution agreement and will pay $5 million to resolve a U.S. probe into a false story that the company had received a significant investment from billionaire Warren Buffett's Berkshire Hathaway Inc . (NYSE:BRKa)
The U.S. Department of Justice said the payment by IRB Brasil Resseguros SA will go to investors who sold its stock on March 4, 2020, less than a week after news of Buffett's apparent vote of confidence became known.
IRB shares rose 6.7% on Feb. 27, 2020, after news of the bogus Berkshire stake became public, but plunged 43% over two days after Berkshire said on March 3, 2020 that it was not an IRB shareholder and had no plans to become one.
The Justice Department later charged Fernando Passos, who had been IRB's chief financial officer, with planting the story to prop up IRB's stock price, which had fallen after a short seller questioned the reinsurer's financial results.
Passos allegedly fabricated a fake shareholder list showing that Berkshire owned 28 million IRB shares, and spread news of the stake to investors, an analyst and the press.
"I will spread this story that berk bought 28MM of shares," Passos allegedly texted a colleague. "Then it becomes true."
In settling, IRB admitted that the accusations constituted securities fraud, and pledged to continue upgrading its compliance and ethics procedures.
The Justice Department also said a larger settlement could threaten IRB's survival, and IRB represented it could not afford to pay a criminal fine and cover all shareholder losses.
IRB announced the resignations of Passos and CEO Jose Carlos Cardoso on March 4, 2020. It announced a restatement to address accounting irregularities three months later.
Passos was indicted in an Iowa federal court in February 2021. He has not entered an appearance, court records show.