OMAHA, Nebraska (Bloomberg) ? Warren Buffett, the second-richest American, lives in a $700,000, five-bedroom house on a maple-lined street in Omaha, Nebraska.

Neighbour Mike McMullen says he sometimes sees Buffett, 74, warming up his Lincoln on winter mornings. The licence plate reads: ?Thrifty?.

Four decades after Buffett bought Berkshire Hathaway Inc., now a holding company worth $129.9 billion, his reputation for honesty and openness is threatened as never before by a wave of federal, state and international investigations of Berkshire?s General Re Corp., the largest US reinsurer.

?I know it bothers Warren a lot,? says Robert Soener, 80, a retired Omaha stockbroker and Berkshire investor who has been a friend of Buffett since the 1950s when the two taught an investment class at the University of Nebraska at Omaha.

?Even if he comes out ? and I know he will ? clean as a whistle, there?s still going to be that stigma, not to the stockholders, but to the outside.?

Shareholders say they worry that the premium Buffett brings to Berkshire?s bonds and stock may be eroding. The company?s borrowing costs are rising, and shares have fallen four percent this year.

Investors have had a spectacular ride since Buffett took control of Berkshire on May 10, 1965. A $10,000 investment that day would be worth about $47 million today. Berkshire shares have had a compound annual return of 23.5 percent over the past four decades, more than triple the 6.8 percent price appreciation of the Standard & Poor?s 500 Index. Soener?s stock comes from $15,000 his mother invested with Buffett in the 1950s. He wouldn?t say how much the shares are worth now or if he?d sold any.

Now, New York Attorney General Eliot Spitzer, the US Securities and Exchange Commission and the US Justice Department are all examining reinsurance deals of Stamford, Connecticut-based General Re.

Spitzer filed a civil complaint May 26 against New York- based American International Group Inc. and its then-chief executive officer, Maurice (Hank) Greenberg, accusing them of accounting fraud.

The complaint said General Re ?created false and misleading documentation to satisfy Greenberg?s illicit goals? in 2001 to manipulate the financial statements of AIG, the world?s largest insurer. Joseph Brandon, General Re?s CEO, declined to comment. Greenberg?s lawyers issued a statement denying Greenberg had engaged in ?any fraudulent conduct?.

High Stakes

Also on May 26, Australian regulators said the Australian unit of Zurich-based Zurich Financial Services AG used reinsurance transactions with Cologne-based General & Cologne Re Group, a unit of Berkshire?s General Re, to overstate 2000 profit by A$61 million ($47 million). The Sydney-based Australian Prudential Regulation Authority didn?t say if General & Cologne knew how its policies were being used. Mark Westfield, a spokesman for General Re in Australia, declined to comment.

The investigations of reinsurance ? coverage one insurer buys to share the risk of underwriting losses with another insurer ? pose high stakes for Buffett. The probes might disrupt General Re, the largest of Berkshire?s insurance divisions, which Buffett called ?the propellant of our growth? in his annual shareholder letter released March 5.

Investors fear the scrutiny will lead to unwarranted penalties on reinsurers, says Thomas Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, which has about 15 percent of its $2 billion under management in Berkshire shares.

?This is an unusual time, when industry conduct is being reviewed and probably will be reformed,? Russo says.

The probes might also increase pressure on Buffett to alter Berkshire?s governance policies and the makeup of its board. They could as well challenge the acknowledged hands-off way he manages the company?s 65 operating companies from his offices in Kiewit Plaza, an unassuming grey building across from an Omaha strip mall.

?He has a very iconoclastic view of corporate governance that I don?t think anyone but Warren Buffett could get away with,? says Patrick McGurn, senior vice president of Rockville, Maryland-based Institutional Shareholder Services, which advises fund managers on governance.

?That could come back to hurt them as people look at reinsurance practices at Berkshire,? says McGurn, 44.

Among Buffett practices cited by McGurn: Selecting a board that, aside from Buffett?s son, is composed exclusively of business partners and friends ? including Microsoft Corp. Chairman Bill Gates ? and providing little information about who will eventually succeed Buffett as chairman and chief executive officer at Berkshire.

Through his assistant, Debbie Bosanek, Buffett declined to comment for this article.

No investigators have said that Buffett is personally culpable. They have nonetheless called on Berkshire?s chairman and CEO ? one of the most prominent advocates of financial transparency ? to answer questions about accounting tricks that might have been used by clients buying his company?s products.

As Buffett prepared to respond to regulators? queries on April 11 about the AIG reinsurance deal, Spitzer praised him and emphasised that he was only a witness, not a target.

?He stands for smart, long-term investing, transparency, accountability ? all those things we value and support,? Spitzer told ABC television April 10.

Berkshire?s stock has fallen 7.5 percent, to $84,350, since February 15, the day before the General Re link to the AIG investigation was first reported. So far this year, shares have declined four percent. That compares with a drop of 0.4 percent in the Standard & Poor?s 500 Index since February 18 and a decline of 0.8 percent in that index this year.

Berkshire is also paying more to borrow. Bond investors are demanding bigger yield premiums, or spreads, to compensate for the risk of lending to Berkshire, one of only seven US companies with the top credit ratings of New York bond-rating companies Moody?s Investors Service and Standard & Poor?s.

On May 11, when Berkshire sold $700 million of debt, its seven-year notes yielded 80 basis points more than comparable US Treasury debt. That spread over Treasuries was Berkshire?s widest since at least 1999, and was comparable with companies rated about five levels lower, such as MetLife Inc., according to Merrill Lynch & Co. data.

The probes of General Re have highlighted how Buffett?s reputation has protected the company and how the absence of a designated successor may hurt it, says Keith Buckley, a Fitch analyst.

?The AAA rating was in many ways tied to him and the credibility he brought,? Buckley says.

?Apparently they discovered I was mortal,? Buffett joked in response to Fitch?s comment, speaking at an Omaha press conference on May 1, the day after Berkshire?s annual meeting.

The lack of a successor isn?t a joke, says McGurn.

?Berkshire Hathaway is probably the riskiest company in America today because it?s one heartbeat away from a substantial diminution in value,? he says.

?It?s just prudent for the board to be more engaged.?

Buffett himself, consulting with Vice Chairman Charlie Munger, 81, makes most decisions on Berkshire?s capital investments, according to Berkshire?s latest annual report. There are just 16 employees at Berkshire headquarters ? including Chief Financial Officer Marc Hamburg, his controllers and several assistants ? to oversee a corporate empire of 43 subsidiaries and 180,000 employees.

Buffett told shareholders at the April 30 meeting that Berkshire had found three ?reasonably young? potential successors to run Berkshire and that he would discuss them with his board.

In an interview the next day, Buffett said he wouldn?t change how he manages the company. ?We?ll always have a hands-off management style at Berkshire,? he said. ?It works. That?s not to say it works 100 percent of the time.?

One of those cases was General Re, which Berkshire bought in 1998.

Aside from the AIG reinsurance scandal, General Re has sustained more than $7.5 billion in underwriting losses since its 1998 purchase by Berkshire.

At this year?s shareholder meeting, Buffett said: ?We misjudged the culture of General Re. It was not conservative in its underwriting, in its reserves, and I doubt if standard due diligence would have discovered that.?

In addition to General Re, Berkshire?s businesses include Washington-based auto insurer Geico Corp., See?s Candies, underwear maker Fruit of the Loom Ltd., food retailer International Dairy Queen Inc. and carpet maker Shaw Industries Inc. Berkshire also owns big stakes in companies such as the Coca-Cola Co., the Washington Post Co. and American Express Co.

Buffett is bothered by criticism over General Re, according to Robert Malott, who says he and Buffett have been friends since serving together on the board of Omaha-based Data Documents Corp. in the 1960s.

?He?s obviously sensitive to it,? says Malott, 78, a former CEO of Philadelphia-based FMC Corp. ?He?s been treated very badly by people who don?t understand the concept of corporate governance. It?s just plain nonsense, and he?s remarkably calm.?