NEW YORK (Bloomberg) — Billionaire Warren Buffett's Berkshire Hathaway Inc. is under investigation by the Connecticut attorney general for possible conflicts between its ownership of almost 20 percent of credit ratings company Moody's Corp. and his newly formed municipal bond insurance business.

Attorney General Richard Blumenthal said in an interview he is examining the "clear and direct conflict of interest for Moody's to rate a company owned by such a significant Moody's shareholder".

Moody's gave its top rating last week to Berkshire Hathaway Assurance Corp., created in December as existing bond insurers struggled to maintain their AAA ratings. A favourable rating for Berkshire by New York-based Moody's, or a lower rating for competitors including MBIA Inc. and Ambac Financial Group Inc., may give Buffett's company an advantage.

"We have been aware of this issue, and it has been very actively and immediately involved in our investigation," said Blumenthal, referring to a previously announced antitrust probe of ratings companies. "This financial relationship is part and parcel of the issues involved in our antitrust investigation."

Officials at Omaha, Nebraska-based Berkshire weren't immediately available for comment. Tony Mirenda, a spokesman for Moody's, had no immediate comment.

Berkshire has held about 48 million shares of Moody's since at least 2002, data compiled by Bloomberg show.

Standard & Poor's, a unit of McGraw-Hill Cos., also gave its highest grade to Berkshire's four-month-old unit, which offers municipal bondholders protection from default by state and local governments.

Blumenthal had earlier disclosed an antitrust investigation into whether the three largest credit-ratings companies rank debt against issuers' wishes, then demand payment. The state is also probing whether the companies threaten to downgrade debt unless they're awarded business to rate all of an issuer's securities, and the practice of offering ratings discounts in return for exclusive contracts.

Buffett started the bond insurer in December at the urging of insurance regulators, who were seeking ways to help governments find new places to buy the coverage when losses jeopardised the AAA ratings at MBIA, Ambac and other established companies. States and municipalities pay bond insurers to guarantee their debt, effectively putting the bond insurance companies' rating in place of their own to lower the interest rate they pay to borrow.

"It's only natural that you comport yourself in a way that pleases your owners," said Tom Dresslar, a spokesman for California Treasurer Bill Lockyer, who has also been critical of Berkshire's venture into bond insurance. "The perception, at the very least, is problematic. Are they going to rate municipal bonds fairly, or do it in a way that helps maximise income from Berkshire's bond insurance operation?"

Buffett, ranked the world's richest man by Forbes magazine, transformed Berkshire from a failing textile maker into an enterprise with businesses ranging from ice cream and underwear to corporate jet leasing.