American International Group (NYSE:AIG), one of the world's largest insurance companies, admitted in a press release today that a finite policy it acquired from Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb) subsidiary General Re in 1998 did not adequately transfer risk in order to be considered insurance from an accounting standpoint. This policy will be reclassified as a loan as part of a comprehensive restatement of past results at the insurer.

This admission comes as part of an announcement that AIG would delay filing its 10-K with the SEC. Also included was the recognition that AIG has effective control over two offshore reinsurers, Union Excess and Richmond Reinsurance, and therefore its accounting of transactions with these companies might also have been wrong.

One of the elements of this that has been most lurid for investors is the potential that Warren Buffett might be drawn into the New York Attorney General's investigation over finite insurance. In a statement yesterday, a spokesman for the NYAG's office noted that Warren Buffett was a witness, not a target of the investigation, and that he has cooperated.

So those looking for a scandal that would fell two giants will have to be satisfied with just one. This week, AIG's chief executive, Maurice Greenberg, announced that he would step down as non-executive chairman of the company, only weeks after he vacated the CEO's office.

There will be other costs for the insurance giant. Since the scandal came to light a month ago, AIG has lost more than a fifth of its market capitalization, or $30 billion. It has also lost its coveted AAA credit rating at Standard & Poor's, the highest rating possible for private companies. It will also have to restate its shareholder equity, which should be lighter by about 2%.

After decades of brooking no criticism of AIG -- by analysts, journalists, or even regulators -- it seems that Hank Greenberg's full-contact style and the combative culture he has espoused at AIG has come back to haunt the company. S&P's downgrade included language that justified its downgrade by pointing to "aggressive financial management," a "lack of internal controls," and "the potential breadth of management involvement in these transactions."

The interesting question here is whether the company's tactics and malfeasance helped keep its AAA rating for far longer than it otherwise would have. How much less in profits and earnings would AIG have had if its paper had been priced at AA+ for the years it diddled around with its reserves? I don't know, but the answer is not zero. If anything else, it is safe to assume that it will be a long, long time before AIG gets the benefit of the doubt from regulators and credit agencies again.

Bill Mann owns shares of Berkshire Hathaway. The Motley Fool has a disclosure policy.