Does This Explain DOJ Reluctance to Turn Over AIG Monitoring Documents?

TPMM has two posts noting that DOJ has been reluctant to turn over to the Oversight Committee the documents pertaining to its Delayed Prosecution Agreement with AIG, whereas SEC has been more forthcoming.

Last month, as we noted at the time, House Oversight committee chair Ed Towns formally asked the Justice Department for records kept by a government monitor, who since 2004 has had access to high-level internal deliberations at AIG.

But DOJ seems to be dragging its heels.

Today — 15 days after Towns made his legally binding request, and 13 days after the deadline he set for Justice to respond — department spokesman Ian McCaleb told TPMmuckraker: "We’re working on submitting a response." Asked what was causing the hold up, McCaleb declined to elaborate.

At issue is information compiled by James Cole, a lawyer with Bryan Cave, who was placed as a government monitor inside AIG, as part of a 2004 deferred prosecution agreement after AIG had been charged with helping clients avoid taxes. As Towns put it in his letter, Cole "had a seat at the table" for the string of cataclysmic developments at AIG over the last few years. Whatever reports or other information he compiled could therefore be of great value to investigators, like Towns, who are probing the causes of last fall’s financial collapse, which was triggered by the failure of AIG’s Financial Products unit.

There are a couple of data points that might begin to explain DOJ’s reluctance to turn over what it has received from Cole.

First, DOJ signed not one, but two deferred prosecution agreements with AIG. The first, in 2004, pertained to a scheme AIG-FP engaged in with PNC to shift assets off its books. The second, in 2006, pertained to a deal with Gen Re, again to shift assets around to hide risk. Now, both these schemes go back to 2000 and 2001; the actions AIG took did not take place while Cole was monitoring it. Nevertheless, AIG got two bites at the Delayed Prosecution Agreement, which does not appear to be true for any other corporations as of May of last year.  And, as this article on these early scams make clear, the intent was largely the same with both: to hide risk. So you might think AIG’s failure to admit to the second scheme until 2005 would undermine its claim to be cooperating in good faith with the DPA in 2004.

More interesting, though, is the squabble that the Fraud section at DOJ had with the US Attorney’s office in CT a few weeks back.  In the last year, DOJ has won convictions of five of the executives involved in the Gen Re scheme (that is, prosecutions that arose out of the second DPA). Yet the judge in the case actually awarded all the defendants shorter prison terms than federal guidelines suggest. And since then, prosecutors from CT and Fraud seem to have disagreed whether to force the defendants to remain in custody pending appeal.

In December prosecutors from DOJ in D.C. and the U.S. attorney’s office in Connecticut, which handled the case together, filed a motion against giving GenRe’s former CEO bail pending an appeal of his conviction. (The defendant, Ron Ferguson (pictured, left), was later sentenced to two years in prison.) Then in January the government withdrew its motion, and he was granted bail.

Prosecutors repeated the dance in February, when they filed a 25-page motion opposing bail pending appeal for another defendant, a former AIG executive, who had been sentenced to four years in prison. Two weeks ago, prosecutors withdrew the objection. The defendant, Christian Milton (pictured, second from right), and the others will now almost certainly remain free.

Apparently in response to the most recent of these head fakes, the prosecutors from DOJ’s Fraud section withdrew from the case.

After the second about-face by the government, two prosecutors from DOJ’s fraud section, Principal Deputy Chief Paul E. Pelletier and Assistant Chief Adam G. Safwat, withdrew from the case, signaling that there was a spat between Washington and Connecticut prosecutors over the bail issue.

I’m particularly interested in Pelletier’s withdrawal from the case. His name was on the DPAs in both 2004 and 2006, and appears to be the one person who has been involved in the AIG cases from the start. (Note, too, that the several AIG cases involve several jurisdictions, including at least ED VA, Indiana, and CT, so the federal focus seems key to the case.) And of course, Hank Greenberg is understood to be one of the unindicted co-conspirators in this case. Just as significant, I think, the defendants in this case repeatedly tried to get evidence that might have shown how widespread the practices they were indicted for were in AIG–and that various law firms involved should have or did discover the schemes earlier on. In some cases, the defendants asked for materials right up through the restatement of earnings in this case in 2005–that is, for a time when Cole was already monitoring AIG. For the most part, these requests for discovery were denied.

Now, none of this explains why DOJ would be squeamish about what it got from Cole. It may be they’re still protecting a case against Greenberg. It may be DOJ’s own turmoil with regards to AIG, particularly with Pelletier having withdrawn from at least this case against AIG.

But it seems there are a number of potential reasons why DOJ would want to shield what they should have known about AIG going back five years. 

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18 replies
  1. foothillsmike says:

    I would think that at this point a special prosecutor should be brought on board. I nominate Elliot Spitzer.

    • scribe says:

      I’ve been saying for months that the DoJ would be exceptionally smart to bring Spitzer on board, not only because he turned the NYAG into a first-rate counterfraud operation, but because he “knows where the bodies are buried” and doesn’t have to be brought up to speed.

      If I were Obama, I’d bring him on and turn him loose with a seven-word mission statement: “Clean up Wall Street. Take your vengeance.”

      But, that won’t happen, so….

      • foothillsmike says:

        I do have one problem with Spitzer though. A few weeks ago on Fareed Zakaria he said he wasn’t as interested in punishment as in straightening out the system. I want those guys punished big time.

        • readerOfTeaLeaves says:

          If the system were straightened out, the people who knew their jobs and did them honestly could probably still find employment. The crooks would probably go leave for a place with more rocks to hide under; they tend not to like open and honest systems. Crooks tend to avoid open, transparent systems in my experience.

          I’m with scribe, who got me paying more attention to Spitzer’s role, and the strange timing of his ‘outing’. Clearly, AIG and others wanted Spitzer politically damaged just at the very time that Bear Stearns and other outfits were about to implode.

          • scribe says:

            And to foothillsmike @ 5, too.

            Straightening out the system requires two things – putting the system back together again, and making sure the criminals who did the wrecking get their careers blown away on the way to prison in a very showy, public way.

            The latter, because the only language the greedheads who’ve been running the system understand is getting knocked on their ass when they step out of line. And they only remember that lesson for a few years.

            Right now, it’s been a good twenty years since the last big wave of securities industry prosecutions – the Boesky/Levine/Milken/Drexel cases of the late 1980s. That’s three or four generations ago in financial industry years. Next to no one who was at their level is still in the industry, and the folks who are running the industry now were low-level minions a whole mess of steps down the organizational chart back then.

            In other words, the deterrent value is long-since gone.

            “I’ve got to worry about being prosecuted for stepping over the line” is not a thought that the greedheads ever learned to entertain, because they haven’t seen people get it. As far as I can tell, they recognize (or believe) they likely have less chance of being prosecuted than of being hit by lightning unless (as I think the Conn. AIG/General Re case indicates) the prosecution is a setup by someone who managed to use the criminal process to eliminate a competitor. So, they let their greed run wild.

            • readerOfTeaLeaves says:

              I agree with everything you’ve said at 8 and 9.

              These people don’t give a rat’s ass about equity and have to be stopped. I’ve seen it happen in two ways: (1) either they screw others over so badly that finally no one will return their phone calls or do biz with them, or else (2) by law enforcement, investigations and legal action.

              Without sensible regulations that are enforced markets are sewers: and as the money (and risk) involved increases, the race to the bottom accelerates.

              But from what I’ve seen, it’s the most charming (but ruthless) predators pose as good business people; then the electeds go to them for favors and advice. That Madoff case seems classic: a guy like Madoff talks his way onto the very organizations that write the regulations he wants to control. (And yeah, I’ve seen it at my local level Up Close and Personal.) So the criminals end up writing the rules and the electeds are just grateful and thankful and obsequious (in part because the electeds mean well and are nice, if naive, people).

              And I completely agree that if people don’t perceive costs for terrible conduct, then they feel no worries about thieving. And let’s face it, the benefits of thieving surely have a lot of seductive allure if you need 5 homes and private planes, etc.

              When an Eliot Spitzer comes along, who can spot the predators and apparently has very few qualms about taking them out of biz legally, that’s a rare and wondrous thing. We need A LOT more of it.


              EW @ 10, the parts of the Greenberg testimony before that House Committee horrified me — and illustrated EXACTLY what I wanted to point to in this thread. Basically, the very nice, very well intentioned electeds basically treated Greenberg like some kind of King or Expert or FontOfAllKnowledge.
              Dreadful!

    • slide says:

      Actually Spitzer had evidence of Greenberg’s criminal involvement and forced his removal from AIG but never charged him. The question is: if Spitizer has sufficient evidence to force Greenberg to resign from AIG why did he not charge him?

  2. acquarius74 says:

    More cover-up and hiding the truth from the taxpayers and from justice. Big talk is all we get from Obama. Promises, promises. Again he is obstructing justice. I voted for him for fear McCain would be elected. I fear we have bought an empty package.

  3. readerOfTeaLeaves says:

    But it seems there are a number of potential reasons why DOJ would want to shield what they should have known about AIG going back five years.

    The same AIG that’s the owner of the ‘largest fleet of private aircraft in the world’?
    The same AIG that’s been offshoring money like mad for many years?
    The same AIG who’s London FP division was allowing huge leverages on ’swaps’?
    The same AIG that was part of the “Dow Jones-AIG Commodities Index“?

    A brief intro:

    The DJ-AIGCI is composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally specify a certain date for the delivery of the underlying physical commodity. In order to avoid the delivery process and maintain a long futures position, nearby contracts must be sold and contracts that have not yet reached the delivery period must be purchased. This process is known as “rolling” a futures position.

    The DJ-AIGCI is composed of commodities traded on U.S. exchanges, with the exception of aluminum, nickel and zinc, which trade on the London Metal Exchange (LME). Trading hours for the U.S. commodity exchanges are between 8:00 am and 3:00 pm ET. A daily settlement price for the index is published at approximately 5:00 pm ET.

    Indexes in the DJ-AIGCI family are calculated on both an excess return and total return basis. The excess return indexes reflect the return of underlying commodity futures price movements only, whereas the total return indexes reflect the theoretical return on fully-collateralized futures positions.

    Included in the DJ-AIGCI family are sub-indexes representing the major commodity sectors within the broad index: Energy (including petroleum and natural gas), Petroleum (including crude oil, heating oil and unleaded gasoline), Precious Metals, Industrial Metals, Grains, Livestock, Softs, Agriculture and ExEnergy. Also available are single commodity indexes on all of the individual components of the DJ-AIGCI, plus cocoa, lead, platinum and tin.

    I await future installments of this most intriguing thread topic.

    Meanwhile, I must hasten off to ‘invest’ in some ‘theoretical returns’…
    Yeowsa.

    • rkilowatt says:

      ROTL–Now you’ve done it! The highest crisis of terror for ThePowersThatBe, who depend on money and power to keep their royal status, is worthless currencies and worthless paper promises to deliver something valuable.

      What if the BIG secret is…GoldmanSachs, AIG et al have been manipulating GOLD by selling contracts…selling SHORT tons of gold to make $USD currency seem to have value?…and other currencies, too.

      Now suppose their other derivative and betting frauds bring them down to face justice and prison..then surely their precious-metals [p-m] fraud would be exposed and whole governments of TPTB would collapse.

      Could that be used to frighten BO any gov “leader” into bailout activities that only appear to be insane acts to reward criminals?…lest p-m wharehouses are found to be empty? and fiat currencies become worthless? Overnight?

      Notice…there has not been one whisper of the volume of GS/AIG p-m derivatives, much less any failure to deliver on p-m obligations… Is that just because their p-m activities have not yet been exposed? Are they about to be found out as their other nefarious acts come to light and data points to p-m contract default?

      Sure would cause a run for physical delivery of non-existent p-m…and enough chaos to end the status of the royals. After all, don’t all the worst-case scenarios somehow include p-m [specificly GOLD]in any global basket of real values?

      Enough of this hallucination! I just tell lies to amuse fellow inmates.

  4. scribe says:

    A couple points obtain on the General Re prosecution, not the least of which is that it appeared to me to have been both an unholy mess no one wanted to kick over and no little bit of scapegoating of the defendants charged and convicted. There was considerable discussion over whether there had even been a “loss”, let alone whether there had been a “Fraud”.

    Setting all that aside, I would note that in sentencing the defendants got a lot less than they were exposed to. Professor Doug Berman, one of the mavens of federal (and state) sentencing law, made that point very clear in this post.

    I get the distinct feeling the DoJ did not want to really dig into AIG.

    I just have to wonder whether this sort of DC v. Conn. internal DoJ fight is a mirror of (or replicates) the problems the DoJ’s public integrity unit has had over the last couple years. TPM notes the irony of Ted Stevens’ prosecutors being on the hook for Brady violations shortly after the same lawyers prosecuted an AUSA in Michigan for Brady violations in a 2001-ish “terrorism” case that had to be thrown out (post-conviction) because of Brady violations then.

    The sievelike nature of the S.D.N.Y. USAtty’s office when dealing with the Spitzer matter is yet another manifestation of it.

    The systematic missteps in DoJ point to a larger issue – moral corruption as a product of a win at all costs mentality. Politicization, deliberate ineptitude in its service and the win-at-all-costs mentality seem to me the best way of describing the source of the problem, and moral corruption of the prosecutorial function the result.

    We should have LHP on to talk about the Deferred Prosecution Agreements, insofar as possible….

    • emptywheel says:

      Yeah, I’ve just wandered through some of the exhibits from that trial, and it is a mess, but even more I do get the sense that they were holding stuff back, potentially BOTH the role of the two firms that had signed off on these schemes, AND, obviously, Greenberg.

      Also, I’m at a loss whether Ed Towns is a buddy of Greenberg or even knows whether he is or not. I’m all in favor of going after AIG for spending my money on PR, but when you’re going after their anti-Greenberg stuff, well, I’m not sympathetic, exactly, but I’m interested in what they have to say. And, sure, it was marginally useful to have Greenberg testify, but I’m also sympathetic to those (including–ack–Issa) who felt it gave Greenberg an inappropriate soapbox.

      So if DOJ thought Towns was running interference for Greenberg (or even questioned what he was up to), I can imagine why they’d look at the documents they turned over carefully.

      That said, I wonder whether Fraud and CT had differing ideas about whether they could get these guys in jail to convince them to chat about, among others, Greenberg.

  5. bobschacht says:

    Good catch, EW! Thanks for connecting the dots, and laying all this out for us!

    I like the idea of getting Spitzer involved in the investigation, although it sounds like he’s not the right one to be making decisions about prosecution.

    OT but of interest in the Wheel House:
    Tomorrow is the Big Day regarding Obama’s decision on releasing the old DOJ torture memos. Glenzilla had a big diary about this yesterday. I have a further angle on this to wonder about:
    If Glen is right that Stephen Kappes is at the center of this tempest, and if DiFi and Jello Jay made approval of Leon Panetta’s nomination contingent on retaining Kappes, is that perfidious pair also behind current efforts to withhold the torture memos? And if so, why?

    Perchance do the torture memos mention consultation with the perfidious pair, and their approval? Is one of the reasons DiFi’s SSCI torture investigations to be held behind closed doors is to prevent the release of such information on complicity?

    The bursting bubble most people have been talking about lately is the housing bubble, but I think another may deserve wary watching: the stinking putrid corpse of the Democratic-Republican “national security” consensus for the past 8 years. It may be about to burst, casting odiferous emanations far and wide. What will it take to burst that inflating bag of offal?

    Oops, sorry for all the rotten metaphors. It just seemed somehow appropriate.

    Bob in HI

  6. slide says:

    Also Greenberg sought assistance from Schumer.I suspect Schumer is running interference for Greenberg.

    • readerOfTeaLeaves says:

      Okay. Smacking my forehead here and feeling like an idiot.
      This should have been obvious, but I’d missed it.
      (Smacking forehead again.)

      Bleh!

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