No Criminal Charges Against AIG Execs

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Hhhm, are investigations disappearing into the night just like FDIC resolutions, Friday night massacres so as not to upset the great unwashed public?

Joe Cassano, head of AIG’s Financial Products Group and individual most responsible for the insurer’s collapse, will not be prosecuted. Per the Wall Street Journal:

Federal prosecutors will not bring criminal charges against current and former American International Group Inc. executives for their role surrounding financial contracts that nearly brought down the insurer about two years ago

Yves here. Now how could this possibly have come to pass? Wellie, if you rope your advisors like your accounting firm into signing off on your stupid or possibly even criminal behavior, then you get off scot free:

But after a series of meetings with the targets of their probe, prosecutors obtained information about Mr. Cassano’s disclosures to AIG senior executives and AIG’s outside auditor, PricewaterhouseCoopers LLP. That changed the course of the investigation, these people said.

Yves here. Now why hasn’t the bright spotlight been turned on PwC? They are too big too fail. Now that there are only four accounting firms deemed capable of auditing Fortune 500 companies, no one in the officialdom is about to launch an action against them that might lead to their demise, no matter how well deserved it might be. Francine McKenna has written at considerable length about the fact that PwC was auditor to both Goldman and AIG, and was clearly signing off on valuations of the SAME instruments at DIFFERENT prices at each firm:

Why didn’t PwC speak up, act more strongly to match mismatched valuations between entities like AIG and Goldman Sachs, raise their hand and shout fire, or at least warn of suffocating black smoke obscuring woefully inadequate risk management and of pricing “models” strung together like so many holiday lights electrical cords, faulty wiring and all, ready to blow the circuits?

Was it the fees?

Well, there’s certainly $230 million plus reasons in 2008 to play nicey-nice between the two clients. But that explanation would be too simple.

Another little problem which has been completely missed in our rush to get Potemkin financial reforms in place is that prosecutors often cannot pursue lawyers and accountants even when they play a key role in perpetrating dubious or even criminal conduct. As we wrote in ECONNED:

Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.

Another perverse aspect is that the fact that AIG as a company, as opposed to individuals, may have engaged in criminal conduct is deemed to be moot. The attitude seems to be, “AIG is a ward of the state, why bother?” But that misses the point. UBS, which was rescued by the Swiss government, had to have outside investigators prepare a report of what went wrong. Why hasn’t every other bailed-out entity been required to make similar reports? The public, and more important, regulators and legislators would have a much better understanding of why the financial system went off the rails. And in the case of AIG in particular, there is ample evidence the company at a minimum had poor accounting and controls (recall the scenes in Andrew Ross Sorkin’s Too Big to Fail, where the AIG top brass has only a dim idea of how bad its cash shortfall is, and at a very advanced stage, discovers a $20 billion leak in its securities lending operation).

Given that AIG had a dubious and contested relationship with a sister firm, C.V. Starr (controlled by Hank Greenberg), which appears to have served as an executive enrichment vehicle, the sloppy accounting may have served as a cover for other types of executive-wallet-flattering activities. But the decision has clearly been made to pull a veil over AIG, to the detriment of the interest of taxpayers who are paying for its lapses.

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  1. attempter

    This reads like a mini-clinic in the abdication of “the law”.

    Now how could this possibly have come to pass? Wellie, if you rope your advisors like your accounting firm into signing off on your stupid or possibly even criminal behavior……
    Now why hasn’t the bright spotlight been turned on PwC? They are too big too fail…..

    Another little problem which has been completely missed in our rush to get Potemkin financial reforms in place is that prosecutors often cannot pursue lawyers and accountants even when they play a key role in perpetrating dubious or even criminal conduct….

    Another perverse aspect is that the fact that AIG as a company, as opposed to individuals, may have engaged in criminal conduct is deemed to be moot.

    These are the fruits of the systematic top-down rigging, subversion, and hijacking of the law. There is no longer any rule of law.

    But of course the system hacks and their enablers among the non-rich continue to claim that the people should respect “law” and “contracts” in their dealings with gangsters.

    1. Naive_person

      Yes. I just learned recently that Eisenhower in 1958 proclaimed May 1 “Rule of Law Day”. He was before my time but I miss him.

    2. Robespierre

      “These are the fruits of the systematic top-down rigging, subversion, and hijacking of the law. There is no longer any rule of law.”

      For them but you try to pull off something and let me know how it goes. What we have now are two justice systems or sets of laws. 1) For the powerful (untouchable) 2) The rest of the country. This is by definition a banana republic indication. And that is all the US is now.

  2. MF

    Stupidity and greed have never been criminal offenses. I agree with you that maybe they should be.

    It is pretty obvious that AIGFP was a choking point of naked CDS they were the ones ultimately insuring and effectively created the conduit to the public purse for the gangsters.

    I think very little of this type of corporate america anyway. Pastry white faces, incompetent, vague smell of sickness about them. Just talk about their acts, expose them for the frauds that they are.

    Since regulation didn’t require proper collateral posting for CDS in general then these little piggies counted all the premium as income. There was no “setting aside”. This regulation is about to change and thank god for that.

    AIGFP is just despicable, a prime example of 21st century financier behavior.


  3. Independent Accountant

    No surprise here. I bet Cassano knows where all the bodies are buried and told the SDNY US Attorney’s office, if he went down: Vampire Squid, some of its executives, Timmy Boy, Zimbabwe Ben and Henry Paulson were coming too.
    The case against Cassano reminds me of 1994’s Joseph Jett (JJ) case. No criminal case could have been made against JJ without taking down many Kidder Peabody officers and GE’s CPA firm, KPMG. By the way, I think JJ was not a criminal, just a trader who was fooled by Kidder’s accounting system which predated his joining Kidder. Consder, did KPMG ever tell GE Kidder’s income recognition policies were wrong?
    Go Cassano.
    I’ve commented on PWC’s improprieties at AIG many times. Where has the PCAOB been on this? Hiding under the Treasury Department’s blanket.

    1. psychohistorian

      The bigger problem is that they have been burying bodies of corruption instead of putting them on a pike for all to see. When there stops being disincentives to crime then criminals run rampant. Since it has not been dealt with along the way as one would expect in a civilized society, when it is dealt with I am afraid the response with be less than civilized (but probably very appropriate) also.

      The crash cannot come to soon. All this bullshit about how bad it will be is only true to the extent that the longer before a realignment the more pain for the masses. But maybe if the masses get provoked enough there will be an end to the oligarchs both literally and figuratively. It couldn’t happen to a more anti-humanistic bunch of folk.

  4. Vangel

    “Now how could this possibly have come to pass?”

    Easy. A trial would put the spotlight on the idiotic actions at the Fed, Treasury, SEC, rating agencies, auditors, etc. The government does not want voters to figure out that it was the primary driver of the bubble and does not want to give the hedge funds a trigger point that would get them to attack the muni market and USD as they did the Euro.

    1. jerry denim

      Exactly. That’s precisely what I just clicked on the comments button to say. AIG was an illegal backdoor bailout and the sooner the book is closed on the 185 billion dollar robbery the better for all those currently in power.

      “the decision has clearly been made to pull a veil over AIG”

      Yep, nobody at the Treasury or the Fed wants lawyers and investigations poking around in that filthy swamp, it could only come back to them, and the money is gone, gone, gone….

      So the most obvious and visible person with the largest single share of the blame for the 2008 meltdown (Cassano) sails off into the sunset on his yacht along with the Magnetar Hedgies, the Merril Lynch bonus thieves and every other well-documented criminal who pocketed billions of ill-gotten gains at great costs to everyone else.

      I want to see all of these bastards burn just as much as the next NC reader, but those here wishing for a revolution should be careful. I think a day of reckoning is coming but I’m not so sure the good guys are going to win. The track record for rule of law and mutually beneficial ethical behavior isn’t very impressive these days. Oligarchy, greed, corruption, police-state oppression and self-serving skulduggery however seem to be on an unstoppable winning streak.

  5. Naive_person

    Can anyone explain to me how on one hand the Supreme Court can allow corporations unlimited influence through campaign contributions, yet on the other limit their liability, i.e., responsibility? Shouldn’t there be some type of correspondence (if that is the proper word) principle in the law somewhere? Shouldn’t LLC also mean LIC, and if you don’t agree to the latter you don’t get the former?

  6. nowhereman

    It seems to me that the Fed, Treasury and the House and Senate are surrounded by people who’s sole job is to whisper in their ear “don’t worry the public is too stupid they’ll never catch on”

  7. Siggy

    So few comments here on what is the crime of nearly three generations. Why have no criminal cgarges been brought? The fraud is rampant and far reaching. Well perhaps that is why, it is far reaching.

  8. Francois

    “Now how could this possibly have come to pass?”

    Read the first two words of the 1st quote…”Federal prosecutors…”

    The same type of dudes I’ve often told you about; how they proceed when it comes to punish Pharma executives. Standard punishment that would hit an ordinary individual is suddenly deemed “too harsh” when it comes to a well connected REMF, especially if wealth is involved.

  9. Allen C

    What is going on here? Someone needs to piece together WHY investigations and prosecutions are lacking. There are strong suggestions and opinions.

    Perhaps we need to pool funds to develop a class action lawsuit against the bankers and politicians. William Black seems to be a logical candidate to lead this effort.

  10. Overseventy

    Corruption. The population of the U.S.A. elects members of the government to represent them, but it’s the big business who call the shots. To start investigating this fiasco past, would expose the involvement of the government in this play. It’s evident that it’s so ingrained in the mindset, they probably believe their own excuses. The Country has to wake up to the fact that this is not a Government for all, but a Government for the few, the ones with the $$$$. One might also term them terrorists, as far as what they have allowed. The greed is tearing this country apart, better than any outside force could ever hope for.

    1. Allen C

      “The greed is tearing this country apart, better than any outside force could ever hope for.”

      Well stated! The nation is controlled by sociopaths really. Oligarch is too kind. Who would sacrifice the hard work of so many for more millions?

  11. The humanity

    When organized crime runs the empire, only innocent people are treated as criminals.

    Thus, no charges against AIG Execs, but destitution for countless honest people.

    Welcome to our Brave New Future.

  12. sgt_doom

    Most definitely, the directors should be going to jail (like Feldstein at Harvard, and Holbrooke with the State Department).

    And Greenberg and Phil Heilberg should be joining them in the slammer as well….

  13. Coldcall

    I’m not too surprised. The SEC suit aganist GS was a red herring too. No-one of any importance – other than Maddoff -will get done over their actions, ommissions, or lack of fiduciary care.

    The US governments needs GS and the rest of them to do their dirty work in the markets.

  14. The Mad Ape

    The charges will be minimalized because the Financial Terrorists plunged the markets 1000 points when the government tried this last time.

    In the Casino Gulag Economy the markets are rigged and the Banksters are rigging it.

    Only idiots can’t see this.

  15. hans

    fuck wall street corporate greedd and those CEO pigs there are like sharks and vulture. they ruin america’s economy and the one who suffers is the main street people,regular people,middle class people and hard working citizen. wall street along with the bannks are in cahoots together they always come out with new scheme to fool american people and destroy family, there life savings. now now i know america is for the rich not poor people nowi will do my small part just to fucked america who care the govt. dont cares they are the biggest crooks and organize crime who best interest is for the rich people and the wall street corporation dont forget the repulicans blocking the bills for overhauling financial or regulatory reform now we know republiklans are not on the side of the american people they pro wall street and they allow wall street to scheme american people just for the interest of the corporate greed and to most majority greedy republican govt or officials for there own interest not to the american people what ashamed and a country ah! i forgot america is not a country its a corporation. sowee i’m an educaterd fool! with a broken english but i’m not fool to know what right or wrong. anyways good luck to the wall street pigs and to there money to block overhaul financial reform specfially there favorite politician in congress the republicans or racist republiklans it funny in this country poor or minority people do pitty crime like stealing go to prison for along time but those who did the the scam of the century about housing bubbles,giving loans to people who cannot afford,stated income,exotic loans slicing and bundling them and sold it to wallstreet who knows who own those toxic loans and the federal reserve are sleeping that time to manny loopholes thats why where in this mess plane and simple the govt specially the republicans fuck this country and there buddies in wallstreet making billions while the american people suffers and the economy because they let this shark and vultures from the wall street prey on american peoples thrue scheme who knows what the next scheme they gonna do to screw american people and the economy.

  16. hans

    what ashamed wallstreet pigs CEO getaway this kind of crime like reaping billions of dollars and destroying america’s economy and the american people are the one who suffers specially the hard working people in this country. so people in this country to pitty crime stealing maybe candy sealing with they go to jail fo along timne but the wall street pigs dont go or not punish for this kind of crime scamming america and destrroying nthe economy with millions and billions in there pocket they get away just like that what a joke because politician specially republican are backing them and on there sides now we know to big to fail what a joke this corporation and people tax money are used to bail out this wall street corporation, banks and lenders.

  17. Paul Repstock

    Well…It all reminds me of a fellow peeing into his empty gas tank, hoping that this will force a bit more gas into the carb and get him home.

    If the corruption is exposed and prosecuted. The US financial system will collapse. No matter how many billion shares of Citi Bank are “traded”, the ultimate arbiter of ‘value’ is the dumb schmuck private investor. If Joe Public decides that there is nolonger any point to investing, then the entire structure collapses.

    The same is true of the political arena. If the average Joe decides not to participate, we can kiss any pretence of Democracy goodbye. John Gault will be seen everywhere probably accoumpanied by Pogo and Killroy.

    I am disgusted by all of this, yet it appears to me that we are being intentionally steered towards anarchy. Even in anarchy these greedy pigs will win. They will merely sail off to their protected enclaves until the rest of us have exhausted ourselves trying to ‘fix’ the mess. Then they will reappear and claim the whole game board.

  18. Glen



    There will be no criminal charges for the world’s largest oil spill either.

    Discussion topic:

    If Obama were Republican, would the Democrats in DC be screaming bloody murder about this? And the complete lack of regulation in the GoM oil spill?

    Shouldn’t the Republicans in DC be screaming blood murder about this? Or the oil spill?

    Is there a viable political party in DC that cares about We, the People?

  19. EM

    So AIG sold cheap insurance on bonds they knew next to nothing about. That was not a crime. Nor was it fraud. Stupid in the extreme, negligent even, but still not criminal or fraudulent. Had CDS been properly regulated in the first instance – by calling it insurance! – AIG would be everybody’s favourite company.

    So the rating agencies slapped AAA ratings on BBB-rated collateral. Again, stupid but neither criminal nor fraudulent.

    So PwC applied accounting standards in favourable ways for each of their clients. Horrible behaviour but the law allows it. Proving fraud or a crime is very difficult.

    Which makes financial regulatory reform all the more important. It needs to be comprehensive and it needs to, somehow, give regulators the tools to punish those that game the system and those that are just plain stupid. Wishful thinking, unfortunately.

  20. jdmckay

    This, BP running the entire “spill” PR/”security” etc. & subsequent BO admin’s seeming green flag to more of the same, Dodd’s watered down financial “reform” bill…

    very discouraging. :(

  21. clarence swinney

    1945-1980 were Great Middle Class Years.
    Affordable Education-Homes-Health Care-Jobs Jobs-Unions-Pensions

    Reagan and NeoCons came on in 1981.
    Ir was intentional ENRICH Wall Street reduce Middle Class.
    1945-1% owned 30% Total Financial Wealth
    1989-36% (Ron big tax cuts for 1%)
    2008–Bush Finished the Job
    80%=7%-=20,000,000 workers=SHAFTED

    20 years 3 Conservative presidents
    18 years Conservative Senate
    12 years Conservative House
    6 years TOTAL CONTROL
    Bush 8 let Wall Street go into Big Time Gambling
    Instead of using investors money to create new businesses and increase current ones and create Jobs,
    They created 31,000 Net New Jobs per Month.A sham.
    Prior were Carter 218,000–Reagan 175,000–Clinton record 237.000
    31,000 was an insult to working America.
    During Bush 8 Wall Street shipped 2,300,000 of our jobs to China,

    The Conservative ideology of Market knows best gave us Great Depression and Great Recession. Even Ultra Conservative Alan Greenspan had to admit it.

    Since 1980
    60% Tax Cut to Top 1%
    47% Tax Cut to Gamblers on Wall Street in Uneanred Income Tax
    Huge Estate Tax Cut
    Revenue Sharing costs to rich in income taxes transferred to Middle Class in property taxes.
    Fed gave Bush 1% Interest and big increase in Total Money Supply
    1920’s Deja Vu. Banks rushed to borrow and lend lend lend to Developers
    to build homes too large-too expensive for middle class declining disposable income
    Increased Middle Class Payroll Tax
    Taxes SS income
    Five Cent Tax On Gas
    Spending Spree on Defense which enriched Rich Investors in Defense
    The Big Three took a 1000B of Debt from Carter and added on 8000B in 20 years of Spend + Borrow Our kids Can Pay Tomorrow.

    Carter left Reagan a 600B Budget to which he added on 80%.
    Carter left Reagan a less than 1000B of Debt and he added on 1700B
    Clinton left Bush an 1800 B Biudget which Bush took to 3600B..
    Clinton left Bush a Surplus as far as an eye could see and Bush added on
    6000B Debt or more than we had after 220 years.Grover Nutquist had a party..

    Folks! It was intentional. Grover Nutquist of ATR made 127 visits to White House in Bush first term. He was one who wanted to drown Government in a bathtub..How! Spend and Borrow to force us to eliminate Social Programs.
    He has us, in 2010, exactly where he wanted us.
    Facts hurt. Democrats are just dumb to not preach it over and over
    8 more of Neocons and American World Status will disappear to number two or three or worse.
    Neocon ideology destroyed Rome-Spain-Holland-England and now America?
    cswinney old ugly mean honest

    prove me wrong please with facts and numbers

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