TPMMuckraker
March 29, 2009 - April 4, 2009

In Letter To Liddy, Lawmaker Probes AIG Risk Practices

Zachary Roth | April 3, 2009, 5:32PM

Investigators are starting to zero in on the crucial issue of how much access AIG's risk control team had to Joe Cassano's deals.

Earlier this week, we wrote about a December 2007 presentation in which AIG execs assured investors that the firm's risk control officers looked closely at the credit default swaps made by Cassano's financial products unit. But as we noted, those assurances were contradicted last month by AIG CEO Ed Liddy, who told Congress that Cassano limited the access of the risk control team to his unit. And there's additional evidence (sub. req.) supporting Liddy's claim.

And now it looks like one Democratic lawmaker is picking up on that same discrepancy.

PERMALINK | COMMENTS (2) | RECOMMEND RECOMMEND (8)
Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

Pat Fitzgerald

Feds: Blago Tried To Shake Down Rahm

Zachary Roth | April 3, 2009, 4:23PM

One of the more interesting new details in the Blagojevich indictment was the allegation that the former Illinois governor held up the state funds for a publicly supported school, in an effort to pressure an unnamed congressman who supported the school to have his brother hold a fundraiser for Blago.

Who, we wondered, was the congressman? And who was his brother?

PERMALINK | COMMENTS (12) | RECOMMEND RECOMMEND (16)
Topics: Pat Fitzgerald, Rod Blagojevich

AIG

AIG's PR Blitz

Zachary Roth | April 3, 2009, 1:53PM

So as we reported yesterday, longtime AIG CEO Hank Greenberg went before Congress and placed the blame for the firm's collapse squarely on the execs who took over after he left in 2005 -- including on the crew currently at the helm, who Greeenberg said should be replaced.

But we've been struck by the ferocity of AIG's response to Greenberg, who's been skirmishing with the firm pretty much since he stepped down. Despite its awkward position as a ward of the state -- not to mention as the prime corporate face of the greed and recklessness that caused the financial crisis -- AIG has mounted an aggressive public-relations counter-offensive.

PERMALINK | COMMENTS (15) | RECOMMEND RECOMMEND (12)
Topics: AIG, Bailout, Financial Crisis, Hank Greenberg, Media, Wall Street

The Daily Muck

Ben Buchwalter | April 3, 2009, 9:08AM

Attorney General Eric Holder signaled Thursday that the Justice Department will work more closely with state and federal prosecutors to crack down on financial fraud, in response to the recent increase in white-collar crime convictions. To prevent future Madoff-like crimes, Holder said that the Justice Department must work with local and federal officials and consider instituting a task force to investigate fraud and other white-collar crime. (Wall Street Journal)

PERMALINK | COMMENTS (2) | RECOMMEND RECOMMEND (8)
Topics: The Daily Muck

Alaska

Palin Jumps On Begich-Should-Resign Bandwagon

Zachary Roth | April 3, 2009, 9:00AM

Looks like Sarah Palin agrees with the Alaska GOP:

The Anchorage Daily News reports:

Gov. Sarah Palin and the head of the Alaska Republican Party said Thursday that Sen. Mark Begich should give his Senate seat up to a special election now that prosecutors have abandoned their case against Ted Stevens. "Alaskans deserve to have a fair election not tainted by some announcement that one of the candidates was convicted fairly of seven felonies, when in fact it wasn't a fair conviction," Palin said in a Thursday interview with the Daily News.

PERMALINK | COMMENTS (32) | RECOMMEND RECOMMEND (24)
Topics: Alaska, Sarah Palin, Ted Stevens

Pat Fitzgerald

Feds Pull Out RICO On Blago, Team

Zachary Roth | April 2, 2009, 6:42PM

The indictment of Rod Blagojevich and his associates includes one RICO conspiracy count. From the DOJ's press release:

The RICO conspiracy count alleges that Blagojevich personally, the Office of the Governor of Illinois and Friends of Blagojevich were associated and, together, constituted the "Blagojevich Enterprise," whose primary purpose was to exercise and preserve power over Illinois government for the financial and political benefit of Blagojevich, both directly and through Friends of Blagojevich, and for the financial benefit of his family members and associates. Blagojevich and Kelly, the only RICO conspiracy defendants, allegedly conspired with Monk, Cellini, Harris, Robert Blagojevich, Rezko and previously convicted cooperating defendant Stuart Levine, to conduct the Blagojevich Enterprise through a pattern of multiple acts of mail and wire fraud, extortion, attempted extortion and extortion conspiracy, and state bribery.

PERMALINK | COMMENTS (3) | RECOMMEND RECOMMEND (2)
Topics: Pat Fitzgerald, Rod Blagojevich

Pat Fitzgerald

Feds: Blago And Cronies Were Scheming To Make Money From The Start

Zachary Roth | April 2, 2009, 6:18PM

Here are the major new allegations contained in the indictment of Rod Blagojevich, his brother Robert Blagojevich, and four associates (from a very detailed DOJ press release (pdf)):

[B]eginning in 2002 and continuing after Blagojevich was first elected governor, Blagojevich and Monk, along with Kelly and previously convicted co-schemer Antoin "Tony" Rezko, agreed that they would use the offices of governor and chief of staff for financial gain, which would be divided among them with the understanding that the money would be distributed after Blagojevich left public office.

And:

[I]n 2003, Blagojevich, Monk, Kelly, Rezko and other co-schemers implemented this agreement by directing lucrative state business relating to the refinancing of billions of dollars in State of Illinois Pension Obligation Bonds to a company whose lobbyist agreed to provide hundreds of thousands of dollars to Rezko out of the fee the lobbyist would collect, and Rezko in turn agreed to split the money with Blagojevich, Monk and Kelly.

And:

After it became public that Kelly and Rezko were under investigation and ceased playing a significant role in raising campaign funds, Blagojevich personally continued to trade his actions as governor for personal benefits, including, for example, delaying a state grant to a publicly-supported school while trying to leverage a U.S. Congressman, who supported the school, or the Congressman's brother, to hold a campaign fundraiser for Blagojevich.

And:

[I]n an interview on March 16, 2005, Blagojevich lied to FBI agents when he said that he maintains a separation, or firewall, between politics and state business; and he does not track, or want to know, who contributes to him or how much they are contributing to him.

PERMALINK | COMMENTS (14) | RECOMMEND RECOMMEND (5)
Topics: Pat Fitzgerald, Rod Blagojevich

Rod Blagojevich

Blagojevich Indicted

Zachary Roth | April 2, 2009, 6:06PM

Chicago Breaking News Center reports:

Former Gov. Rod Blagojevich, his brother Rob and Christopher Kelly, a former top fundraiser for Blagojevich, were all indicted today on corruption charges, the U.S. attorney's office in Chicago announced.

Also charged in the indictment were Lon Monk, a lobbyist and former Blagojevich chief of staff; John Harris, also a former chief of staff to Blagojevich; and William Cellini, a Springfield insider for decades.

Will bring you more from the indictment itself...

PERMALINK | COMMENTS (4) | RECOMMEND RECOMMEND (2)
Topics: Lobbyists, Pat Fitzgerald, Rod Blagojevich

George Will

Thank You Sir, May I Have Another? Will Distorts Global Warming Data Again

Zachary Roth | April 2, 2009, 5:50PM

We kind of figured George Will would leave the issue of global warming well enough alone after what happened the last time he tried to tackle it.

Guess we were wrong. Today, Will waded back into the mire, with a Washington Post column about the folly of requiring flourescent lightbulbs as an energy saver. In setting up his argument, Will wrote:

PERMALINK | COMMENTS (24) | RECOMMEND RECOMMEND (15)
Topics: George Will, Global Warming, Media

Alaska

Begich To Alaska GOP: Yeah, Right!

Zachary Roth | April 2, 2009, 5:29PM

We told you how the Alaska Republican party earlier today reacted to the news that the Justice Department is dropping the charges against Ted Stevens by absurdly calling for the resignation of Sen. Mark Begich, the Democrat who beat Stevens last fall.

Well, now Begich has put out a statement in response:

PERMALINK | COMMENTS (20) | RECOMMEND RECOMMEND (14)
Topics: Alaska, Justice Department, Ted Stevens

Alaska

Alaska GOP: Stevens Decision Means Begich Should Resign

Zachary Roth | April 2, 2009, 3:48PM

Here's the logical (read: nuts) conclusion to the fast-growing Poor-Ted-Stevens movement:

Via Think Progress, a press release from the Alaska GOP:

PERMALINK | COMMENTS (42) | RECOMMEND RECOMMEND (8)
Topics: Alaska, Justice Department, Ted Stevens

AIG

Greenberg To Kanjorski: "May I Finish?"

Zachary Roth | April 2, 2009, 2:56PM

Here's one more interesting extended exchange from Hank Greenberg's testimony, in which the former AIG honcho is being questioned by Rep. Paul Kanjorski about regulation of the firm's financial products unit London office, and about how AIG should be regulated going forward.

At one point, the witness, clearly not used to being ordered around, asks Kanjorski exasperatedly, "May I finish?" -- a request the congressman ignores.

Watch:

PERMALINK | COMMENTS (0) | RECOMMEND RECOMMEND (5)
Topics: AIG, Financial Crisis, Hank Greenberg, Wall Street

AIG

Greenberg: Get Rid Of AIG Management

Zachary Roth | April 2, 2009, 2:19PM

More nuggets of news from Hank Greenberg's testimony before Congress....

Greenberg, with the prominent Washington lawyer David Boies at his side, declared that government efforts to rescue AIG -- taxpayers now own almost 80 percent of the insurance giant -- have failed. He said that that stake should be reduced to 15 percent, and that the company should be restructured, and current management should be removed.

Greenberg has been embroiled in legal wrangling with AIG almost since his 2005 departure from the firm, amid allegations of accounting improprieties.

He also quarreled with AIG's decision, apparently blessed by the government, to pay back in full its counter-parties on the credit default swaps.

It would have been more beneficial for the American taxpayer if the federal government had walled off AIG Financial Products...and provided guarantees to AIGFP's counterparties rather than putting up billions of dollars in cash collateral to those counterparties.

And asked by Rep. Rep. Elijah Cummings whether he took any responsibility for the firm's collapse, Greenberg replied flatly: "No I don't."

PERMALINK | COMMENTS (0) | RECOMMEND RECOMMEND (2)
Topics: AIG, Bailout, Financial Crisis, Hank Greenberg, Wall Street

AIG

Lawsuit: AIG Not Just Screwing Over Taxpayers Anymore

Moe Tkacik | April 2, 2009, 2:02PM

AIG has allegedly stopped paying many of its bills in spite of its $180 billion in bailout cash, and a lawsuit filed against the firm by a Pennsylvania real estate developer managing 16,800 apartments owned by the global real estate arm paints a disturbing portrait of goings-on at the failed insurer that give emphatic new meaning to the term "zombie bank."

In his complaint, King of Prussia, Pa. property developer Mitchell Morgan alleges numerous counts of fraud and breach of contract, and depicts AIG as an absentee landlord to its multibillion dollar real estate portfolio, halting maintenance and renovation fees to hundreds of properties and potentially deepening the real estate crash further, sabotaging its own investments at the expense of taxpayers. Striking a populist tone notable for an outspoken Republican who once hosted a Rick Santorum fundraiser featuring George W. Bush in his own (generously-sized) home, Morgan's suit paints a portrait of a company that manages largely by never returning phone calls and blaming the Fed for everything:

There are real-world consequences for AIG's financial irresponsibility and its failure to honor its commitments. Employees whose jobs depend on the project renovations will be faced with loss of jobs in an economy whose unemployment rate continues to rise dramatically... Unlike many of the large real estate transactions that were occurring at the time, the goal of this Limited Partnership was not to purchase and "condo convert" or "flip" the properties, but to renovate them and continue to rent them to low income and middle class families...Because of the failure to timely approve and fund the required capital contributions, the Partnership's vendors, if not paid on time, which will constitute an immediate event of default under the Partnership's loan agreements. To be clear, these are real loans, not federal bailout loans that can simply be restructured.

Morgan is far from the only partner AIG has stiffed, but thus far he appears to be the only one to have sued, perhaps because he remembers how the insurer ran things in the boom years.

PERMALINK | COMMENTS (5) | RECOMMEND RECOMMEND (8)
Topics: AIG

AIG

Greenberg: "We Had No Problem Controlling Cassano

Zachary Roth | April 2, 2009, 2:00PM

Asked about whether Joe Cassano was given a free hand at AIGFP, Hank Greenberg, the former AIG CEO who stepped down in 2005, told Congress:

I'm sorry if you can't believe it, but I'm telling you, we had no problem controlling Cassano.

PERMALINK | COMMENTS (2) | RECOMMEND RECOMMEND (4)
Topics: AIG, Financial Crisis, Hank Greenberg, Joseph Cassano, Wall Street

Justice Department

Beltway Establishment's Misplaced Orgy Of Stevens Sympathy

Zachary Roth | April 2, 2009, 1:02PM

We told you yesterday about Chris Matthews' flub on the Ted Stevens news -- telling viewers that the decision by Justice to drop the charges, thanks to prosecutorial misconduct, means that "the charges should never have been brought."

But it looks like Matthews was just the tip of the iceberg. Since yesterday morning, the self-appointed guardians of the Beltway discourse, in Congress and the press, have been lining up to express their sympathy for Stevens and lament the way the case has unfairly "besmirched" his sterling reputation.

Please.

PERMALINK | COMMENTS (30) | RECOMMEND RECOMMEND (18)
Topics: Bill Allen, Eric Holder, Justice Department, Lisa Murkowski, Media, Ted Stevens

AIG

Greenberg To Taxpayers: Drop Dead

Zachary Roth | April 2, 2009, 11:43AM

Nice guy, that Hank Greenberg.

Here, Rep. Jason Chaffetz (R-UT) asks the former AIG CEO whether he'd be willing to use a separate company that Greenberg has stocks in to pay back taxpayers for AIG's bailout.

And Greenberg pretty much tells him to shove it.

Watch:

PERMALINK | COMMENTS (3) | RECOMMEND RECOMMEND (9)
Topics: AIG, Bailout, Financial Crisis, Hank Greenberg, Wall Street

Bernard Madoff

Madoff Feeder Fund Charged With Ignoring Red Flags

Zachary Roth | April 2, 2009, 11:28AM

We're a little late to this, thanks to some developments in other areas, but Fairfield Greenwich, the feeder fund that placed much of its assets with Bernie Madoff, was sued Tuesday by the state of Massachusetts, for defrauding its customers.

Secretary of State William Galvin claims that Fairfield, the largest of several feeder funds that funnelled investors to Madoff, failed to conduct due diligence as it promised. For instance, Galvin alleges, Fairfield didn't question Madoff about his unusual trading strategy, or about the fact that he hadn't hired an outside firm to handle record-keeping.

PERMALINK | COMMENTS (2) | RECOMMEND RECOMMEND (2)
Topics: Bernard Madoff, Financial Crisis, Securities and Exchange Commission, Wall Street

AIG

Greenberg: AIGers "Got Greedy"

Zachary Roth | April 2, 2009, 10:35AM

Greenberg:

You don't have control, and you don't have management oversight, things can go wrong. And they did.
...

I think they got greedy. I think they wrote considerably more business than they should have.

Hard to argue with that. But it only happened after Greenberg left, of course.

Also: this is coming from the man whose net worth was rated by Forbes at $3.6 billion in 2004.

PERMALINK | COMMENTS (2) | RECOMMEND RECOMMEND (1)
Topics: AIG, Financial Crisis, Hank Greenberg, Wall Street

AIG

Greenberg: Managers Failed (After I Left)

Zachary Roth | April 2, 2009, 10:30AM

From Hank Greenberg's testimony in front of Congress, which just started:

AIG's business model did not fail. Its managers did.

In 2005, Greenberg stepped down after a 37-year run as AIG's CEO.

We'll be following his testimony closely.

PERMALINK | COMMENTS (1) | RECOMMEND RECOMMEND (1)
Topics: AIG, Financial Crisis, Hank Greenberg, Wall Street

The Daily Muck

Ben Buchwalter | April 2, 2009, 9:10AM

Proven cases of fraud and corruption cases dropped suspiciously among defense contractors even as funds for defense contractors rose dramatically since 1993, according to a Center for Public Integrity study. The study showed that even as defense contracting doubled from the beginning of Bill Clinton's first term to the end of George W. Bush's second term (from $200B to $400B), proven cases of contracting fraud decreased 76 percent. An FBI spokesman said that the terror threat took resources away from efforts to oversee defense contractor fraud. (Center for Public Integrity)

PERMALINK | COMMENTS (3) | RECOMMEND RECOMMEND (8)
Topics: The Daily Muck

Alaska

Siegelman: Stevens Case Is Dropped, So Why Not Mine?

Zachary Roth | April 1, 2009, 7:04PM

For Don Siegelman, DOJ's decision on Ted Stevens just adds insult to injury.

"There seems to be substantial evidence of prosecutorial and other misconduct in my case, that would dwarf the allegations in the Stevens case," the former Alabama governor told TPMmuckraker in an interview moments ago.

PERMALINK | COMMENTS (25) | RECOMMEND RECOMMEND (35)
Topics: Alaska, Don Siegelman, Justice Department, Karl Rove, Ted Stevens

Alaska

MSNBC's Matthews Goofs On Stevens Decision

Zachary Roth | April 1, 2009, 6:03PM

Chris Matthews says a lot of things. So it's to be expected that sometimes they're smart and insightful, and sometimes they're embarrassingly wrong.

Just now, the MSNBC anchor, opining on the news that DOJ is dropping the charges in the Ted Stevens case, declared that the decision means "the charges should never have been brought, there should never have been a prosecution."

PERMALINK | COMMENTS (6) | RECOMMEND RECOMMEND (7)
Topics: Alaska, Bill Allen, Justice Department, Media, Ted Stevens

Charles Millard

Failure Of Oversight On Risky Investment Scheme?

Zachary Roth | April 1, 2009, 5:48PM

A bit more on the Charles Millard affair.

Earlier today, we reported that lawmakers had, in a letter, warned Millard, the former head of the government agency that guarantees workers' pensions, that his planned strategy to shift the agency's investments from bonds to stocks to jeopardize its ability to meet its obligations, and had laid out some guidelines he should adhere to ensure a cautious approach. Millard, of course, made the shift anyway, apparently just in time to absorb major losses for the Pension Benefit Guaranty Corporation as the stock market tanked last fall.

PERMALINK | COMMENTS (5) | RECOMMEND RECOMMEND (7)
Topics: Charles Millard, Financial Crisis, Wall Street

AIG

Did More AIG Execs Mislead Investors About Risks?

Zachary Roth | April 1, 2009, 2:46PM

Yesterday, we told you about how several AIG execs reassured investors at a December 2007 presentation that company risk officers had closely scrutinized the transactions of the financial products unit -- the part of AIG that made those credit default swaps. And about how several pieces of evidence have surfaced in recent months that appear to contradict those claims.

This is serious business: US and British prosecutors are already investigating former AIGFP chief Joe Cassano, and, it appears, former AIG chief Martin Sullivan, for potentially painting an unduly rosy picture of the firm's exposure to the sub-prime crash -- and are said to be focusing on that December 2007 presentation in particular. So it's worth taking a moment to lay out what exactly we know here, and what it might amount to.

PERMALINK | COMMENTS (2) | RECOMMEND RECOMMEND (2)
Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

Charles Millard

Lawmakers Warned Millard About Risky Investment Scheme

Zachary Roth | April 1, 2009, 1:40PM

Remember Charles Millard, who we told you about earlier this week?

He was the Bush-appointed head of the government agency that guarantees workers' pensions, who made the genius decision to switch the agency's investments from conservative bonds to risky stocks -- right before the stock market tanked. The result: the Pension Benefit Guaranty Corporation's stock-related investments were down 23 percent as of September -- the up-to-date figure is believed to be much higher -- putting in grave doubt its ability to cover the expected losses in private pension funds that the market slump has already caused.

PERMALINK | COMMENTS (5) | RECOMMEND RECOMMEND (5)
Topics: Charles Millard, Financial Crisis, Wall Street

Larry Summers

Harvard Derivatives Whiz Fired For Emailing Larry Summers About "Frightening" Trades?

Moe Tkacik | April 1, 2009, 1:31PM

Late update: Harvard spokesman John Longbrake called to emphasize that the university had conducted thorough investigations of all allegations about Harvard Management Company and point out the 13.8% annualized returns HMC delivered in the ten years that ended June 2008. In a separate development, we learned that Mack was scheduled to be the subject of a February 23 Newsweek story by Michael Hirsh that had been subsequently shelved. Hirsh declined to comment.

A former quantitative analyst at Harvard Management Company, the university's once-vaunted endowment manager, tells the Harvard Crimson she was fired for voicing concern to then-university president Larry Summers' chief of staff about the money manager's risky use of derivatives the traders didn't understand.

The episode dates back to 2002, when analyst Iris Mack, whose website identifies her as the second African American woman to earn a Harvard PhD. in applied math (and someone who likes primary colors) joined the much-venerated Harvard Management Company, which invests the university's then $18 billion endowment, to find what she termed a "frightening" state of affairs.

"The group I was working for had no background whatsoever to be working on [derivatives]," Mack says, adding that, to her knowledge, several of her colleagues were not licensed securities traders. "Sometimes the ways they handled even basic Black-Scholes models [widely used to price stock options] were puzzling."

So Mack took inventory of the abuses -- high employee turnover, lax risk management practices and a "low level of productivity in the workplace" were among others, and detailed them in an email to Marne Levine, Summers' chief of staff and a Treasury staffer on the Obama Transition Team. (Summers was the only person to whom Meyers reported, and according to a recent Forbes story he personally ordered the university's biggest derivatives trade, a purchase of interest rate swaps that cost the university billions this year.)

A month after sending her email, Mack was fired after a meeting in which the endowment fund's then-chief furnished her the emails and castigated her for making "baseless accusations." She later sued for wrongful termination and settled out-of-court with the university. But she claims the practices "shocked" her, and -- the punchline is -- she had joined the company from Enron.

PERMALINK | COMMENTS (32) | RECOMMEND RECOMMEND (66)
Topics: Harvard Management Company, Larry Summers

Alaska

Decision To Drop Stevens Case Was Triggered By Latest Government Fumble To Emerge

Zachary Roth | April 1, 2009, 12:10PM

It sounds like the decision to drop the charges against Ted Stevens was prompted by a new example of prosecutorial misconduct, which only came to light recently.

Here's the key excerpt from the Justice Department's motion:

The Government recently discovered that a witness interview of Bill Allen took place on April 15, 2008. While no memorandum of interview or agent notes exist for this interview, notes taken by two prosecutors who participated in the April 15 interview reflect that Bill Allen was asked about a note dated October 6, 2002, that was sent from the defendant to Bill Allen. The note was introduced at trial as Government Exhibit 495 and was referred to as the "Torricelli note." The notes of the April 15 interview indicate that Bill Allen said, among other things, in substance and in part, that he (Bill Allen) did not recall talking to Bob Persons regarding giving a bill to the defendant. This statement by Allen during the April 15 interview was inconsistent with Allen's recollection at trial, where he described a conversation with Persons about the Torricelli note. In addition, the April 15 interview notes indicate that Allen estimated that if his workers had performed efficiently, the fair market value of the work his corporation performed on defendant's Girdwood chalet would have been $80,000. Upon the discovery of the interview notes last week, the Government immediately provided a copy to defense counsel.

Defendant Stevens was not informed prior to or during trial of the statements by Bill Allen on April 15, 2008. This information could have been used by the defendant to cross- examine Bill Allen and in arguments to the jury. The Government also acknowledges that the Government's Opposition to Defendant's Motion for a New Trial provided an account of the Government's interviews of Bill Allen that is inaccurate.

PERMALINK | COMMENTS (14) | RECOMMEND RECOMMEND (6)
Topics: Alaska, FBI, Justice Department, Ted Stevens, Whistleblowers

Alaska

DOJ's Motion To Dismiss Stevens Case

Zachary Roth | April 1, 2009, 9:31AM

Here's the Justice Department's undated motion to dismiss the case, which lays out the rationale in detail, and was presumably filed yesterday or this morning.

PERMALINK | COMMENTS (2) | RECOMMEND RECOMMEND (2)
Topics: Alaska, Eric Holder, Justice Department, Ted Stevens

Eric Holder

Holder: Withholding Evidence Was Key Factor In Decision To Drop Charges

Zachary Roth | April 1, 2009, 9:21AM

So which of the many well-documented prosecutorial missteps was most important in leading to the Justice Department's decision to drop the case against Ted Stevens?

The initial read, based on DOJ's statement, is that it was prosecutors' withholding of evidence from the defense.

Holder:

After careful review, I have concluded that certain information should have been provided to the defense for use at trial. In light of this conclusion, and in consideration of the totality of the circumstances of this particular case, I have determined that it is in the interest of justice to dismiss the indictment and not proceed with a new trial.

We'll have more on the details of this soon.

PERMALINK | COMMENTS (3) | RECOMMEND RECOMMEND (1)
Topics: Alaska, Eric Holder, Justice Department, Ted Stevens

Alaska

DOJ Statement On Stevens Case

Zachary Roth | April 1, 2009, 9:10AM

The Justice Department has released a statement on the decision to drop the Ted Stevens case:

STATEMENT OF ATTORNEY GENERAL ERIC HOLDER REGARDING UNITED STATES V. THEODORE F. STEVENS

Read more »
PERMALINK | COMMENTS (10) | RECOMMEND RECOMMEND (10)
Topics: Alaska, Justice Department, Ted Stevens

The Daily Muck

Ben Buchwalter | April 1, 2009, 9:09AM

A Freedom of Information Act lawsuit filed by the ACLU to be decided this week will test the Obama administration's upcoming decision on whether to release more interrogation memos with information about the Bush administration's methods in the War on Terror. Some officials, including Attorney General Eric Holder, have argued that the memos should be released quickly, but former CIA officials oppose the release, saying that could offend active CIA agents. Though President Obama and Holder have both expressed disapproval of the Bush administration's interrogation tactics, they have not yet released documents. But the administration could be pressured to release the documents in response to the ACLU suit. (New York Times)

PERMALINK | COMMENTS (1) | RECOMMEND RECOMMEND (7)
Topics: The Daily Muck

Alaska

Justice Department To Drop Stevens Charges

Zachary Roth | April 1, 2009, 8:43AM

NPR:

The Justice Department will drop all charges against former Sen. Ted Stevens of Alaska, NPR has learned.

It added that Attorney General Eric Holder decided the conviction could not be defended thanks to problems with the prosecution.

The news of the case being dropped has now been confirmed independently by the AP and CNN.

PERMALINK | COMMENTS (36) | RECOMMEND RECOMMEND (5)
Topics: Alaska, Bill Allen, Eric Holder, Justice Department, Ted Stevens

Congress Demands Records Of Court-Appointed AIG "Fly On The Wall"

Moe Tkacik | March 31, 2009, 7:11PM

Last week the Wall Street Journal broke the news that the Justice Department had appointed a lawyer to monitor an accounting fraud-fraught AIG in 2005. And today the paper reports that the House Oversight Committee has demanded the full dossier of records kept by the longtime Washington-based Bryan Cave attorney named James Cole, on what he saw while he was there. Yesterday the committee fired off letters jointly to Bryan Cave and Attorney General Eric Holder demanding all available records -- "to be construed on the broadest sense" -- from Cole's tenure in the post:

Mr. Cole evidently had routine access to the highest levels of the company and participated as an observer in AIG Board meetings. In effect, Mr. Cole had a seat at the table as the company decided to oust two CEO's, developed its strategy in the midst of the housing bubble and subsequent collapse, and made critical decisions concerning restructuring AIG-FP, allocating retention payments, generating options to produce liquidity, and ultimately requesting taxpayer capital injections from the Federal Reserve and Treasury now amounting to nearly $180 billion.

Cole was appointed to monitor the insurer's meetings as part of a "deferred prosecution" agreement with the SEC after investigators unearthed a complex tangle of fraudulent partnerships the company had set up to hide debt on behalf of its client PNC Bank. At the time Cole was retained -- which has so far cost AIG (us) $20 million -- the "independent monitors" installed to sit in on the senior meetings of the 103 companies with whom the government had struck such bargains were the source of much hand-wringing in corporate circles.

So much hand-wringing, in fact, that the Criminal Law Review in 2007 worried:

With respect to the corporation, DPA's "cooperation" provisions typically obligate the corporation to act at the direction and on the behalf of the government in the investigation and prosecution of individuals. This has the potential to turn corporations into agents of the state, with resulting corporate governance and constitutional implications.

Ha, AS IF.

PERMALINK | COMMENTS (2) | RECOMMEND RECOMMEND (7)
Topics:

AIG

Did Risk Team Look At Cassano's Deals? AIG Execs Offer Contradictory Claims

Zachary Roth | March 31, 2009, 6:42PM

We've told you that the Feds are looking at that December 2007 presentation that Joe Cassano gave for investors, to determine whether he, along with AIG CEO Martin Sullivan, knowingly gave an unduly rosy picture of AIGFP's exposure to sub-prime losses.

But a review of that presentation suggests that a few other AIG execs may also have shaded the truth, to put it mildly, on a different question.

PERMALINK | COMMENTS (0) | RECOMMEND RECOMMEND (4)
Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

Cassano: CDOs Are "Money Good Assets"

Zachary Roth | March 31, 2009, 5:23PM

Earlier today, we picked out some fascinating-in-hindsight excerpts from a May 2007 presentation given by Joe Cassano, then the head of AIG's financial products unit.

Since then, we've been looking at a similar presentation (via Nexis) for investors given by Cassano and other AIG execs in December of that year. By that time, the collapse of the subprime housing market could no longer be downplayed, and Cassano's appears more anxious than ever to reassure clearly nervous investors about AIG's exposure to losses on its credit default swaps.

PERMALINK | COMMENTS (2) | RECOMMEND RECOMMEND (3)
Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

James Thomas

How $2 Million In AIG FP Options Saved An IRS Attorney $145 Million In Taxes

Moe Tkacik | March 31, 2009, 4:54PM

As we are quickly coming to understand, AIG Financial Products was siphoning billions from tax coffers the old-fashioned way ages before the collateral calls began flooding in. Essentially, the same unregulated swaps and options contracts in which AIG FP "specialized" a.k.a. "did not understand" lay at the heart of many of the sham "partnerships" corporations and wealthy people use to obscure their capital gains. These partnerships are often referred to as "Son of Boss," we still do not know why, and the IRS has been shutting down them down for years, because it is usually abundantly clear that the rich people who bought said derivatives had no idea what the hell they were for beyond "generating artificial basis" or somesuch euphemism for "pretending they lost money to hide the fact that they actually raked it in." That said, most of the people with enough money to know about tax shelters are/have pretty decent lawyers, so sometimes they think up a pretty good excuse for having invested in a baffling combination of esoteric "swaps" and such. Last month, for instance, a Los Angeles judge struck down a Son of Boss partnership that had spared a pair of local real estate developers an accumulated tax bill of $145 million by investing $2 million in some obscure AIG credit default swaps. But one of the developers, former Sacramento Kings owner and former IRS attorney James Thomas, had a pretty genius alibi.

In 2001 they sought out an abusive tax shelter that has become known as "Son of BOSS." In the Son of BOSS scheme used by Thomas and Fox, they purchased an exotic form of a financial option that they claim would have protected them against a catastrophic decline in real estate values, which they feared in the immediate aftermath of the terrorist attacks of September 11.

A catastrophic decline in real estate values you say? How very "black swan"!*
The judge wasn't hearing it though.

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Topics: AIG, James Thomas

Douglas Feith

Feith Shocked, Simply Shocked By Possible Torture Charges. Should He Be?

Justin Elliott | March 31, 2009, 4:26PM

Here's what Douglas Feith, undersecretary of defense for policy during the Bush Administration, told the New York Times in response to the prospect of torture-related charges being brought against him in Spain:

I didn't even argue for the thing I understand they're objecting to.

Feith was, in the newspaper's words, "baffled by the allegations."

The case at issue has been sent to prosecutors for review by Baltasar Garzon, the activist Spanish judge who ordered the arrest of Augusto Pinochet in the late 1990s. The gist of the lengthy complaint is this: that six former Bush officials -- including Feith, Alberto Gonzales, and John Yoo -- created a legal framework that allowed for the torture of detainees at Guantanamo.

So is Feith right to be "baffled" by his name popping up among those facing potential charges? Let's go to the record:

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Topics: Alberto Gonzales, Douglas Feith, Torture

AIG Transaction Development Group

A Brief History Of AIG's Three-Decade Duty Free Bermudan Adventure

Moe Tkacik | March 31, 2009, 3:27PM

Yesterday we noticed the focus of the Case Against AIG And The Reckless Executives Inhaling Our Money had begun to shift from the exotic, futuristic sounding world of synthetic credit derivatives to the Old Economy business of dodging taxes. In fact, the two are inextricably intertwined -- AIG FP was by far the biggest underwriter of the inscrutable options that could generate the kind of phony capital gains losses that rich people and companies use to get out of paying taxes. To really understand what Cassano and his gang were up to, it helps to have a working knowledge of the company's history of run-ins with the IRS. Again and again AIG has been involved in schemes the IRS has deemed illegal, forcing the insurer and its clients to cough up some billions of dollars in back taxes over the past decade. The only real factor obscuring the magnitude of the malfeasance at AIG was arguably the many hundreds of banks, corporations and individuals who played along.

UPS: The platonic "ideal" tax structure
AIG has been a go-to source for IRS shortchanging expertise at least since 1983, when it helped UPS form a Bermuda "reinsurance" subsidiary in 1983 to divert certain "excess value" charges into an ingenious tax haven from which the IRS, following a five year legal battle eventually recovered $1.44 billion of $2.3 billion in uncollected taxes. After the jaw-dropping penalty was announced, the insurance trade journal National Underwriter quoted KPMG partner Mark Anderson saying he still looked to AIG's UPS tax haven as an "ideal" when structuring his own clients' tax havens.

KPMG: The accounting industry folds
But the taxman came for KPMG next, after discovering the firm had peddled tax shelter schemes -- a few of which came bundled with liability "insurance" to protect the tax benefits from AIG FP -- to hundreds of companies, including the baseball card manufacturer Upper Deck, which ended up suing AIG after coughing up almost a hundred million dollars in taxes after KPMG coughed up its client list as part of a half billion dollar plea agreement. Seventeen ex-KPMG executives were indicted in the "S2" tax shelter case, which was prosecuted in the aftermath of accounting scandals that nearly decimated all the industry's entrenched players. They didn't decimate AIG, however, which refused to make good on Upper Deck's insurance.

What Happens To A Prosecution Deferred...
Shortly thereafter AIG FP's inimitable chief Joseph Cassano was charged in assisting PNC Financial in a similar fraud, though the three firms avoided formal criminal indictments by coughing up fees in deferred-prosecution agreements that in AIG's case anyway, meant the company was required to pay a government-appointed attorney to report on the company's operations.

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Topics: AIG Transaction Development Group, IRS, Son of BOSS, UPS

Financial Crisis

Prosecutors: Ponzi Scheming Art Dealer Bilked McEnroe, DeNiro

Ben Buchwalter | March 31, 2009, 3:24PM

Bernie Madoff isn't the only Ponzi schemer on New York's Upper East Side, at least according to prosecutors. Last Thursday, Lawrence Salander, a prominent art gallery owner, joined Madoff on that illustrious list when he was charged with bilking a slew of high-profile clients, including John McEnroe and Robert DeNiro, out of $88 million on high-priced art deals, over more than fifteen years.

Salander never fired any US Attorneys, or helped bring down the financial system -- so far as we know. But we thought he was worth our attention because the charges against him are part of a surge in Ponzi cases brought by authorities since the start of the year. That uptick appears to be the result, in part, of the financial crisis, which, as in Madoff's case, caused investors to withdraw their money en masse, leaving schemers without enough capital to keep up the charade. Call him another mini-Madoff.

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Topics: Bernard Madoff, Financial Crisis

AIG

Joe Cassano, In His Own Words

Zachary Roth | March 31, 2009, 2:41PM

How did Joe Cassano -- the man who brought down AIG, and with it, perhaps the entire global financial system, with those disastrous credit default swaps -- talk about what his unit, AIG Financial Products, was up to?

We've been looking through a presentation that Cassano gave to a group of entrepreneurs and analysts in May 2007 -- just as the extent of the collapse of the sub-prime market was becoming clear. In his speech (accessed by Nexis), Cassano detailed AIGFP's various business lines, and, of course, painted a rosy picture of the unit's future earning potential.

The entire performance has an almost poignant quality, looked at in light of the tumult that would soon befall AIGFP. (Less than nine months later, it would announce Cassano's resignation after an $11.1 billion writedown of credit-default swaps.) But we've pulled out a few of Cassano's comments that day that are particularly noteworthy...

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Topics: AIG, Bailout, Financial Crisis, Joseph Cassano, Wall Street

The Daily Muck

Ben Buchwalter | March 31, 2009, 9:03AM

The Obama administration signaled Monday that it would release Aymen Saeed Batarfi, a Yemeni prisoner held at Guantanamo Bay, as part of President Obama's promise to empty the controversial detention facility within a year. Batarfi's lawyers say he was arrested while on a humanitarian mission, but Justice Department prosecutors allege that he participated in a major al Qaeda battle as more than a humanitarian worker. (Associated Press)

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Topics: The Daily Muck

Joseph Cassano

All Joe Cassano Ever Wanted Was To Not Pay Taxes

Moe Tkacik | March 30, 2009, 6:54PM

The Feds are closing in on a criminal fraud case against Joseph Cassano, reports ABC News, which tracked down the former AIG Financial Products czar wearing blue spandex and a sheepish expression outside his home in London. And before you wonder why a Brooklyn College educated swaps dealer with a name like Joe Cassano lives in London again, the answer is probably "taxes" -- and decimating taxes, it may not shock you to know, is fast emerging as the cornerstone of the AIG business model.

An ABC News investigation found that Cassano set up some dozens of separate companies, some off-shore, to handle the transactions, effectively keeping them off the books of AIG and out of sight of regulators in the U.S. and the United Kingdom.
"This is the other very important issue underneath the AIG scandal," said [tax law expert Jack] Blum. "All of these contracts were moved offshore for the express purpose of getting out from under regulation and tax evasion."

And as breathtaking as the sum of taxpayer dollars AIG has managed to put down in its post-crisis nationalized afterlife, the zombie insurer might possibly have indirectly scammed the government out of more money back in its Triple-A days. Today the Wall Street Journal explores AIG's euphemistically-named "tax structuring" business in a story about an IRS battle with Hewlett-Packard over an offshore entity -- or what the IRS terms a "sham that lacked economic substance and a business purpose" -- that AIG set up for the company to collect $132 million in tax credits. AIG's tax business, is "even bigger than the credit-default swaps business that led to the company's meltdown," a person "familiar with the business" tells the Journal. But that might be compartmentalizing things: we are beginning to suspect the credit default swap business and the tax "structuring" business were the same thing -- not just because they served the same end.

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Topics: Joseph Cassano

AIG

Traders "Unwinding" AIG: "We Have Never Done As Big Or As Profitable Trades -- Ever"

Moe Tkacik | March 30, 2009, 5:28PM

What's it like, the laborious job of "unwinding" hundreds of thousands of mind-numbingly complex derivatives contracts amassed over the years by the inimitable AIG Financial Products? Ask the Wall Street investment banks to whom they've been farming out the work -- it's so painful and time-consuming it feels like the old days, especially the "massively profitable" part. An anonymous derivatives trader tells the blog Zero Hedge:

During Jan/Feb AIG would call up and just ask for complete unwind prices from the credit desk in the relevant jurisdiction. These were not single deal unwinds as are typically more price transparent - these were whole portfolio unwinds.The size of these unwinds were enormous, the quotes I have heard were "we have never done as big or as profitable trades - ever".

Sort of undermines the notion that AIGFP employees needed retention bonuses so that the Great Unwinding might be an "orderly" and modest process conducted by cool heads and not, god forbid, subject to raids from ex-AIGers who'd left to trade against the company's book. Nah, they pretty much "threw in the towel," as Zero Hedge points out, and gave the "winners" on all those bad trades a chance to really earn their bonuses again.

But is the big payout the real shadowy force behind the recent runup in stock prices? Today's stock traders seem worried. Because even if reports that AIG FP has only unwound a quarter of its total trades are true, most investors agree the Treasury is too cash-strapped to do this forever.

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Topics: AIG, Goldman Sachs

John Murtha

Murtha: If Loving Constituents Is Wrong ... I Don't Wanna Be Right!

Zachary Roth | March 30, 2009, 5:25PM

Backing down isn't Rep. John Murtha's style.

The cantankerous House power-broker is under fire for his ties to the PMA lobbying firm, which just shut down amid reports of an FBI probe into its campaign contributions to friendly lawmakers, including Murtha, who have steered millions in federal earmarks to PMA clients.

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Topics: Earmarks, FBI, John Murtha, Lobbyists

John Murtha

Flake's Call For PMA Probe Gaining Support

Zachary Roth | March 30, 2009, 3:03PM

Remember that ongoing FBI investigation of PMA, the lobbying group with close ties to Democratic power-broker Rep. John Murtha?

Well, up until now, House Democrats -- led by Speaker Nancy Pelosi, who's a close ally of Murtha, the powerful Defense Appropriations subcommittee chair -- have been successful on fending off GOP calls for a congressional probe of the matter. But that may be changing...

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Topics: FBI, John Murtha, Lobbyists

AIG

AIG's Stiffed Business Partners Begin to Speak Out

Brian Beutler | March 30, 2009, 2:04PM

Last week we reported that the House Financial Services committee's ranking member, Rep. Spencer Bachus (R-AL) is asking chairman Barney Frank and the Treasury department to look into the cases of smaller U.S. banks that are allegedly being stiffed on their loans to an AIG subsidiary while its major CDS counterparties are paid off in full.

In a story that may shed some light on his complaint, the Wall Street Journal reports today on the cases of two businesses who partnered with AIG on real estate development projects and are now fighting to get AIG to contribute its share of cash to pay project expenses:

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Topics: AIG, Bailout

Bailout

Bush Bailout Architect Lands On His Feet -- Helping Private Clients Adjust To Brave New World Of Finance

Zachary Roth | March 30, 2009, 1:29PM

We should have seen this one coming -- government officials who helped respond to the financial crisis, now cashing in by helping private sector clients "navigate the new world of finance."

That's what David Nason, a former assistant treasury secretary under Hank Paulson will be doing for clients of Promontary Financial Group, which he's joining as a managing director, reports the Wall Street Journal (sub. req.). Nason, who had a major hand in drawing up Treasury's bailout plan last fall, "is expected to advise big financial institutions on everything from how to participate in the government's rescue programs to meeting regulatory requirements."

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Topics: Bailout, Financial Crisis, Henry Paulson, Securities and Exchange Commission, Treasury Department, Wall Street

AIG

Wife Of London-Based AIG Exec Claims He's Aiding Federal Probes Of Cassano

Zachary Roth | March 30, 2009, 12:01PM

Following in the footsteps of martyr to truth Jake DeSantis, another AIG Financial Products exec just can't help himself from going public about how unfairly he's being treated by just about everyone from his employer, to Congress, to Andrew Cuomo. But a blog post by his wife may be even more interesting....

The blog Clusterstock has posted a long rant from London-based Paul Harriman, which originally appeared on the site Live Journal. The predictable gist: Harriman complains that without his bonus, he won't be able to afford his $10,000 a month apartment and his kids' school fees.

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Topics: AIG, FBI, Financial Crisis, Joseph Cassano, Wall Street

Financial Crisis

Genius! Federal Pension Guarantor Switched From Bonds To Risky Stocks Last Year

Zachary Roth | March 30, 2009, 11:27AM

In the highly competitive race for the title of "Stupidest Recent Financial Decision Made By A Government Official", this one's got to be a strong contender....

The Boston Globe reports:

Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

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Topics: Financial Crisis, Wall Street

The Daily Muck

Ben Buchwalter | March 30, 2009, 9:16AM

Immigration courts are too backed up to provide speedy trials for tens of thousands of immigrants, according to a USA Today study released this weekend. Based on a review of court cases between 2003 and 2008, the study found that almost 90,000 accused illegal immigrants had to wait at least two years to have their case heard before a judge and 14,000 had to wait nearly five years. A spokesman for the American Immigration Lawyers Association said that U.S. immigration courts, which only employ 224 judges, simply do not have enough resources. San Francisco immigration judge Dana Marks told USA Today, "you could have a case that would take an hour (to hear). But I can't give you that hour of time for 14 months." (USA Today)