CBS News has some new developments in the criminal probe into AIG…
We knew that Joe Cassano, the former head of AIG’s Financial Products unit, was in investigators’ crosshairs for potentially giving misleading public statements about AIGFP’s position. But the network now reports that the Justice Department is also looking closely at two of his deputies — Andrew Forster, an executive vice president, and Thomas Athan, a managing director — for the same reason.
And, we had previously known that a December 2007 presentation, at which Cassano and other execs assured investors that the firm had prudently hedged its exposure to the sub-prime market, was a focus of the probe. But now we learn that investigators are also zeroing in on two related public statements — AIG’s third quarter report for 2007, put out in November of that year, and a detailed press release, put out the same day. Both put AIGFP’s third quarter losses on its credit default swaps at $352 million, but estimated that that figure had risen to $550 million as of the end of October. By the end of the year, the losses had in fact skyrocketed to $11.5 billion. (CBS’s apparent belief that the two documents give different figures looks to be a mistake.)
We’ll be looking through the two documents CBS mentions, to see if anything else of interest jumps out (and please do let us know what you find too….). But it’s also worth asking what drew investigators to Forster and Athan.
In Forster’s case, here’s one possible answer. In August 2007, he put out a written announcement (via Nexis) to investors in Nightingale Fiance, a structured investment vehicle set up by AIG, in which he reassured them that Nightingale had only “a very small, indirect exposure to the sub-prime markets,” and that those positions “continue to meet our high standards of fundamental credit analysis.”
Of course, by January 2008, AIG was bailing out Nightingale to the tune of $2.2 billion, after it had been devastated by the collapse of the sub-prime market.
That wasn’t the only time that Forster painted an unduly rosy picture for investors. In that December 2007 presentation — which is already a focus of the probe, and which we’ve written about at length — Forster, like Cassano, CEO Martin Sullivan, and other AIG execs, was at pains to let investors know how carefully the firm conducted its risk assessment. He called the credit default swaps “robust” and “risk remote,” and praised “the quality book that we have, how well structured transactions that we have and the superior collateral that we have within all of our transactions.”
So the Feds should have a lot to work with.