Is a cornered AIG now trying to cast doubt on a key part of CEO Ed Liddy’s testimony? It sure looks that way…
In his testimony in March before Congress, Liddy was asked about the company’s risk management practices concerning AIGFP, the unit of the firm that made those disastrous credit default swaps.
We had risk-management practices in place. They generally were not allowed to go up into the financial-products business.
As we noted soon after, that answer seemed to directly contradict what Joe Cassano, at the time the head of AIGFP, and several other AIG execs, told investors at a December 2007 presentation. At that event, Cassano and his colleagues were eager to assure their audience that AIG risk officers closely scrutinized AIGFP’s deals. Cassano claimed all AIGFP deals were subject to “the approval of the AIG Head Office Enterprise Risk or the Credit Risk Group at AIG.”
Rep. Gary Peters (D-MI) picked up on that piece of Liddy’s testimony as well. He wrote to AIG last month, asking for more information on AIG’s risk management practices, and specifically citing Liddy’s testimony that risk officers were shut out from AIGFP.
Now Rep. Peters has received a response from an AIG lawyer with the unlikely name of Ty Cobb, which we’ve obtained. And in answer to the question about Liddy’s testimony, Cobb writes:
As noted above, Mr. Liddy was not present at AIG during the relevant period and, therefore, has no firsthand knowledge of these issues.
In other words, Liddy wasn’t there, so he doesn’t know what he’s talking about.
AIG spokesman Mark Herr — whose name surfaced on that anonymously circulated document attacking former CEO Hank Greenberg on the eve of his testimony — told TPMmuckraker the company isn’t trying to walk back the claim Liddy made in his testimony, pointing out that the response doesn’t directly contradict what Liddy said.
But it’s hard to understand why the letter felt the need to point out that Liddy wasn’t at AIG at the relevant time — something everyone following this is aware of — if not to throw doubt on Liddy’s claim that risk officers were blocked from AIGFP.
It’s understandable that AIG might want to obscure that issue. They’re caught between a rock and a hard place, because if Liddy’s testimony was accurate — and there’s a slew of other evidence suggesting it was — then several senior AIG execs, including not just Cassano but also then-CEO Martin Sullivan, appear to have given flawed information to investors at that December 2007 presentation where they talked up the firm’s stringent risk management practices. And indeed, that presentation is now reportedly one focus of a criminal probe into whether Cassano and others misled investors about the state of the firm.
That’s not the only way in which AIG’s letter doesn’t square the circle of past statements. Its response to the question about Liddy’s testimony went on:
Though FP executives responsible for risk management had no direct reporting lines to executives in the corresponding control functions at AIG or within ERM, AIG risk management personnel did review and approve various CDS transactions as to credit risk. The information available did not indicate an unacceptable level of risk.
That reference to “various CDS transactions” sounds a good deal less all-encompassing than what Cassano told investors at the 2007 presentation, where he claimed, referring to two separate AIG risk offices:
There is not one dollar of this business that’s been done that hasn’t gone through that double review check.
It’s starting to become clear why Federal investigators have been called in to sort this out.