Patterico's Pontifications

3/31/2009

The Feds are closing in on Sen. Dodd’s Sugar Daddy

Filed under: General — Karl @ 5:52 am

[Posted by Karl]

Yesterday’s Washington Times broke the story about AIG executives and their spouses being squeezed for donations to Sen. Chris Dodd (D-CT).  But who did the squeezing?

The message in the Nov. 17, 2006, e-mail from Joseph Cassano, AIG Financial Products chief executive, was unmistakable: Mr. Dodd was “next in line” to be chairman of the Senate Banking, Housing and Urban Affairs Committee, which oversees the insurance industry, and he would “have the opportunity to set the committee’s agenda on issues critical to the financial services industry.”

***

Mr. Dodd’s campaign quickly hit pay dirt, collecting more than $160,000 from employees and their spouses at the AIG Financial Products division (AIG-FP) in Wilton, Conn., in the days before he took over as the committee chairman in January 2007. Months later, the senator transferred the donations to jump-start his 2008 presidential bid, which later failed.

Ed Morrissey thought the Federal Election Commission might want to investigate whether those donations were reimbursed.

Guess what? Cassano has bigger problems than the FEC:

The FBI and federal prosecutors are reportedly closing in on the AIG executive whose suspect investments cost the insurance giant hundreds of billions of dollars. The government is investigating whether or not 54-year old Brooklyn-native Joseph Cassano committed criminal fraud in virtually bankrupting the company.

“He almost single-handedly is responsible for bringing AIG down and by reference the economy of this country,” said Rep. Jackie Speier (D-Ca.)

***

“AIG was insuring junk and it was the AIG insurance that made the junk marketable,” said tax law expert Jack Blum. “American taxpayers have been put on the hook for this insurance junk.” 

Even as the bad loans began to emerge, Cassano boasted to Wall Street analysts that his transactions, called credit default swaps, were foolproof.

***

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 Blum. “All of these contracts were moved offshore for the express purpose of getting out from under regulation and tax evasion.”

But wait… there’s more!  AIG-FP’s internal auditor, Joseph St. Denis, alleges that Cassano deliberately thwarted St. Denis’ effort to do his job, reminding some of the Enron and WorldCom cases.  TPM Muckraker has a handy Cassano timeline with further details.  Cassano is based in London, but AIG-FP is reportedly under investigation by Britain’s Serious Fraud Office in addition to the FBI and Congress.  And at least one of the execs whose bonuses sparked the populist rage of the past few weeks was assisting in the investigation.

One thing we learned from the AIG bonus furor is that those populists are not very discriminating in their rage.  Consequently, the fact that 84% of AIG-FP donations went to the Democrats and that Dodd has a habit of legislating windfalls for the insurance industry at taxpayer expense suggests that Cassano was not the only one having a bad day yesterday.

–Karl

11 Responses to “The Feds are closing in on Sen. Dodd’s Sugar Daddy”

  1. How much did the Craig scandal cost the American tax payer. Democrats were quick to claim how bad the Republican party was for having such a man as a member. Dodd’s cronies cost us billions of dollars and CD still holds a seat in the Senate. While Barney Frank would probably enjoy the attention he will be getting in prison, I doubt Dodd will.

    Zelsdorf Ragshaft III (e461c0)

  2. Dodd seems safe in his seat ’til 2010. Why doesn’t Connecticut DO something?

    SarahW (fdd722)

  3. Slowly the truth comes out…

    Karl at Patterico has more information about Dodd, his BFF at AIG, and charges of fraud. …

    lead and gold (6ed3f8)

  4. Clearly a case of biting the hand that fed you.

    allan (c29ad8)

  5. Joseph St. Denis’ written testimony to a House committee makes interesting reading. Basically, he expressed discomfort with the unfolding mess he was seeing within AIG-FP, then Cassano forced him out.

    Also interesting: he’s one of the AIG-FP VPs named by the Washington Times as one of the potential high rollers as earlier being pressured by Cassano to donate to Dodd.

    Maybe St. Denis will have something to say about that, too.

    AMac (c822c9)

  6. Regarding Dodd, it’s also interesting that Connecticut (mostly around Geenwich and Westport), along with New York and London is one of three global hedge fund centers. I have no idea why, but perhaps Senator Dodd has his finger in that pie also, considering how hedge funds are highly unregulated.

    PC14 (82e46c)

  7. Wasn’t this the type of fraud Sarbanes-Oxley was supposed to prevent?

    ROA (41c1c1)

  8. The claims about offshore entities and keeping things off the books may or may not be all smoke. There’s not enough information to tell from the links. There is nothing illegal about owning offshore entities or investing in Special Purpose Investment Vehicles (SIVs) that are nonconsolidated as long as they comply with applicable rules.

    AIG does have a history of shifting expenses to nonconsolidated entities, though. A large part of its incentive compensation was run through an affiliate and part of its 2005 restatement related to shifting losses into unconsolidared entities. The company also has a history of shoving whistleblowers out the door. Hank Greenberg did this to a lawyer who was pushing them to reform the way they wrote certain forms of workers comp insurance.

    It’s going to be interesting to see how this plays out. If the internal auditor prewarned the external auditors about the issues, they should have been able to modify their year end audit procedures regarding the area. They still noted a material weakness in their opinion.

    daleyrocks (5d22c0)

  9. Thanks for the post. There is a swelling grassroots movement here in Connecticut to finally rid our state of Chris Dodd, and this is just another reason. Whether it is his sweetheart Countrywide loans, his sketchy land deals in DC and Ireland, his procuring Presidential pardons for his business partner/friend/felon or this AIG bonus flap, recent polling shows Dodd is in for the race of his career.

    Did you see Leno’s joke the other night?

    “Hey, you hear about this? Very strange incident at JFK Airport in New York City today. An AIG executive going through security had to empty out all his pockets. You know what fell out? Senator Chris Dodd.”

    Anyway, thanks for helping keep the pressure on Dodd. For those interested in keeping up with all of Dodd’s scandals, check out The Artful Doddger for regular updates with an eye towards 2010.

    CTVoter2010 (361fd0)

  10. Karl – I hope you noticed Greenburg’s disgusting self-exculpatory performance in front of Congress this week. Luckily a few members weren’t buying what he was selling. A great example of his duplicity came out the day before when Elizabeth Monran, the former CFO of General Re was sentenced to 18 months in the slammer for her role in a reinsurance transaction with AIG which was personally originated by Greenburg in 2000. She is one of four General Re execs and one AIG exec receiving prison time over the deal I believe. After the third quarter of 2000, AIG’s property and casualty premiums were continuing to increase nicely, but its insurance reserves declined, a curious trend given the industry environment. It looked out of whack and Greenburg was rightly questioned about it. Greenburg called up Ron Ferguson the CEO of General Re and asked to buy $500 million of reserves to dress up his balance sheet, get his ratios back in line and make the questions disappear. A finite reinsurance deal with what prosecutors allege has no risk transfer and no legitimate business purpose was hatched to get the reserves on AIG’s books temporarily. Problem solved, but now those involved, except Greenburg are going to the slammer. AIG paid an $80 million fine for a similar transaction, recalenderizing earnings for a customer, a few years back as well, all on Greenburg’s watch.

    daleyrocks (5d22c0)


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