AIG's Fall: Bad Business Or Criminal Acts?

CBS Exclusive: Investigators Digging Into Whether Execs Of Failed Financial Giant Misled The Public

(CBS)  A $5 million Connecticut mansion. A $4 million London townhouse. A $7 million English estate. The houses are owned by three men CBS News has learned are now the subjects of a Justice Department criminal investigation into how AIG crumbled.

Sources say investigators are digging into whether Joseph Cassano, the former head of London-based AIG Financial Products, and two of his top deputies - Andrew Forster, an executive vice president, and Thomas Athan, a managing director - committed securities fraud and other federal crimes, reports CBS News chief investigative correspondent Armen Keteyian.

At issue: whether they intentionally provided false information about the size of AIG's loses in the mortgage-backed securities market to the public and auditors.

"They would look at the email traffic to try and see who was saying what to whom," said John Laperla, a former fraud investigator for the U.S. Postal Inspection Service.

"The criminality would be if someone willfully intended to basically put in false information and ultimately defraud the general public and the stockholder," Laperla said.

CBS News has learned investigators are honing in on statements like one in a September 30, 2007, quarterly report, where potential accounting losses tied to its Cassano's unit, known as AIGFP, were $352 million. And the company said it was "highly unlikely..{it} will be required to make payments." To clients, it was an indication the company was saying it was healthier than it actually was.

Also under scrutiny is a November 7 press release where AIGFP upped that potential accounting loss to $550 million.

But by the end of the year the potential losses became real and devastating, ballooning to more than $11.5 billion.

"That's a significant red flag," said Patricia Pileggi, a former federal prosecutor. "I mean a jump like that in three months raises real questions."

In a statement AIG told CBS News: "To date, neither AIG nor AIGFP is aware of any fraud or malfeasance in connection with the underwriting and creation of the multi-sector CDS portfolio, as opposed to what, with hindsight, turned out to be bad business decisions. AIG and AIGFP are, however, aware of ongoing investigations by the Department of Justice and the SEC with respect to the subsequent valuation of the multi-sector CDS portfolio under fair value accounting rules and related disclosures. We have cooperated fully with these investigations and will continue to do so."

A senior AIG official told us: "Everyone at the corporate office was stunned when the problems with valuing the CDS portfolio came to light in February of 2008. It became clear immediately that the potential losses on the swaps were far greater than anyone imagined. That’s when (Martin) Sullivan asked (Joseph) Cassano to resign."

Through their attorneys for both Cassano and Forester declined comment on our story. Athan's attorney said his client arrived at AIGFP after it "sustained substantial losses" and was working "to help minimize the continuing risk."

And now CBS News has learned that Athan and Forster pocketed bonuses paid out by AIG just two months ago - in the midst of a federal investigation. Sources say they are now negotiating a way to pay them back.

[comfortmd1]

criminal much?

[starleo146]

That is another thing the IRA's, this company said they had to pay these enormous bonuses to a bunch of crooked CEO's , so they say, what about a Insurance company guarantee with their investors, look at what people lost in there IRA"S no one, I mean NO ONE gives one IOTA if the people who in vested gets there money back that is sort like MADOFF, why should these people fail and AIG not be responsible ?Every dime should be paid back to the investor.Look at Madoff, Enron now all the investors, It is getting so the retiree should not invest with anyone, no protection for there dollar.

[starleo146]

i THOUGHT NO COMPANY SHOULD HAVE A MONOPOLY. Why is this too big too fail still going.? Someone explain that to me. Exactly what is it they consider a monopoly? I remember Kodak had to take apart their company because Poloroid took them to court, had to break it all up what makes these crooks get away with all they have done, I would fine them, and make them pay back every dime they stole from the taxpayer. Put them in jail and throw away the key.

[joni36-2009]

another thing they got is when you buy stuff from wamart and other places is two to three year warranties on tvs , computers and other stuff. will they pay if something gos wroung now? i have about three of them

[tigerrram9]

AIG committed a crime and should be prosecuted for their crime. They knew if the republicans won the election they would left alone. But, with the new administration on watch, now they want to return their bonuses. Why? They want to plea bargain and spill the beans on who was involved in all these happening. Don't be surprise when they start mentioning the names of former administration members.

[tigerrram9]

AIG should be put out of business

[tigerrram9]

These bonuses were paid to keep them quiet. But as you see the new administration is on their butts to get the bonuses back. That is why they are negotiating to give the bonuses back. I think these guys are ready to sing like canaries. Soon they will negotiate a deal and we will find out who was really behind all this. There is no honor among thieves and they turn yellow and start singing like canaries. This happened during the Bush Administration when the Feds took their eye off them. They saw the opportunity and got greedy. They knew the feds were looking the other way. Prosecute them and get the truth from them, let them spill the beans and let the beans fall where they may.

[tigerrram9]

These problems with AIG were on whose watch? Oh yeah, Bush and Cheney were on watch. I wouldn't be surprised if Cheney had a hand in this. I don't think Bush would because he so gulible. On the other hand Dick Cheney and Karl Rove are evil hearted people. I wouldn't be surprise to hear their names come up later.

[bobnjersey]

[You sheep elected him. You were bought and sold like slaves by Media, wall Street and Big 3 Auto. Now get to work. If you still have a job. If you don't I'm quite sure you are shocked to be jobless. How's that trickle up mentality working for you? ]
[Posted by YouCantBSirius at 2:39 AM : Apr 28, 2009 ]

more moronic diatribe from delusional fools who now want everyone to believe that the recent economic disaster that is the result of a free market 'free for all' where investment banks effectively deliberately scammed their customers worldwide ... because they were so 'free' to be able to sell junk as triple a ... is now the fault of obama and his policies.

[engineer1503]

I want to be on their jury of their trials.

[cpforest]

Criminal. I was a shareholder in AIG, I lost almost my entire IRA to it. I went back and scoured their annual report to try to locate their exposure in Credit Default Swaps. Congress and Clinton in 2000 legalized these bucket shop instruments, but they did not legalize completely omitting a firm's financial risks from it's financial statements like the annual report and doing so, is a criminal act.

[usaisoverhoser]

To even propose the question that it could be a result of bad business decisions instead of intricately concocted corrupt acts is an insult to my intelligence. Do Washington and Wall Street still think they are fooling us? Take a sampling of the comments across various news web sites?the game is over, like the jig is up man.

[vuenbelvue]

"Ask me again who the criminal "really" is. You sheep elected him. You were bought and sold like slaves by Media, wall Street and Big 3 Auto."
A somewhat true statement but this reality goes thru party lines. 1st The present members of Congress are selling us out for campaign funds and only term limits will finally settle this. 2. Deficit spending has gone amuck. The cureent Congress just voted aye for two large stimulus bills (taht really aren't stimulus but pork) and are still requesting money for the lobbiest who line their offices. It's in every state of the Union. 3. Foreign spending and Pentagon spending is out of control. 4. Arrogant congressional leaders win 75% of the vote because the majority of the voters are voting party or name recognition.5. Immigration and looking the other way is the creed of the US State Department and it needs to be corralled. Term limits all the way to POTUS. It is not a Democratic or Republican problem. It is a national problem.

[ahrats]

These three guys lost 11.5 billion and they get a bonus? AIG should be put out of business or when are hiring I can lose even more do I still get a 2 million dollar bonus? AIG needs to broken up and those three guys should be in jail, luckily their in the U.K. so we can not hunt them down and hang them from the highest tree.

[hunterdon6]

I am betting on criminal act. If investigated, you would find criminal wrongdoing in all the banking firms, wall street, and our elected leaders in Washington D.C..

[brianbwb-2009]

"Heed the words of Sir Winston Churchill. "Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery."... Posted by YouCantBSirius

Just because Churchill said it doesn't mean it is correct. Unregulated corrupt capitalism is also a philosophy of failure, as evidenced by the present state of economics, it sells envy, it has no virtue at all, because it relieves the corrupt of misery, and consigns it to the less than rich.

"...How's that trickle up mentality working for you?" Posted by YouCantBSirius

We will know how it works when we actually start it, as it will come eventually. It is obvious you don't know what the concept actually is, you seem to think that subsidizing corruption by the rich is "trickle up", you are no where near correct.

[brianbwb-2009]

"The criminality would be if someone willfully intended to basically put in false information and ultimately defraud the general public and the stockholder," Laperla said. "

Well Laperla, you would probably not be too surprised to find that it is likely that 99% of all firms listed on Wall St. have cooked books and false statements that mislead and defraud the general public and the stockholder.

Contrary to what the neo trolls are trying to spew, this greed transcends party lines. They all are crooks.

[disabled-student]

To err is human, to really screw up you need a computer. And Joe Cassano says, "I can do one better, Global Economic Crisis.... I'm a genius."

[ibsteve2u]

The way "leadership" works in America's corporate hierarchy these days, I am sure that - in their eyes - AIG's fall was not the fault of either "bad business" or "criminal acts".

It was because of either "too much regulation" or "irresponsible actions carried out by unnamed subordinates" - precisely the same excuses the Republicans draw from when confronted with their inability to lead without corruption.

[stn_sage]

If it were only 'bad business' as proffered in the title, it shows incredible criminal incompetence!
And those in charge of AIG should be held responsible for their incompetence!

If it's 'criminal acts', then prosecution should proceed, and those responsible should be punished.

But who's fooling who, here? All these company execs do is 'spread a little cash around' to the politicians, and judges, and anyone else they need to "pay off"! And then, later, usually
much later, they're found guilty on trivial charges, given a ludicrously short sentence, in living quarters that are better than a large percentage of the public lives in, then they come out, and
start up right where they left off!

No, even if the evidence exists they won't truly be punished! So, if the public exists the system to do it---they'll have to wait until Hades freezes over!