Another one skates free:
Federal prosecutors won’t bring charges against former American International Group Inc. executive Joseph Cassano related to the insurer’s collapse, according to a person familiar with the investigation.
The Justice Department found after a two-year investigation that there was insufficient evidence to charge Cassano, who was the former chief executive officer of AIG’s Financial Products division, the person said.
The Justice Department and civil investigators from the Securities and Exchange Commission were examining comments made in 2007 by Cassano and other AIG executives. They were probing whether executives misrepresented the value of AIG’s portfolio of “super senior” credit-default swaps, which insured bond losses tied to the U.S. housing market.
***Cassano’s London-based unit managed $2 trillion in derivative trades tied to bonds, currencies, commodities and stocks. He told investors in December 2007 that “it is very difficult to see how there can be any losses in these portfolios.”
By Feb. 28, 2008, AIG posted what was then its biggest quarterly loss, writing down $11.1 billion on the swaps. AIG announced Cassano’s resignation as president and chief executive officer of AIG Financial Products a day later.
Blah blah blah moral hazard blah blah blah mistakes were made blah blah blah blah hoodcoodanode.
This guy won’t even have to give back the $315 million he “earned” in bonuses for the shit deals he peddled that cost you and me billions to bail out AIG. Crime pays.
Emma
Look, I hate it as much as you do, but the laws are the damn laws. They were written by Congress, who is in the pocket of those damn corporate bastards, whether Republican or Democrat. Our elected legislators have spent the last thirty years dismantling anything that resembles ‘regulatory oversight.’ The new bill makes a start, but it’s nowhere near what is necessary to rein them in.
Obot
But Republicans are worse, so Obama ’12! Yeah! Maybe he’ll promise to shut down Gitmo on the first day of his second term!
freelancer
“Sometimes accidents happen.”
More Rand coverage!
Brandon
You can thank the Supreme Court for this. Because they are basically only days away from throwing out the conviction of Conrad Black for under the Federal “Honest Services Fraud” statute.
I believe this will likely also throw out convictions (some or all?) against Ken Lay (deceased) and Skilling. Basically, this was their big tool for prosecution and it wouldn’t make a lot of sense to follow through if our wonderful 5 tools of the corporate overlords were not going to allow the Feds to use it anymore.
John Cole
@Obot: Weak Troll Fu
mai naem
Watch him write a best selling book and appear with Maria Antoinette Bartiromo’s show where’s he’ll get a verbal blow job and then they’ll both blame it on those awful big gubmint regulators.
burnspbesq
So what to you want DOJ to do – try the fucker and lose?
Which part of “insufficient evidence” do you not get?
I lost the only fraud case I ever tried in the US Tax Court, where the burden of proof is only “clear and convincing,” because the taxpayer was a fucking moron and his lawyer did a good job putting on a pure heart, empty head defense. It’s really, really hard to prove that someone knew they were cheating and did it anyway (which is essentially what you need to do to prove willfulness). And when you have to prove it beyond a reasonable doubt, to a jury – shit, it’s close to a miracle that anyone ever gets convicted of securities fraud or tax evasion.
cat48
@Obot:
Ask the House Armed Services Committee about closing down Gitmo. Gitmo stays forever as far as they are concerned. They froze all funds to close it. AGAIN, on Thurs. Suck it.
burnspbesq
@Brandon:
The use of honest services fraud against people in the private sector always made me queasy, because except in the special case of accounting firms that audit public companies I have trouble getting to the point where I see them owing a duty to the public at large. Honest services fraud charges against government employees who pervert government processes for private money? Hell yes. The rest of it, maybe not so much.
Ailuridae
I’m confused. What crime, exactly, do you suggest that Mr Cassano be charged with? I’m not trying to be glib here.
We set up a shadow banking system that was stupid but perfectly legal. Mr Cassano was really, really bad at trading withing that market.
Are you seriously arguing that because he was on the losing side of most of the transactions that he out to be tried with a crime?
Bernanke, on his own (with no input from Congress) made the decision to bail out AIG and even he did so through explicitly legal means.
Cassano is a stupid guido. Despite my personal inclinations that is not a criminal offense in America yet.
Andy K
Seeing as Cassano was working out of a London office, might he not still be on the hook in the UK?
Brandon
@burnspbesq: I have to agree here, I severely doubt that DoJ wants to embarass themselves with a big and expensive trial, only to lose in the end. Without the honest services fraud statute or sufficient evidence to prove securities fraud, the asshole gets to walk.
As for his money, I guess that’s what taxation is for. I certainly wish that he could get perp walked in an orange jumpsuit, unfortunately that does not seem meant to be.
In related news, Martha Stewart was heard screaming today, “They what? They’re not…. No! WTF?”
jl
I heard radio interview with a financial expert a few days ago, and he ticked off all the legal and regulatory barriers to criminal behavior that were removed from the late 1990s through the end of the Bush II term. It was an surprizing list.
One thing that I had not heard before, and did not fully understand, was that many fiduciary duties that banks, brokers and other financial companies owed their clients were removed.
So, what do you expect, crabby ol’ Cole. When nothing is criminal, there are no crimes and no one is guilty of breaking the law.
Sometimes this is a good solution, say, for recreational dope use, sometimes it is not.
One would hope there is a middle ground between a kind of anarchy, and PRC style show trials when something goes wrong followed by a bullet in the back of the head. Maybe we can get back to that middle ground someday. It would seem to be the American Way, part of the America we used to know and love, though I doubt the teabaggers and the GOP would agree.
Noonan
The quote from Cassano’s scumbag attorney is fucking priceless: His client is “factually innocent.”
I mean sure, among the reality based community where hundreds of billions of dollars in shady deals might mean something. But in the unique environment Cassano operated in being guilty of a crime means you literally have to run a ponzi scheme. Running a pseudo ponzi scheme is a whole different story.
/Bernie Madoff is this era’s dumbest criminal.
Andy K
@Ailuridae:
Fraud? Deliberately misleading potential investors?
burnspbesq
@Ailuridae:
If he had set fire to a pile of cash the size of his losses, he could be charged with arson. ;-)
But short of that …
JGabriel
John Cole:
The rich are different than you and me.
— F. Scott Fitzgerald.
.
Brandon
@Andy K: As long as AIG’s stock trades in the U.S., I believe that is all that matters.
@burnspbesq: You raise an interesting argument, however I personally don’t like the overuse of the Federal perjury statute or conspiracy charges generally. I get the feeling though (nothing aimed at you) that SCOTUS unease with stretching statutes has more to do with the income levels of those who are affected by said statutes instead of the practice itself.
arguingwithsignposts
And once again, the Planet Money/This American Life team nailed it weeks ago. The bankers’ bottom lines were alright. They knew what was going on, but they came out of it with their bonuses intact.
Mark S.
This isn’t a snarky question, but why the hell aren’t there a ton of civil lawsuits going on right now? I can understand why a criminal suit might be difficult in many of these cases, but the guys who lost billions? Why aren’t they suing the pants off Goldman Sachs for fraud?
arguingwithsignposts
@Mark S.:
IIRC, there are a number of civil suits ongoing, including some by state AGs and various retirement funds, including CalPERS.
JGabriel
@Mark S.:
Exactly. The guys who lost billions should hire the best lawyers money can buy and …
Oh, wait. I think I see the problem here.
.
burnspbesq
@Noonan:
Before you go off on Joseph Warin, who is just doing his job (or do you agree with Liz Cheney about attributing clients’ characteristics to lawyers?), you might wish to consider the last sentence of his bio on his firm’s website:
“He is a member of the Board of Directors of the Washington Lawyers Committee for Civil Rights.”
http://www.washlaw.org/
Martin
@Emma: Well, even if they weren’t in the pocket of Wall Street, Wall Street has made the whole industry so incredibly opaque that regulating it is nigh impossible.
Krugman and Roubini are right – the key is force the industry to simplify so that it can be regulated. Then we can talk about regulating it with some confidence that it might actually happen.
Noonan
@burnspbesq:
Oh please. Don’t be so delicate. My comment was directed at Cassano. But don’t ever say someone is “just doing his job.” Historically, that defense hasn’t held up very well.
Anoniminous
Just remember the Two Mantras of Enlightenment:
1. Oh how money makes me hum.
2. No one could have predicted
Chant the first mantra for 20 minutes in the morning, the second for 20 minutes in the evening, and all that happens in Murika is understood.
BP doesn’t waste $500k on a blow-out prevention valve? See #1. When the blow-out happens? See #2.
Bankers lend gazillions to people who have no hope of paying it back? See #1. The US government bails out the Bankers who lent gazillions to people who have no hope of paying it back? See #2.
Send in the troops to a pointless and unwinnable war? See #1. Finally realize a pointless and unwinnable war is pointless and unwinnable? See #2.
Quite simple, really.
burnspbesq
FWIW, I continue to believe that the answer to all of the problems on Wall Street is pretty simple.
Make the firms general partnerships, they way they were prior to the late 1970s.
If all of the partners’ entire net worth is on the line every time the firm takes a position, you will see internal controls and risk management the likes of which the world has never known.
sagesource
@JGabriel: Hemingway’s response to that: “Yes. They have more money.”
robertdsc
I see a Predator drone in Cassano’s future.
Yes’ I’m kidding.
burnspbesq
@Noonan:
Bullshit. The words “scumbag attorney” have a generally understood meaning when used together in the context in which you used them. If you didn’t mean to convey that meaning, you should have used other words.
Andy K
@Brandon:
That would make sense to me if the charges were against the institution, but we’re talking about an individual here, who personally profited off of making shady- if not quite prosecutable in the US- deals.
jl
I seem to disagree with most of what certain esqs say.
So here we go again.
Brad DeLong had an interesting post on the common law tradition that had implications for both the Civil Rights Act’s provisions on private business and the idea of honest services fraud (a term which I do not remember hearing before).
Seems to me there is common law tradition in support of both the appropriateness of requiring private business to serve everyone in the general public regardless of race or hair color, but also requiring them to provide honest and fair services to the public.
The link is below. It may take awhile to load because of links to google books (especially long in MS explorer)
Common-Law Duties of Non-Discrimination
May 21, Brad Delong blog
http://delong.typepad.com/sdj/2010/05/common-low-duties-of-non-discrimination.html
burnspbesq
@Noonan:
Oh, so you do agree with Liz Cheney?
Ailuridae
@Andy K:
Again, Cassano, by all indications is a borderline idiot. But I have yet to see any evidence that he or anyone else at AIG understood what they were doing or the risks involved. If you read the Big Short the number of folks who understood this was a house of cards was very very small and was far more likely to consist of AIG’s contraparties (the guys who exploited AIG and Cassano’s stupidity) than anyone at AIG.
To butcher a phrase from Rounders Cassano was the sucker at the table and just didn’t realize it.
Andy K
@Ailuridae:
I’ll be the sucker at the table if it means I walk away with $315M in personal profit. Where do I sign up?
burnspbesq
@jl:
The implied covenant of good faith and fair dealing, which is what Blackstone is talking about in the passage to which you linked, is a principle of contract law. If it is violated, then the person who violated it can be sued by the other party to the contract. It doesn’t give rise to a duty to the public at large, and absent a statute to that effect breach of contract is normally not a criminal offense.
arguingwithsignposts
@burnspbesq:
As someone who has had to deal with far more attorneys than he’d have liked to over the past few years, I concur. There are “scumbag attorneys,” but their scumbagginess is not dependent on the clients they represent.
That's *Master* of Accountancy to You, Pal (JMN)
@burnspbesq:
As noted before, I agree with this entirely, but I’m not sure how you would force them all to be partnerships. However, eliminating limited liability for certain types of trades could achieve the same effect, and I can see how you would write that law.
Noonan
@burnspbesq:
The scumbag attorney quip was just that. Everything outside of those two words were directed at Cassano. You’re spending a lot of energy getting bent out of shape over something so small.
And please don’t compare defending a white collar crime to the efforts made by Gitmo lawyers. The attorneys who defended Gitmo detainees — despite enormous pressure from the Bush administration and major clients — deserve our admiration. Standing up for the rule of law is a far cry from making sure some rich twit who screwed over investors stays out of jail.
russell
Now your talking.
Want to set a big pile of money on fire? Use your own money.
Re: Cassano – if anyone finds themselves in the same room as him, kick him in the nuts, good and hard.
That’s about the only satisfaction anyone is ever gonna get from the guy.
Whatever. Kick him in the nuts anyway.
arguingwithsignposts
@Ailuridae:
The very fact that they were selling insurance to people who weren’t even parties to a deal should be banned. There should be no credit default swaps. Could someone explain why they should exist?
jl
@burnspbesq: OK, thanks. I think I see the legal difference in terms of what kinds of legal actions would be justified.
Noonan
@burnspbesq:
Please don’t put words in my mouth. Defending Gitmo detainees and the rule of law is far removed from defending a rich twit like Cassano. One involved standing up to pressure from clients and the Bush administration. The other is free publicity for keeping a white collar criminal out of prison.
This debate is lame.
arguingwithsignposts
Is that you, J. Michael Neal? Excuse me, *Master* J. Michael Neal.
Uloborus
I think Emma and Ailuridae are right, and BECAUSE they’re right, so is Burn.
The industry wasn’t sufficiently regulated in the first place. Clinton had at least a part in deregulation (I’m not an expert there), but Cheney spent the last 8 years stripping all the regulation off of industry he could, and energy and wall street were two of his babies.
You can’t prosecute someone when there’s no laws to say they did anything wrong. They were left with a thread-thin law Burn says they didn’t have a hope of pulling a conviction on, and I believe him.
Once again: This is what 8 years of deregulation looks like. Not only disasters, but disasters nobody gets punished for.
Emma
Martin: Exactly. But most the opacity that Wall Street has built around itself is due to the “regulations” that they bought for themselves when they bought their pet legislators.
Does anyone remember the first great deregulation disaster? The great Savings and Loan crash of the 80s? Savings and loans were allowed to do get into the financial markets in order to “more effective compete with the commercial banks” (read: get their mitts on some of the suckers’ money). And we the taxpayers picked up the pieces to the tune of $150 billion.
But once it was fixed we seemed to forget it. All they had to do is wait until the noise had died down and the economy was back on track and they got their pet legislators to write them another “deregulating” bill in the name of “competition.” And off we went again.
We the people have never held those who wrote the damn original bills for savings and loan deregulation accountable. Some of them are still in the freaking Congress, writing the same kind of bills for this particular financial industry.
Brandon
@Andy K: I personally know little regarding securities regulation. Never took the course in law school. After law school I got a pretty sweet job with an international organization and hence never took the bar and don’t practice law now in any field nor have I ever. But… I would guess that this would be a “piercing the corporate veil” issue.
But you seem to be asking about personal jurisdiction. Admittedly, I did not pay a lot of attention during Civil Procedure, but I believe there is a federal “long arm” statute for civil claims (which probably has a “minimum contacts” rule) and as far a criminal cases are concerned, I believe the issue is where the injury occurred. If you are hacking computer systems in the U.S. while sitting in England, expect a criminal indictment in the U.S. If you conspire to kill 3,000 U.S. citizens in an attack from Afghanistan, Pakistan or Saudi Arabia, expect a criminal indictment in the U.S. If you are a CIA stooge and corrupt dictator of a Central American country that also sells drugs that end up in the U.S., expect to get indicted in the U.S. The only issue is whether the U.S. has a extradition treaty with that country or whether in some cases whether the U.S. would just prefer to use the military or CIA to extract those individuals.
Ailuridae
@Andy K:
I’m confused how Cassano’s being wrongly compensated has anything to do with whether he’s subject to criminal or civil action. Nearly all financial trades have a winner and a loser and Cassano and AIG happened to be the biggest loser in history. Bernanke elected to honor their trades (again through perfectly legal means) but the question remains: why was there an unregulated zero sum market for a good (mortgage backed securities) that provided absolutely nothing except risk? That decision was the problematic one even more so than Bernankes decision to bail out AIG while making their contraparties whole.
Someone was going to be on the losing side of these trades when the housing bubble inevitably burst so if there is a criminal or civil culpability it lies with the people who designed a system that created unmanageable risk (that’s a whole lot of late 90s elected representatives including Bill Clinton) and the various SEC, Treasury and Fed people who elected to not reign in the clearly growing bubble as many people warned them of the disaster.
Accusing the losers in a market of being criminals because they are too stupid to realize they can’t profitably trade a market (a market whose existence does no good fwiw) is absurd. This is exactly what I mean when any discussion of finance or economics is impossible within the progressive community because the vast majority of its members simply have no idea what they are talking about and are, effectively, innumerate.
Before anyone attacks me I would like to reiterate that I would very much like to see the US model its future banking system after Canada’s very stable, risk adverse model. I am not advocating for derivatives trading or hedge funds or anything like that. I just think its ass backwards to have your government give its consent to markets, choose not to regulate them and then have the public who elected those officials demand that private citizens suffer criminal and civil penalties for being stupid.
Andy K
@Brandon:
Following your logic, if you defraud someone from the UK, in the UK, out of offices in the UK….
Mr Furious
OT: Is it just me or is the earlier Katrina thread broken for everyone else? It’s the only one that won’t accept comments and gets all funky at the bottom.
WTF?
That's *Master* of Accountancy to You, Pal (JMN)
@arguingwithsignposts:
For starters, there were a lot of people who did buy CDS to cover an insurable interest. They are very useful for hedging. Beyond that, it’s a bit hard to decide where the boundaries of an insurable interest are. There are CDS available on only a small fraction of the bonds out there. Frequently, they are used to hedge bonds that are expected to perform in a similar fashion to the ones that the swap is written on. Technically, that’s a naked CDS, but that’s not how it’s being used. Do you allow that?
This is aside from the fact that a lot of those bonds turned out not to perform similarly. There were an amazing number of hedging fuckups leading up to the crash. People really thought that they had figured out a way to hedge away all of the risk and still get high returns. It’s delusional to believe that, and I thought so at the time, but I talked to people within Citi who really did believe it. I can’t stress enough what Ailuridae said above: most of these folks were less dishonest than they were really, really stupid.
jl
On the bright side, looks like we will be having this thread again on the BP oil spill. Found this disturbing twitter feed (found via Atrios), which seems to indicate BP is pretty much running things wherever ‘their’ oil goes and starts killing stuff.
http://twitter.com/MacMcClelland
Why?
Looks like vast thick gooey sheets of toxic fresh oil is starting to foul hundreds of miles of priceless Gulf Coast marshes and shoreline. Yet BP who by now I think has been clearly shown to be guilty of reckless negligence and gross incompetence still seems to be in charge.
Why?
Hey, maybe I am all whacky here, but seems to me that vast thick gooey sheets of toxic fresh oil suddenly engulfing hundreds of miles of Gulf Coast might be consistent with vast thick gooey sheets of underwater oil coming out of a pipe. And the BP might be guilty of dishonestly or incompetently minimizing the oil flow in order to minimize its liability. Hoocoodanode?
Boy, it is a very good thing that Rand Paul and GOPer politicians have been assuring us that BP could be trusted. I am sure encouraged by that news.
That's *Master* of Accountancy to You, Pal (JMN)
@arguingwithsignposts: Indeed, it is I, the Mighty J. Michael Neal.
freelancer
Holy shit this thread is fucked.
ETA: Congrats, JMN.
arguingwithsignposts
Woah, the whole site just went ape shit for a moment.
@Master JMN
I don’t have a problem with people who actually invested in a particular stock having insurance on that stock (aka “hedging”), but there seemed to be an awful lot of people “hedging” on shit they weren’t actually buying (e.g., Magnatar per the TAL episode). That is just wrong, if not technically illegal.
MikeJ
I particularly like the hover fuck up. I think that’s a new one.
That's *Master* of Accountancy to You, Pal (JMN)
@arguingwithsignposts: Yeah. I don’t mean to imply that there weren’t a lot of people holding naked CDS without anything resembling an insurable interest. My point is that, in this instance, trying to define what qualifies as an insurable interest isn’t as clear cut as it is when you’re insuring your house.
Andy K
@Ailuridae:
Doesn’t the sucker at the table get cleaned out? Did Cassano get cleaned out?
Apologies if I come across as rude here, but that was a bad analogy on your part.
Ailuridae
I’d like to stay and discuss this more but while I think everyone is having site problems my browser is rendering comments illegible. And I have some money to make.
Brandon
@Andy K: Then you broke UK laws and should expect to get prosecuted in the UK. Unless, your fraudulent activity was also connected to securities traded in the U.S., then you could theoretically be prosecuted here as well (I think).
Basically, if you want to guess how things work, just assume that if you do anything, anywhere, the remotely affects (remember “minimum contacts”) someone or thing here in the U.S., then you could be expected to defend that in U.S. courts. In a civil case, if you elect not to defend yourself in U.S. courts then you get a summary judgment against you, which could cause you a lot of problems if you have any U.S.-based assets or plan to travel to the U.S. On the criminal side, you obviously need to appear, so coming from abroad you would either need to do so voluntarily, by extradition or get abducted.
mai naem
Why is it that when somebody holds up the 7-11 on the corner the government is all about deterrence but when a white collar POS walks away with a ton of money and creates untold amounts of misery for thousands of people, there is nothing about deterrence. I know about rule of law and civil rights etc. but nobody seems to give a crap about all these people are released after serving years in prison, after being found not to be guilty after all. I think these white collar criminals should at least have the sword hanging on their heads for years and years. It’s called deterrence.
jl
@mai naem: Robbers who hold up seven elevens need to hire more good lobbyists to repeal laws and regulations that cause them this pesky government interference with their small business free enterprise revenue model.
Emma
Mai Naem: Because that’s the way the laws are written. The only way that will change is if “we the people” wrest control of the legislative process from the corporations. And I truly don’t know if we can anymore.
Svensker
@Ailuridae:
So how come, I, a middle-aged middle class schlubbette in the New Jersey burbs knew it was a house o’ cards? Why did Cassano get the big bucks while I am still driving an 8 year old Taurus?
Svensker
@burnspbesq:
Yeah, but the public bailed them out. I feel breached.
debbie
Why would this surprise anyone? Cassano started out working with Michael Milken at Drexel.
That's *Master* of Accountancy to You, Pal (JMN)
@Svensker: Because he had mathematical formulas to prove he’s a moron. With you, they can only surmise.