Posted on 24 May 2010
According to people familiar with the matter, federal prosecutors will not bring criminal charges against current and former American International Group Inc. executives for their role surrounding financial contracts that nearly brought down the insurer about two years ago.
The decision brings to a close a criminal investigation that, while mostly under wraps, was widely followed. The September 2008 bailout of AIG was one of the biggest and most shocking of the financial crisis, as trading by a non-insurance unit brought down one of the most iconic financial companies world-wide.
The probe focused on Joseph Cassano, who headed a London-based unit of AIG called Financial Products, people familiar with the matter have said. Other executives at the unit, Andrew Forster and Tom Athan, also were targets of the investigation, these people said.
"The system worked," said lawyers F. Joseph Warin and Jim Walden of Gibson, Dunn & Crutcher LLP, who represent Mr. Cassano, in a statement on Friday. "The large group of federal agents and prosecutors was diligent and professional throughout the investigation, and our client is grateful that they did their jobs by following the facts to the end."
David M. Brodsky and Richard Owens of Latham & Watkins LLP, who represented Mr. Forster, said Friday that "the facts were stronger than the emotions surrounding AIG's problems," and that they knew they could convince prosecutors "that our client at all times acted in good faith."
A lawyer for Mr. Athan wasn't reached to comment, nor were representatives for the Justice Department and AIG.
The probe focused on whether the executives deceived investors and the firm's outside auditor about AIG's financial exposure from contracts known as credit-default swaps that were tied in part to mortgages, the people familiar with the matter said.
As of last fall, the Justice Department had been planning to ask a grand jury in Brooklyn, N.Y., to consider indicting Mr. Cassano, people familiar with the matter have said. But after a series of meetings with the targets of their probe, prosecutors obtained information about Mr. Cassano's disclosures to AIG senior executives and AIG's outside auditor, PricewaterhouseCoopers LLP. That changed the course of the investigation, these people said. PricewaterhouseCoopers said it wouldn't comment on client matters.
Mr. Cassano, who lives in London, is no longer at AIG. Mr. Forster still works at the firm. Mr. Athan until recently has been at AIG but his status wasn't confirmed Friday night.
The Securities and Exchange Commission hasn't ruled out bringing a civil-fraud lawsuit for securities violations, people familiar with the matter said.
About 15 government representatives have been involved in the investigation, including prosecutors from the Justice Department's fraud section in Washington and the U.S. attorney's office in Brooklyn; lawyers from the Securities and Exchange Commission; and agents from the Federal Bureau of Investigation and the U.S. Postal Inspection Service, people familiar with the matter said.
AIG Financial Products entered into insurance-like contracts with other financial institutions that ended up being financially disastrous for AIG. When the mortgage market imploded, AIG had to hand over tens of billions of dollars worth of collateral to financial institutions that had entered into the contracts, known as credit-default swaps, with AIG. These collateral calls nearly felled the company and led to a massive government bailout that has generated intense public outrage and political scrutiny.
The Justice Department so far has had little success proving there was criminal wrongdoing at financial companies amid the financial crisis. In the first and only securities-fraud case against Wall Street executives in the wake of the credit crisis, two former hedge-fund managers at Bear Stearns were acquitted at trial after being accused of misleading their investors before their funds collapsed.
But efforts continue. Federal prosecutors in Manhattan are currently probing whether any large Wall Street firms misled investors about complex, mortgage-related derivatives, people familiar with the matter have said.