The last time we checked in on the probe, the Justice Department was planning to empanel a grand jury to weigh an indictment of Joe Cassano, who led the London-based AIG unit that nearly felled the giant insurer.
The case revolved around whether Cassano and others purposely overstated the value of insurance-like contracts known as credit-default swaps to investors and outside auditors.
The swaps’ value was tied in part to mortgage assets, which were taking a hit in 2007 amid the mortgage crisis. At an investor conference in December of that year, Cassano and other executives assured investors all would be well. The executives, however, didn’t disclose that a new value adjustment called “negative basis” was shielding the swaps portfolio from significant write-downs.
Several months later, AIG’s outside auditor, PricewaterhouseCoopers, said there was a material weakness related to how the firm accounted for its swaps, and that the negative basis adjustment would be abandoned.
Last fall, Cassano’s legal team from Gibson Dunn insisted to prosecutors that their client kept PwC and AIG senior management in the loop about negative basis. Prosecutors then searched through handwritten notes produced to them by PwC that pertained to a meeting between PwC, Cassano and AIG senior management before the December conference. The notes appeared to show Cassano mentioned the adjustment to PwC and senior management.
That’s not the only issue prosecutors were focused on, but it may well be enough to derail a criminal case, according to WSJ.