Legal News

What Did Mr. Cole See at AIG?

By Ashby Jones

Government oversight officials still looking for answers to what happened at AIG could look to a government-appointed attorney who has been on site and inside AIG board-committee meetings for the past four years. His name is James Cole, and he’s a partner in Bryan Cave’s D.C. office. Click here for the WSJ story, from the erstwhile Law Blogger, Peter Lattman.

AIG has paid lawyer James Cole and Bryan Cave about $20 million to oversee business practices at AIG, say people familiar with the matter. He was put inside AIG as a monitor as part of a $126 million settlement struck in November 2004 between AIG and the Justice Department and Securities and Exchange Commission. Click here for the WSJ’s story on that deal, which primarily related to three transactions AIG entered into with Pittsburgh-based PNC Financial Services Group Inc.

As part of the settlement, the Justice Department agreed not to pursue criminal charges against the company in exchange for implementing reforms and the review of certain financial transactions by Cole.

But there are a few rubs here. For starters, Cole wasn’t assigned to examine many of the issues at the heart of AIG’s near collapse, such as credit-default swaps or retention bonuses. And Cole’s reports on the company’s progress, periodically delivered to federal regulators since 2005, aren’t public.

The government might have something to glean from his work, though. He was involved in top-level board-committee meetings and general corporate oversight, which gave U.S. officials a direct line into goings-on at the insurer prior to its near collapse last year.

His original assignment, which began in January 2005, was to investigate financial transactions dating back to 2000 in which AIG helped companies smooth earnings. Some of those transactions were structured by the insurer’s financial-products group, the unit that would later write billions of dollars in credit-default-swap contracts that ultimately went bad.

His responsibilities broadened in November 2006, after a separate settlement with the SEC and New York state authorities. In that case, AIG paid $1.6 billion to resolve an inquiry into accounting irregularities and bid-rigging allegations. That agreement called for Cole to examine AIG’s controls on financial reporting as well as oversight over corporate governance in areas such as compliance.

Cole attended AIG board-committee meetings, including at least two audit-committee meetings during February 2008 in which the board discussed a finding by its auditors that there was “material weakness” in AIG’s accounting systems, according to board minutes.

But as far as what Cole saw, he’s not divulging much at all. “The scope of my work is set out in the several court-settlement documents under which I was appointed,” Mr. Cole said. “These documents also prohibit me from making a public comment on that work.”

An AIG spokesman declined to comment, as did spokesmen for the SEC and Justice Department.

Full post as published by Law Blog - WSJ.com on March 27, 2009 (boomark / email).