Legal News

Prosecutors Plan Grand Jury to Weigh Indictment of Former AIG Exec

By Amir Efrati

If you don’t know the name Joseph Cassano, you might as well learn it now, because it’s not going away.

Cassano (pictured) recently ran AIG’s financial products unit, which helped bring down the insurer last year after making bad bets on mortgage-related derivatives called credit default swaps. The souring swaps forced AIG to take tens of billions of dollars in write-downs, and it’s part of the reason the U.S. government had to give the company multiple bailouts.

Now federal prosecutors, capping an 18-month investigation, are preparing to impanel a grand jury in Brooklyn to consider indicting Cassano and possibly other executives on securities fraud charges, according to this WSJ story, citing people familiar with the matter.

DOJ and the SEC have been investigating whether Cassano and others allegedly misled investors by overstating the value of the swaps and failing to disclose material facts about them to AIG’s outside auditor, the people said. (To see WSJ coverage of the matter, stretching back to June 2008, click here, here, here and here.)

MCassano has denied wrongdoing. His lawyer, Gibson Dunn’s F. Joseph Warin, declined to comment on the news but has said AIG was fully aware of Cassano’s activities, and his client has been cooperating with the inquiry. DOJ, the SEC and AIG declined to comment.

The broader point made by the story is the AIG case would be only the second major corporate fraud case stemming from the financial crisis. The first, against two former Bear Stearns hedge fund managers, goes to trial later this month. Multiple probes of former executives at Lehman Brothers, which filed for bankruptcy a year ago, are continuing.

Why have there been so few? Aside from the fact that complex white-collar cases can take years to build and prosecutors must differentiate between extraordinary market forces and outright fraud, the story offers several possible reasons. Among them: There have been a slew of fraud cases that have erupted amid the recession and require immediate attention by prosecutors.

“We’re having to deal with things that pop up, and Ponzi schemes and large mortgage fraud schemes have had an impact,” said the U.S. attorney in Brooklyn, Benton Campbell, whose office this week charged a Long Island, N.Y., money manager with running a 30-year Ponzi scheme. “We have limited resources.”

Full post as published by Law Blog - WSJ.com on September 11, 2009 (boomark / email).