Inside Sources Prompt Questions about James Cole’s Record at AIG as Independent Monitor

The Government Accountability Project (GAP), which has been critical of the nomination of James Cole since he was rumored to be on the short-list for Deputy Attorney General, has posted mock questions for members of the Senate Judiciary Committee to pose to Cole at his confirmation hearing later today.

Cole was nominated by the Obama administration last month to be second-in command at the Department of Justice. For years, Cole has served as the Independent Consultant (IC) stationed at insurance behemoth AIG as a result of two deferred prosecution agreements (DPAs) between the corporation, the SEC, and the Department of Justice in 2004 and 2006. The DPAs were put in place as part of a settlement when AIG previously faced massive fraud charges.

“The administration is trying to deflect attention from Cole’s poor record of oversight at AIG in the years leading up to the financial crisis by claiming he was not asked to monitor the troubled subsidiary,” said Bea Edwards, GAP’s International Program Director. But in fact, it was Cole’s own decision that exempted that subsidiary from his scrutiny.”

When rumors of Cole’s potential nomination began to emerge in April, GAP began receiving frequent and disturbing calls from AIG alumni and current staff about serious problems with Cole’s actions during his tenure. Since then, Edwards has been steadily posting blog entries about Cole based on the disclosures we have received.

In advance of this hearing, Edwards has produced a primer on Cole’s role at AIG, followed by five questions GAP believes should be asked at the hearing.

Click here to see the primer!

The questions that GAP would like to pose to Cole involve the following topics (please click the first few words of each topic to go directly to the video question):

 

This post also appears on GAP Homeland Security Director Jesselyn Radack's Daily Kos blog.

 

Open-government groups, like my own (the Government Accountability Project), are aghast by Obama's recent crack down on whistleblowers--coming from a President who pledged maximum transparency. In the past 6 weeks, people being subpoenaed, arrested, indicted or convicted include:

Thomas Drake (former National Security Agency official) - Indicted for allegedly retaining classified information that led to a series of newspaper articles on NSA's billion-dollar mismanagement of a program to conduct secret surveillance with maximum privacy intrusion.

James Risen (New York Times repoter) - Justice Department reissued Bush-era grand jury subpoena for his sources for a chapter of his 2006 book, State of War, which focuses on a CIA-led ruse to disrupt Iranian nuclear weapons research.

Shamai Leibowitz (FBI linguist) - sentenced to 20 months in prison for giving classified information to a blogger.

Bradley Manning (Army Intelligence Analyst) - arrested for allegedly disclosing to Wikileaks classified video footage of a controversial helicopter attack that killed unarmed Iraqi civilians, including two Reuters reporters, and injured two children.

President Obama is fast on his way to sending a record number of whistleblowers to prison.

On June 2, 2010, Ryan Reilly, writing for Main Justice about James Cole's nomination to be Deputy Attorney General (DAG) at the US Department of Justice (DOJ), addressed the issue of Cole's role as the Independent Consultant at AIG from 2005 until 2009. For five years, Cole was assigned by the DOJ and the Securities Exchange Commission (SEC) to monitor accounting-driven investment practices at AIG. (See GAP’s AIG blog series).

Reilly quoted Cole's defenders’ claim that “his work did not specifically include the major issue that nearly led to the company’s demise – namely credit default swaps.”

This explanation for Cole’s myopia and his astonishing ability to miss the unmanageable risk that brought on the meltdown at AIG is superficial and disingenuous. The key word is “specifically.” According to our sources, the problem was not simply credit default swaps (CDSs), but rather the way in which AIG-Financial Products (AIG-FP), the division that primarily generated and traded them, was exempted from compliance obligations and oversight. On May 26, 2010, Elizabeth Warren, Chairwoman of the Congressional Oversight Panel on TARP, said in her opening statement chairing the hearing:

“The company [AIG] was a corporate Frankenstein, a conglomeration of banking and insurance and investment interests that defied regulatory oversight."

In contrast to Warren’s opinion, Cole did not seem to perceive structural problems with regulatory oversight and legal compliance at AIG. On the contrary, when writing about AIG compliance in August 2008, he reported to DOJ and the SEC,

“Each compliance plan will be submitted to the OC (Office of Compliance) for review and approval to ensure that the plan has adequately provided controls for addressing all identified compliance risks.”

This, according to Cole, was a reasonable and achievable goal. Next to this text in his table of goals, Cole placed a green dot, meaning progress toward the goal was advancing without problems.

Wired reports that an Army intelligence analyst working in Iraq was arrested two weeks ago for allegedly passing classified information to the whistleblowing website Wikileaks.org, including the 2007 video of a military helicopter firing on a group of unarmed civilians in Baghdad. The analyst has also allegedly given Wikileaks a video of another notorious air strike, 260,000 classified US diplomatic cables, and a document that classified Wikileaks as a security threat to the military.

This news comes in the wake of a New Yorker profile of Wikileaks founder Julian Assange, and a rundown of extraordinary lengths gone to by the organization to post high profile, and sensitive, information online. That article mentions an award bestowed to Wikileaks from Amnesty International for the site's work to expose corruption in Kenya, and calls the 2007 air strike video released by Wikileaks "a striking artifact—an unmediated representation of the ambiguities and cruelties of modern warfare."

Bradley Manning, who allegedly released that video, was arrested after contacting a former hacker. The hacker, in turn, told the Army about Manning's activities, saying he reported Manning, despite donating money to Wikileaks in the past, because he believed a leak of the classified diplomatic cables were genuinely dangerous to national security. He said to Wired: “I wouldn’t have done this if lives weren’t in danger.“

Manning told the former hacker that he felt compelled to share the classified information with Wikileaks because he saw “incredible things, awful things … that belonged in the public domain, and not on some server stored in a dark room in Washington DC.”