The U.S. Attorney Massacre of late 2006 was something that broke largely in the blogosphere--and was the subject of hundreds of diaries here at Daily Kos--before the MSM caught on to one of the bigger scandals of the Bush administration.
I know, I know. I should not be surprised. The Justice Department's decision yesterday that no criminal charges will be filed in the Bush administration's dismissal of 9 U.S. Attorneys is part of the whole looking forwards, not backwards mantra.
But if we are going to look past the most horrific crimes of the Bush administration--torture, warrantless wiretapping, political firings--then it makes it particularly grotesque and obscene that the Obama administration is willing to continue--and ratchet up--Bush-era investigations into people who tried to do the right thing, like NSA whistleblower Thomas Drake and reporter James Risen.
The Senate Judiciary Committee is scheduled to vote on James Cole’s nomination for Deputy Attorney General tomorrow – Tuesday, July 20th. Serious doubts remain, however, about Cole’s role at AIG before, during and after the company’s financial collapse in September 2008. I posed him some questions prior to Cole’s hearing last month on GAP’s YouTube channel.
Over the past two weeks, a number of Senators have posed written questions to Cole about his role at AIG. His answers are troubling – particularly those he provided to Senator Charles Grassley.
On July 2nd, Senator Charles Grassley (R-Iowa) posed written questions to James Cole, the Obama administration’s nominee for the post of Deputy Attorney General. Many of these questions focused on Cole’s role as the Independent Consultant placed at AIG from 2005 through 2009 as part of two deferred prosecution agreements (DPAs). The first of these DPAs resulted from charges of aiding and abetting securities fraud in the AIG Financial Products subsidiary based in London, the AIG appendage that crashed the world economy in 2008 and required a $182 billion bailout courtesy of the US taxpayer. Some of Cole’s responses to Grassley’s questions were both puzzling and contradictory, and others we know to be misleading.
Under the terms of the 2006 DPA, Cole was asked to examine “the adequacy of whistleblower procedures designed to allow employees or others to report confidentially matters that may have a bearing on AIG’s financial reporting obligations.” In written questions Grassley asked Cole to provide a “discussion of the scope of your work under the 2006 DPA.” In response, Cole simply quotes from the DPA, which is, of course, available to Senator Grassley and the rest of the world on the DOJ website. A meaningful written discussion of whistleblower procedures at AIG would have to include an account of the layoff of ten compliance attorneys and officials in the aftermath of the corporation’s financial collapse in September 2008. Several of the ten were whistleblowers who had written to senior management at AIG about deficient compliance procedures. None of them was interviewed confidentially by Cole, who acceded to the demand of Suzanne Folsom, then Chief Compliance Officer, that Cole interview her staff only when she or her designee were present. As a result, the whistleblowers were summarily terminated under guise of a staff reduction.
The following op-ed was written by GAP Legal Director Tom Devine, and published on July 2, 2010.
Civil libertarians have denounced the April indictment of senior National Security Agency official Thomas Drake for blowing the whistle on NSA mismanagement and its disregard for citizens' privacy rights. Drake has been charged with misuse of classified documents that were leaked to the media. While the facts in Drake's case are not in, some things are clear: Whistleblowers have no other viable option in the current system. The lack of internal accountability makes leaks inevitable.
At a 2006 hearing of the House intelligence committee, then-Chairman Peter Hoekstra (R-Mich.) articulated the best kind of anti-leak policy: We "need to make sure the whistleblower process is an open door, so that these folks are not faced with . . . an environment where they don't have a choice, that they see something they don't like, that they just go, 'Well, I'll just go to the press.' "
Now, however, the door is closed. The still-unresolved ordeal of Marine Corps whistleblower Franz Gayl illustrates the reality faced by many who blow the whistle on national security issues. Gayl's disclosures led to the belated delivery to Iraq of Mine-Resistant Ambush-Protected vehicles. The MRAP shipment had been held up by mismanagement and other issues for 18 months -- a delay that has been linked to the deaths of more than 700 troops. Instead of offering thanks for saving lives, the Marine Corps launched a criminal investigation of Gayl for allegedly citing a classified document improperly in an internal report.
Making waves within a security agency too often results in a criminal investigation such as the one Gayl experienced, a threatened loss of security clearance, or both. And anti-retaliation "protections" are riddled with loopholes. Since 1978, only one person at the FBI and one intelligence worker have won lawsuits for whistleblower retaliation -- little surprise given how the law makes a sham of due process. The agencies serve as judge and jury of their conduct, with no independent review. No wonder it can seem less risky to employees to leak anonymously to the media than to tell what they know to the agency officials who need the information.
Apart from strengthening bureaucratic weak links in the war against terrorism, whistleblowers have been valuable in exposing governmental abuses, regardless of party or ideology. National security employees and contractors were critical to making the public aware of indiscriminate, warrantless surveillance begun in the aftermath of Sept. 11. While such disclosures enraged the NSA, they have been America's best line of defense against threats to freedom from our own government.
The good news in all this is that we are close to a breakthrough. After 10 years, Congress is on the verge of repairing the dysfunctional Whistleblower Protection Act for government employees, and the restored act would for the first time cover FBI and intelligence employees. The House bill would allow whistleblowers to challenge retaliatory investigations before they become indictments. The House and Senate bills would allow national security workers to safely disclose what they "reasonably believe evidences" mismanagement, violations of law, waste and abuse, including as part of their job duties.
Procedural tactics have prevented a Senate vote since December, despite support from Senate leadership. The House has passed its bill twice, in 2007 and 2009. For the first time since 1978, the Justice Department has not testified against a stronger whistleblower law, and the Senate homeland security committee has unanimously approved the whistleblower act four times since 2004. But lawmakers have not overcome repeated secret holds by opponents.
National security whistleblowers face a Catch-22. They can engage in professional suicide by operating within the system or risk criminal prosecution by leaking to the media. No wonder so many remain silent. And in the end, the public loses.
The writer is legal director of the Government Accountability Project and has worked on more than 5,000 whistleblower cases, including that of Franz Gayl.
The public finally got a look at the trio who ran AIG aground before the bailout in 2008 when they appeared before the Financial Crisis Inquiry Commission yesterday. Joseph Cassano, Martin Sullivan and Robert Lewis seemed defiant and pained, still stunned and humiliated, respectively. The New York Times articles (here and here) and the questioning yesterday explain the sheepishness and shame on display with the AIG executives who testified. At AIG-FP (Financial Products), Cassano had encumbered the AIG holding company with enormous uncapitalized and unhedged long-term risk based on a single market trend: the upswing in US housing prices. This is like betting your house that one horse will win the Derby because it’s been winning up until now. In this case, we now know that the horse was feeling queasy by 2005, so why Cassano did this remains unclear. Based on yesterday’s testimony, neither Sullivan nor Lewis ever asked him.
What is clear is that AIG-FP under Cassano had inexplicable corporate autonomy, even after senior management knew that he was sinking the ship. By 2006, AIG-FP had stopped insuring CDSs (credit default swaps) based on mortgage-backed securities because even the “experts” working for Cassano knew the deals were rotten. These guys were careful to keep this to themselves, however, and James Cole, the Independent Consultant installed at AIG by the SEC and the Justice Department to review AIG-FP transactions from 2000 – 2005, failed to spot it. Part of the reason for the blind spot that affected Cole is explained by the recommendations for compliance (p87) that he himself set out in 2007. When Cole recommended the establishment of a Committee to oversee the transacting of derivatives, which would have encompassed oversight of the CDSs insured by AIG-FP, he wrote:
The Derivatives Committee should be responsible for providing an independent review of proposed derivative transactions or programs entered into by all AIG entities other than AIG Financial Products Corp. (“AIG-FP”).
These recommendations, made in September 2007, show Cole’s explicit intention to keep his eye off the ball, even though, a 2004 deferred prosecution agreement between AIG, the Department of Justice (DOJ), the SEC and the New York State Insurance Commission– placed him at AIG to review potentially fraudulent AIG-FP transactions.
Cole, of course, has now been nominated to serve as the Deputy Attorney General at DOJ, where he would help to decide who should and should not be prosecuted. Cole does not appear to be the ideal candidate for this slot, based on his performance at AIG.
Bea Edwards is the International Reform Director for the Government Accountability Project, the nation's leading whistleblower advocacy organization.
For the past two months, GAP has criticized the nomination of James Cole to be Deputy Attorney General at the Justice Department (DOJ). We have argued that because Cole, who served as Independent Consultant at AIG during the critical time period from 2005 through 2009, missed clear signals of malfeasance, he is unsuited to serve as the second-in-command at the DOJ.
Last week, after four senators requested Cole’s reports to DOJ about AIG, prior to deciding on his nomination, a DOJ spokeswoman defended Cole’s role at AIG, telling Main Justice that
Critics who suggest that Mr. Cole was somehow too close to AIG misunderstand his relationship with the company,” …. “His presence was imposed on the company by a federal court. In fact, as the [Congressional Research Service] report notes, AIG executives tried to have him removed.
“[Cole] was never a general overseer or monitor of AIG’s entire operation nor was he assigned to examine many of the issues involving AIG’s near collapse, such as credit-default swaps or retention bonuses…”
This statement did more to obscure Cole’s role at AIG than to clarify it. First, although it’s true that in late 2008, Chief Compliance Officer Suzanne Folsom mounted an effort to remove Cole, it was not because he was insisting on a tough compliance regime. Folsom wanted him out because he was pocketing too much AIG money. His costs, as Independent Consultant, included not just the $20 million paid to his law firm, but tens of millions more for the consultants, who, we understand, were both expensive and incompetent.
A substantial part of the consulting fees apparently went to DLA Piper, the law firm where Anastasia Kelly, AIG General Counsel, parked herself in 2010, after fleeing AIG in order to avoid pay caps imposed by the TARP regulations.
Second, although it’s also true that Cole was not a general overseer of AIG, he failed to object when Folsom dismissed half the team that was working on compliance and oversight just after AIG had to be rescued by taxpayers in 2008. Many of these people had written to the board and to the CEO to expose AIG’s weak compliance program before the meltdown. When Cole did finally interview them, he acceded to Folsom’s demand that she or her designee be present to observe the conversations. This collaboration is simply inconsistent with the responsibility of an independent monitor.
Fourth, Cole was assigned under the 2004 deferred prosecution agreement to review five years of transactions effected by the problem division, AIG-FP. This assignment would specifically have included credit default swaps as well as other fraudulent maneuvers designed to conceal liabilities.
Finally, no one has suggested that the retention bonuses paid in 2009 were involved in AIG’s near collapse. The bonuses were paid after the collapse, and critics questioned the propriety of paying bonuses to those responsible for the crisis. More cynical critics have instead suggested that the putative ‘retention bonuses’ were, in fact, hush money, since a number of people who received them have left the firm. Critics are also wondering if the second round of retention bonuses was paid in 2010.
The Senate Judiciary Committee held James Cole’s confirmation hearing yesterday morning for the post of Deputy Attorney General. It was not exactly an aggressive interrogation. Democratic members of the committee sought Cole’s commitment to continuing the reforms at the heretofore highly politicized Justice Department (DOJ), and Republican committee members wanted assurances that Cole, as the new Deputy Attorney General, would not guarantee Miranda rights to suspected terrorists. There were three or four allusions to Cole's role as an independent monitor at AIG in the years leading up to the financial crisis that brought the company down and wrecked the US economy, but no specific questions were forthcoming. Not from anyone.
In fact, the entire proceeding had the feel of a pro forma procedure along the way to confirming James Cole to be the second-in-command at DOJ. There were various ironic moments, however. For one thing, a number of senators sought assurances from Cole that he would hold BP accountable for the damage now being sustained by states along the Gulf coast as a result of the ongoing oil spill. For his part, Cole guaranteed that, if confirmed, he would make every effort to extract compensation from BP for those whose livelihoods were endangered by the thickening and widening slick of scum.
Asking Cole about corporate accountability in the BP case is like asking “Brownie” how he would handle another hurricane in New Orleans. It’s beside the point. Cole has a five-year record of responsibility for corporate oversight and compliance at AIG, where he failed to hold either individual managers or the corporation itself accountable for the catastrophe they visited upon US credit markets. In throw-away comments at yesterday’s hearing, Cole assured the committee that as Deputy Attorney General he would dedicate himself to combating mortgage fraud and financial fraud. When he made this statement, neither he nor his questioner (Senator Ted Kauffman, D-De.) made any reference to his recent past at AIG, where the Financial Products Corporation encumbered the corporate balance sheet with tens of billions of dollars in worthless real estate bonds as Cole looked the other way.