In December 2010, President Obama installed James Cole in the post of deputy attorney general – the #2 job at the Department of Justice – using a recess appointment to skirt significant objections to his nomination. Cole’s nomination had been held up in the Senate due in part to concerns raised by GAP about his work as a compliance monitor at AIG. Brief background write-ups of Cole’s previous work experience can be read here, here and here.
Cole served as the Independent Consultant (IC) stationed at insurance conglomerate AIG for five years as a result of two deferred prosecution agreements (DPAs) between the corporation, the SEC and the Department of Justice, beginning in 2005. The DPAs constitute the terms AIG management had to accept in order to avoid criminal prosecution for aiding and abetting securities fraud on two separate occasions in six years.
As the IC, Cole was to review the adequacy of AIG’s internal controls over financial reporting and recommend best practices for strengthening legal compliance. For his trouble, he and Bryan Cave (the law firm where Cole is a partner) were reportedly paid over $20 million by AIG. In exchange for this arrangement and two fines, the charges against AIG managers for fraud, bid-rigging and ‘improper’ accounting practices were resolved.
As rumors of Cole’s imminent nomination gained credence in late April 2010, GAP began receiving frequent calls from AIG alumni and current staff about serious problems with Cole’s oversight practices as IC. Since then, International Reform Director Bea Edwards has been steadily posting blog entries about Cole based on the disclosures we have received.
In advance of James Cole’s confirmation hearing before the Senate Judiciary Committee on June 15, 2010, Edwards produced a primer on the Cole role at AIG, followed by several questions that were later posed to Cole as “Questions for the Record.” Cole’s answers were vague and formulaic, and designed to evade responsibility for the compliance lapses that had happened on his watch.
The first question that Edwards and GAP would like to pose involves Cole’s interaction with AIG-Financial Products (AIG-FP) CEO Joseph Casanno. Casanno managed the AIG subsidiary that primarily generated and traded credit default swaps (CDSs), and was exempted from corporate compliance obligations and oversight.
The second question that Edwards and GAP would like to pose involves the interactions between Cole and three senior AIG officials – General Counsel Anastasia Kelly, Chief Compliance Officer Kathleen Chagnon, and subsequent-Chief Compliance Officer Suzanne Folsom (of Paul Wolfowitz-World Bank infamy) – regarding their credentials, their conduct and hiring.
Our third question would focus on the Sept. 2008 purge (one month after the financial meltdown) of AIG senior compliance attorneys, which was (according to sources) executed under the authority of Kelly and Folsom.
A fourth question for Cole relates to the independence of his reports to the Department of Justice, and the SEC, as specified by the DPA.
The final question would clarify Cole’s involvement (or lack thereof) in the oversight of AIG-FP, and his explicit recommendation to exempt AIG-FP from scrutiny, despite that subsidiary’s serious problems in the past (related to fraud). AIG-FP, which was deeply entangled in CDS transactions, brought AIG as a whole, and with it the US financial services sector, to the brink of collapse in 2008.