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Protecting Whistleblowers since 1977

AIG Monitor James Cole Wrong Choice for Deputy Attorney General

Bea Edwards, April 23, 2010

So it’s news that James Cole, fresh from his role preventing fraud at mega-insurance firm AIG in the years before it tanked, is to be nominated for the position of Deputy Attorney General – the number two job at the Department of Justice. When this rumor hit the newswires, our whistleblower switchboard began lighting up like a Christmas tree with calls from alarmed AIG alumni.

Apparently the AIG connection had occurred to a number of people as a potential speed bump on the road to Cole’s confirmation. Here’s the sharp-eyed Al Kamen in the Washington Post:

One issue likely to come up at any confirmation hearings for Cole is his private-sector work involving American International Group. Under a 2004 government settlement with the giant insurer, the Justice Department demanded that AIG name an independent monitor to report periodically to Justice and the Securities and Exchange Commission about AIG's operations.

Initially, sources have told GAP, Cole came into AIG as the independent monitor like an anti-fraud typhoon, meeting with the relevant people and overseeing about 35 different work streams. But gradually, as he worked with AIG’s dazzling General Counsel, Anastasia “Stasia” Kelly and her “compliance” team, he seemed to weaken and adapt. For one thing, we hear, Cole allowed AIG management to revise his quarterly reports to the SEC, an unexpectedly collaborative practice for an independent monitor.

This was not part of the deal. The settlement was worked out to resolve a civil lawsuit after AIG was charged with multiple forms of fraud. The suit alleged that AIG worked with PNC Financial Services Group to inflate earnings and defraud investors. The settlement obliged AIG to accept an independent monitor and in return, executives avoided criminal prosecution. James Cole was to be the regulators’ eyes and ears at AIG, monitoring corporate compliance practices and reporting to the government. In the process, he would earn at least $20 million from AIG for his law firm, Bryan Cave.

It’s probably worth pointing out that, while independently monitoring AIG on behalf of the SEC, Cole failed to detect an atmosphere of, shall we say, laissez faire compliance at the company. This is not to say that Cole was in a position to unravel the weird goings-on in the Financial Products Division that ultimately brought the company down in September 2008 – but he should have noticed that the company’s attitude toward regulation was ‘soft.’ According to more GAP sources, Cole did virtually nothing to change that. On the contrary, he may have helped to conceal it.

He was on the job, for example, when Gerald Kral, Stasia’s deputy, made off with AIG intellectual property (such as that was). Gerry was apparently purloining elements of the company’s compliance program (such as that was) and selling it on the side. There are so many intersecting ironies here that we don’t even want to think of them.

Cole was also in place when Chief Compliance Officer (CCO), Suzanne Folsom, fired an entire flank of the AIG compliance army and replaced it with un- and under-qualified cronies from her old World Bank circles.

A plethora of reputed conflicts of interest on the part of Stasia, her buddy Suzanne, and Suzanne’s erstwhile predecessor, Kathleen Chagnon, also escaped Cole’s notice. Under Folsom, we hear, the compliance office enacted an ‘open checkbook’ policy for law firms, software companies and reputation management shops with which the General Counsel and her gang were affiliated – or soon would be.

For example, Kathleen Chagnon came to AIG from DLA Piper, a law firm destined to do a lot of lucrative business with AIG. DLA Piper threw a cocktail party at Delmonico’s in New York for a select few from AIG, where Chagnon was introduced to her new colleagues. Word is that DLA Piper got about $40 million in contracts from AIG after Chagnon was installed in the compliance office. And when Stasia and Suzanne had to bail out of AIG in December last year to avoid federally imposed pay caps for companies rescued by US taxpayers, Stasia landed on her well-shod feet at – drumroll and cymbal crash – DLA Piper!

Then there was Levick Communications, where Stasia served as an Advisory Board member, and Suzanne was well-connected. Levick also collected on at least one generous contract from AIG. And PriceWaterhouseCoopers (PWC) lent AIG Suzanne’s old World Bank sidekick, Glenn Ware, who “worked” with the compliance people, even as PWC was on duty as AIG’s auditor.

So essentially, AIG alums are painting a picture of an undeveloped, unimplemented, inadequate compliance program at AIG that went wrong before it even seeped out of the Compliance Office itself, right under the nose of our would-be Deputy Attorney General.

So, three questions:

  1. Why didn’t James Cole notice any of this? Everyone else in the office did.
  2. And if he did, why didn’t he do something about it?
  3. Is this the guy we want helping to run the Justice Department?