Report: SEC Poised to Move Against AIG Execs

Financial Products Personnel Could Face Civil Penalties


July 23, 2009—

The Securities and Exchange Commission has reportedly moved to begin enforcement actions against executives at AIG's Financial Products unit, the division whose catastrophic financial creations have largely been blamed for kneecapping an already-weakening global economy.

SEC officials have sent notifications of their intent to pursue enforcement against AIG FP executives, according to an article in the July issue of Corporate Counsel magazine. Such letters, so-called "Wells notices," inform targets that investigators have completed their work and are recommending the commission pursue financial penalties or other civil action.

Both the SEC and AIG declined comment for this story.

The names of the AIG executives reportedly targeted have not been disclosed, and the proceedings are kept private until the SEC files suit in federal court, should it choose to do so. In the meantime, the executives and their lawyers can meet with the SEC and discuss the matter.

Enforcement actions against individuals can result in financial penalties and the loss of a professional license, explained James Coffman, a retired 26-year veteran of the SEC's enforcement division. However, the executives at AIG FP did not appear to need any special licenses to concoct their exotic financial products whose collapse pushed the firm to the brink of bankruptcy. Thus they likely would face only financial penalties.

The penalties could range north of $1 million, Coffman said, which could be small change for some AIG executives. Joseph Cassano, the disgraced former chief of the Financial Products division, was receiving $1 million a month in 2008, after he had separated from the company. In all, Cassano reportedly reaped nearly $300 million with AIG, before leaving the helm of the Financial Products division last year.

FBI Also Examining AIG Execs

ABC News tracked Cassano down in London earlier this year, where he refused to answer a producer's queries. In March, ABC News obtained a 2007 recording of Cassano speaking with investors, assuring them that "it is hard for us with, and without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar" in any of its transactions.

The unit's collapse forced the federal government to pump $180 billion into the company. U.S. taxpayers now own 80 percent of the firm.

The biggest blow of an SEC enforcement action would be losing the case itself, said Coffman. "As a practical matter, if you get sued by the SEC and the SEC wins, it's unlikely you'll ever work in the industry again." (Getting sued by the SEC and winning, on the other hand, is fine. "You'll be everybody's guest at the country club," he said.)

The SEC's decision does not preclude a separate criminal indictment. Federal investigators are reportedly investigating Cassano and possibly other current and former executives for criminal fraud relating to the AIG meltdown, which helped send world financial markets into a tailspin in 2008. In earlier financial filings, AIG has said it was cooperating with government investigators.