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The Sunday Telegraph (London)
June 27, 2010 Edition 1; National Edition
BUSINESS; Pg. 3
US politicans force AIG executives to account for collapse
JONATHAN SIBUN; JAMIE DUNKLEY
ONE of the executives blamed for bringing American International Group to its knees will this week appear in public for the first time since the insurance giant’s near collapse, in what is expected to be a bruising encounter with US politicians.
Joseph Cassano, who as head of the AIG’s Financial Products division was responsible for overseeing the insurer’s activity in subprime mortgage derivatives, is set to be grilled by the Financial Crisis Inquiry Commission on Wednesday.
AIG Financial Products managed $2 trillion (£1.3 trillion) of derivatives, many of which went sour following the subprime mortgage crisis and collapse of Lehman Brothers, the US investment bank, in late 2008.
Mr Cassano was last month cleared of any criminal wrongdoing following investigations by US and UK regulators.
“Perhaps he thinks now is the time that he would be able to speak more freely,” Ernest Patrikis, a former AIG general counsel, told Bloomberg.
“It’s not going to be a pleasant thing. He owes an awful lot to the people of AIG who were harmed financially.”
AIG was saved from collapse after an $182bn bail-out by the US Government in 2008-9. Goldman Sachs president Gary Cohn, chief financial officer David Viniar and former AIG chief executive Martin Sullivan will also appear at the inquiry, which is looking at the role of derivatives in the financial crisis.
It comes as the US investment bank has received a welcome boost after a Deutsche Bank salesman was cleared of illegally disclosing information to a hedge-fund manager, in the first US lawsuit alleging insider trading of creditdefault swaps.
US District Judge John G Koeltl ruled that there was no evidence that Jon-Paul Rorech and Renato Negrin – a former Millennium Partners portfolio manager – had violated laws against insider trading. He added that information exchanged by the pair in telephone calls, which was presented by the Securities and Exchange Commission (SEC) as evidence, was not confidential.
The SEC, America’s leading financial regulator, accused Mr Rorech of illegally feeding Mr Negrin information so that he could buy credit-default swaps and profit from the announcement of a debt restructuring by Dutch media company VNU Group, according to the civil complaint filed last year. Mr Negrin made a $1.2m (£797,000) profit on the deal.
Both men had a bench trial in April before Judge Koeltl. In a written decision on Friday, he agreed with defence arguments that the information shared was not confidential.
“It is far-fetched to think that Mr Rorech could believe that the very information shared with outsiders by his supervisor and the head of high yield capital markets would somehow not be appropriate for him to share,” the judge wrote. He said the SEC had not shown that Mr Rorech had any motive to share “inside” information with Mr Negrin.
The news will come as a boost to Goldman Sachs, which has also been charged with fraud by the SEC.
The regulator claims Goldman defrauded investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the housing market began to collapse. Goldman has denied the charges.
Joseph Cassano will face questions by the Financial Crisis Inquiry Commission on Wednesday
June 27, 2010