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.
Third, it’s also true that Cole did not monitor many of the issues which sank the AIG balance sheet, most of which were trades arranged in AIG-FP. But as we pointed out earlier, Cole himself made the decision to exempt the problem division from his oversight (p.87).
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.