GOP Senators Want Cole’s AIG Reports
By Ryan J. Reilly | June 24, 2010 6:47 pm

Four Republican Senators urged the Justice Department to turn over non-public reports prepared by Deputy Attorney General nominee James Cole during his time as an independent monitor to American International Group (AIG).

Cole, a former public corruption prosecutor and longtime friend of Attorney General Eric Holder, worked as an independent consultant for AIG from January 2005 until earlier this year as part of a deferred prosecution agreement between Justice Department and the insurance giant.

Deputy Attorney General nominee James Cole (photo by Channing Turner / Main Justice).

In a letter to Assistant Attorney General for Legislative Affairs Ronald Weich, Senate Judiciary Committee Ranking Republican Jeff Sessions of Alabama along with GOP Sens. Charles Grassley of Iowa, John Cornyn of Texas and Tom Coburn of Oklahoma requested copies of all reports submitted by Cole to DOJ while he worked for AIG.

“We understand the confidential treatment of Mr. Cole’s reports… and his recommendations to AIG stem from the deferred prosecution agreements between the Department and AIG,” the senators wrote. “The Judiciary Committee cannot, however, fully and properly evaluate Mr. Cole’s nomination without this documentation.”

A Justice Department spokeswoman defended Cole’s role at AIG and said he made “significant progress in implementing critically-needed reforms” in the areas he was charged with overseeing.

“Critics who suggest that Mr. Cole was somehow too close to AIG misunderstand his relationship with the company,” said spokeswoman Tracy Schmaler. “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,” Schmaler added.

Sessions only briefly brought up Cole’s work for AIG at a confirmation hearing last Tuesday and focused his questions mainly on a 2002 opinion piece written by Cole about the use of civilian trials for terrorism suspects. Grassley and Coburn did not attend the hearing.

In his opening statement at the hearing last week, Cole defended his work on AIG. “The company resisted some of my efforts, but I insisted on tough measures,” Cole said.

Cole’s reports on AIG were confidential, but the Justice Department sent the reports to the House Oversight and Government Reform Committee last year. The panel asked the Congressional Research Service to issue a report on Cole’s oversight of the company.

President Barack Obama nominated Cole to be Deputy Attorney General last month. He would replace acting Deputy Attorney General Gary Grindler, who has held the post since David Ogden stepped down in February.

The letter and the full statement from the DOJ is reprinted below.

June 23, 2010

Ronald Weich
Assistant Attorney General
Office of Legislative Affairs
Department of Justice
Washington, D.C. 20530

Dear Mr. Weich:

We write regarding the nomination of James Cole to be Deputy Attorney General. Mr. Cole served as independent consultant to American International Group (AIG) for a number of years prior to that company’s near collapse and government-sponsored bailout in 2008. Numerous questions persist regarding Mr. Cole’s role in monitoring AIG in view of the company’s recent history. Such questions could not adequately be addressed at Mr. Cole’s June 15 hearing, however, because Mr. Cole appears to be prohibited from disclosing the nature of his work as an independent consultant and because the underlying documents apparently remain confidential. These documents include the deferred prosecution agreements, his recommendations to AIG, and his reports to the Department of Justice (Department), Securities and Exchange Commission (SEC) and the New York Attorney General’s Office (NYAG).

As a result of these claims of confidentiality, we have been unable to verify a number of reports that have questioned Mr. Cole’s activities as the independent consultant to AIG. For example, it has been reported that Mr. Cole “allowed AIG management to revise his quarterly reports to the SEC.” According to these same reports, Mr. Cole also made recommendations that there be independent review of all derivative transactions, but he expressly exempted derivative transactions made by the AIG-Financial Products group (AIG-FP). AIG-FP is the subsidiary of AIG that was responsible for the derivative transactions that ultimately led to a $182 billion taxpayer bailout. We understand Mr. Cole’s recommendation for derivative products by AIG-FP went even farther to state that “the appropriate independent review of the proposed derivative transactions or programs should be conducted by AIG-FP.” This recommendation raises serious questions about the thoroughness and independence of Mr. Cole’s review of these transactions. It was the devaluation of those high-risk transactions that led to AIG’s demise, and ultimately, the economic collapse.

If true, these reports about Mr. Cole’s deference to AIG and its subsidiaries would raise serious concerns regarding his performance as independent consultant. Due to the unknown nature of Mr. Cole’s work and the secrecy surrounding his recommendations and reports to the Department and the SEC, the Committee remains unable to verify or dismiss these reports.

We understand the confidential treatment of Mr. Cole’s reports to the Department, the SEC and the NYAG, and his recommendations to AIG stem from the deferred prosecution agreements between the Department and AIG. The Judiciary Committee cannot, however, fully and properly evaluate Mr. Cole’s nomination without this documentation. Accordingly, we request copies of all reports submitted by Mr. Cole in his role as independent consultant to the Department. To the extent the Department received such materials, we further request copies of Mr. Cole’s reports to the SEC and NYAG, as well as copies of all recommendations made to AIG by Mr. Cole. Finally, we request all responses submitted by AIG to the Department related to, or responding to, any report or recommendation issued by Mr. Cole as the independent consultant to AIG.

Thank you for your attention to this matter, which will help us to discharge our constitutional obligation to consider this nomination. To avoid any unnecessary delay, we respectfully ask you to provide this information as soon as possible so the Committee can consider Mr. Cole’s nomination.

Very truly yours,

Jeff Sessions
Chuck Grassley
John Cornyn
Tom Coburn

Statement from Tracy Schmaler, Justice Department spokeswoman:

“James Cole was assigned by a federal court order to serve as an outside independent consultant to AIG as the result of two specific lawsuits the company settled charging it with engaging in bid rigging, helping its clients to falsify their financial condition, and violating accounting rules. Mr. 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.

“For those areas of the company that the court did give Mr. Cole authority to address – fraudulent transactions and the company’s compliance with applicable laws and regulations – Mr. Cole made significant progress in implementing critically-needed reforms by making sure the company improved its reporting lines and the independence of compliance staff so that they could not be pressured by the company’s business managers.

“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 CRS report notes, AIG executives tried to have him removed.”

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