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Monday, July 15, 2024 | Back issues
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Secret AIG Deal Reports Face Public Scrutiny

WASHINGTON (CN) - The government must release reports on all of American International Group's transactions in the years leading up to its 2004 settlement of securities fraud charges, a federal judge ruled.

"Given the financial meltdown of 2008, the recession it spawned, and the suffering the country has endured because of it, and given the role that AIG played in that financial meltdown," the public interest in disclosure outweighed arguments from AIG and the SEC to keep such reports secret, U.S. District Judge Gladys Kessler wrote.

The Justice Department and Securities and Exchange Commission filed, and simultaneously settled, securities fraud charges against AIG in November 2004 for $126 million. Though the global re-insurance giant never had to admit or deny the allegations, the consent order required it to retain a government-selected independent consultant and create an audit committee.

The consultant was tasked with analyzing all transactions that AIG entered into between January 1, 2000, and the entry of the 2004 settlement, for misconduct.

Until now, with only two exceptions, access to the consultant's reports had been limited to the Securities and Exchange Commission, the Department of Justice and an AIG audit committee.

The D.C. Circuit enforced the confidentiality of the reports, as requested by both the SEC and AIG, in 2006. Since then only the Office of Thrift Supervision and the House of Representatives Committee on Oversight and Government Reform received access.

In January of last year journalist Sue Reisinger filed a Freedom of Information Act request with the Justice Department asking to see the reports. The DOJ claimed to have lost their copies and referred Reisinger to the SEC, which cited the confidentiality order in denying her request.

Reisinger petitioned the D.C. Circuit in February for disclosure, arguing that the public had a First Amendment right to review the reports and a common-law right of access to them as judicial records.

Both the SEC and AIG said they had an expectation of privacy to the reports under the 2004 consent decree. The SEC was also worried that disclosure would inhibit its ability to reach such agreements in the future, and AIG protested that the reports contained proprietary information that would be useful to their competitors.

Judge Kessler rejected the first argument by noting that a whole year and a half had elapsed after entry of the final judgment before the parties asked for clarification of who could see the reports.

"It is hard to believe that confidentiality was very significant to the parties at the time the consent order was signed, if such an important provision was forgotten or overlooked by all the high powered and highly paid attorneys on both sides," Kessler said.

This made the SEC's claim that a lack of confidentiality would make it harder to broker agreements in the future "ring hollow," Kessler said.

As for AIG's concerns about proprietary information, Reisinger helpfully agreed to accept redacted versions of the reports.

Kessler said this compromise would protect AIG and advance the public's interest in disclosure.

This interest was most important for Kessler.

While she rejected Reisinger's First Amendment argument because it has only limited application to civil court proceedings, Kessler said that the common-law right predated the Constitution and was vital to monitoring the performance of the judicial process.

"The central role the IC Reports play in the operation of the consent order makes them precisely the kind of documents that must be open to the public in order for the federal courts 'to have a measure of accountability and for the public to have confidence in the administration of justice,''' she wrote, abbreviating independent consultant and quoting from United States v. Amodeo.

Kessler said the reports document and ensure AIG's compliance with the independent consultant's recommendations and the terms of the consent order, and gave insight into the efficacy of SEC regulation.

"The public needs to know whether the obligations AIG undertook in the consent order were complied with, whether the SEC was carrying out its enforcement and monitoring responsibilities under the consent order, and what, if any, role the compliance - or noncompliance - with the consent order may have played in the devastating events of 2008," Kessler concluded.

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