Research Briefing

Obama’s Deputy Attorney General Nominee’s Time Overseeing AIG Just The Beginning Of Questions His Appointment Raises

Senate Judiciary Committee Holds Hearing Today On Nomination Of James Cole To Be Deputy Attorney General. (“Executive Nomination,” Senate Judiciary Committee, 6/15/10)

SINCE 2005, COLE HAS BEEN IN CHARGE OF OVERSEEING AIG’S CORPORATE GOVERNANCE

Cole Was Appointed As Independent Consultant To AIG, Overseeing “…Its Corporate Compliance And Financial Disclosure Policies,” “Counseled Arthur Anderson…After The Enron Related Events Were Uncovered,” And “Represented The Chief Risk Officer Of Enron.” (James Cole Profile, Bryan Cave, Accessed on 6/08/10)

Part Of Cole’s Original Assignment At AIG “Was To Investigate Financial Transactions” Structured By AIG’s Financial-Products Group, Which Created “Billions Of Dollars In Credit-Default-Swap Contracts That Turned Sour.” “His original assignment, which began in January 2005, was to investigate financial transactions dating back to 2000 in which AIG helped companies smooth earnings. Some of those transactions were structured by the insurer's financial-products group, the unit that would later write billions of dollars in credit-default-swap contracts that turned sour.” (Peter Lattman, “The U.S.’s Fly On The Wall At AIG,” The Wall Street Journal, 03/27/09)

In 2006, Cole’s “Responsibilities Broadened” To Examining AIG’s “Controls On Financial Reporting” And Corporate Governance. “His responsibilities broadened in November 2006, after a separate settlement with the SEC and New York state authorities. In that case, AIG paid $1.6 billion to resolve an inquiry into accounting irregularities and bid-rigging allegations. That agreement called for Mr. Cole to examine AIG's controls on financial reporting as well as oversight over corporate governance in areas such as compliance.” (Peter Lattman, “The U.S.’s Fly On The Wall At AIG,” The Wall Street Journal, 03/27/09)

• Cole Had “Senior Role In Overseeing AIG’s Dealings.” “In January 2005, he took on a senior role in overseeing AIG’s dealings, investigating financial transactions dating back to 2000 that allegedly allowed AIG to manipulate earnings statements. His role was expanded in 2006, when AIG reached a separate agreement with the Securities and Exchange Commission to settle an inquiry into accounting irregularities and allegations of bid rigging. Cole was assigned to oversee corporate governance and take a look at their controls on financial reporting.” (Ryan Reilly, “Cole’s AIG Tie A Very Risky Asset,” Main Justice, 06/02/10)

BUT COLE WAS ASLEEP AT THE WHEEL AND MISSED THE WARNING SIGNS

Cole “Failed To Detect An Atmosphere Of…Laissez Fair Compliance At The Company.” “Cole came into AIG as the independent monitor like an anti-fraud typhoon, meeting with the relevant people and overseeing about 35 different work streams,” Beatrice Edwards, GAP’s International Reform Director, wrote in a blog post criticizing his nomination. “But gradually… he seemed to weaken and adapt,” Edwards said sources told her. “Cole failed to detect an atmosphere of, shall we say, laissez faire compliance at the company.” (Ryan Reilly, “Cole’s AIG Tie A Very Risky Asset,” Main Justice, 06/02/10)

• Cole “Should Have Been More Attentive To Possible Financial Misdeeds And Highly Risky Deals.” “Critics say Cole, who has been picked for a critical DOJ job that requires a kind of radar to detect issues might prove troublesome, should have been more attentive to possible financial misdeeds and highly risky deals.” (Ryan Reilly, “Cole’s AIG Tie A Very Risky Asset,” Main Justice, 06/02/10)

At AIG “It’s As Though Cole Were Spackling Cracks In The Compliance Walls And Never Noticed That AIG’s Financial Foundation Was Crumbling Beneath His Feet.” “Right under Cole's nose, AIG again undertook high-risk transactions--and within the very financial unit that Cole was first appointed to oversee. AIG's high-stakes gamble on credit default swaps not only drove the company to the edge of financial collapse but also helped to undermine the nation's--and the world's--economic stability…. They say Cole filed periodic reports with federal agencies and sculpted a nice compliance model. Problem is, the model just didn't work for AIG. It's as though Cole were spackling cracks in the compliance walls and never noticed that AIG's financial foundation was crumbling beneath his feet. Part of any good compliance program, says one attorney and ex-monitor, who asked not to be named, is accurately assessing a company's risk. Cole's plan apparently didn't.” (Sue Reisinger, “AIG’s Federal Monitor Failed To Curtail Bad Behavior. Is It Time To Reexamine The Program?” Law.com Corporate Counsel, 07/01/09)

AND FOLLOWING COLLAPSE, COLE’S FIRM CONTINUED COLLECTING MILLIONS

WHILE TAXPAYERS BAILED OUT AIG 

As Taxpayers Spent Billions To Bail Out The Insurer, “AIG Paid Lawyer James Cole And His Firm…About $20 Million.” “AIG has paid lawyer James Cole and his firm, Bryan Cave LLP, about $20 million to oversee business practices at the insurer, according to people familiar with the matter. His reports on the company's progress, periodically delivered to federal regulators since 2005, aren't public. Mr. Cole was installed inside AIG as a monitor, or independent consultant, as part of a $126 million settlement struck in November 2004 between AIG and the Justice Department and Securities and Exchange Commission.” (Peter Lattman, “The U.S.’s Fly On The Wall At AIG,” The Wall Street Journal, 03/27/09)

• As A Law Firm Partner Cole “Made Just Over $900,000 In 2009” And Has “Reported Net Worth Of $7.1 Million.” “Nominee for deputy attorney general James Cole made just over $900,000 in 2009… Cole, a partner in the Washington office of Bryan Cave, reported a net worth to $7.1 million, making him the latest in a long line of wealthy lawyers from both political parties who have taken top jobs in the Justice Department.” (Dave Ingram, “Bryan Cave's Cole Puts Net Worth at $7M,” The Blog Of The Legal Times, 6/8/10)

COLE ALSO CALLED 9/11 MERELY “CRIMINAL ACTS” NOT ACTS OF WAR

Cole Argued That “The Sept. 11 Attacks Were Criminal Acts” And That Those Responsible Should Be “Tried And Convicted Under Our Criminal Justice System.” “But the attorney general is not a member of the military fighting a war--he is a prosecutor fighting crime. For all the rhetoric about war, the Sept. 11 attacks were criminal acts of terrorism against a civilian population, much like the terrorist acts of Timothy McVeigh in blowing up the federal building in Oklahoma City, or of Omar Abdel-Rahman in the first effort to blow up the World Trade Center. The criminals responsible for these horrible acts were successfully tried and convicted under our criminal justice system, without the need for special procedures that altered traditional due process rights.” (James Cole, “A Prosecutor Must Protect Rights Of All,” The Legal Times, Volume 25; Issue 35, 09/09/02)

• Cole Compared The 9/11 Terrorist Acts To Other “Crime” Including The “Drug Trade” And “Organized Crime.” “Our country has faced many forms of devastating crime, including the scourge of the drug trade, the reign of organized crime, and countless acts of rape, child abuse, and murder. The acts of Sept. 11 were horrible, but so are these other things.” (James Cole, “A Prosecutor Must Protect Rights Of All,” The Legal Times, Volume 25; Issue 35, 09/09/02)

Cole Suggested Constitutional Rights Be Extended To Terrorists, Since The Laws “Must Be Applied To Everyone To Be Effective.” “Because of this, we must rely on the prosecutors to watch out for the rights of everyone, including those they seek to punish.  The attorney general justifies much of his agenda by pointing to the ‘war on terrorism’ and saying that it is an extreme situation that calls for extreme actions. But too much danger lies down that road.  The protections build into our criminal justice system are there not merely to protect the guilty but, more importantly, to protect the innocent.  They must be applied to everyone to be effective.  What are we fighting for it, in the name of protecting the principles that have raised this nation to the pinnacle of civilization, we abandon those very principles?”  (James Cole, “A Prosecutor Must Protect Rights Of All,” The Legal Times, Volume 25; Issue 35, 09/09/02)

AND FROM 2003 TO 2007, HE DEFENDED SAUDI PRINCE FROM 9/11 VICTIMS

Cole “…Represented Saudi Prince Naif Bin Abdulaziz Al-Saud After Insurance Carriers And Sept. 11 Survivors Tried To Sue The Prince And Others, Claiming They Had A Role In Financing Terrorists.” (David Ingram, “Bryan Cave’s James Cole To Be Nominated Deputy Attorney General,” BLT – The Legal Times, 5/21/10)

• Cole Represented Prince Naif From 2003 to 2007. “From 2003 to 2007, I represented Prince Nayef, the Minister of the Interior of Saudi Arabia, in multi-district litigation brought by individual victims of September 11. The Court granted my client’s Rule 12 motion to dismiss” (James Cole, “Public Questionnaire,” Senate Judiciary Committee)

As Solicitor General, Elena Kagan Asked The Supreme Court To Grant Saudi Immunity In The Same Case. “The Obama administration is supporting efforts by the Saudi royal family to defeat a long-running lawsuit seeking to hold it liable for the Sept. 11, 2001, attacks… Solicitor General Elena Kagan said in the brief to the Supreme Court that her office agreed with the United States Court of Appeals for the Second Circuit “that the princes are immune from petitioners’ claims,” although she pointed to somewhat different legal rationales in reaching that conclusion. Ms. Kagan noted that the Supreme Court had historically looked to the executive branch to take the lead on such international matters because of ‘the potentially significant foreign relations consequences of subjecting another sovereign state to suit.’” (Eric Lichtblau, “Justice Dept. Backs Saudi Royal Family On 9/11 Lawsuit,” The New York Times, 5/29/09)