There apparently is a case to be made against AIG and Goldman Sachs, at the very least.
William Black, a law professor at the University of Missouri-Kansas City, envisions a federal investigation into AIG’s past accounting, securities disclosures and executive-pay program. Black was the litigation director of the Federal Home Loan Bank Board and helped bag the "Keating Five" lawmakers during the savings-and-loan scandal in the late ’80s and early ’90s.
As the bottom was falling out of its derivatives trading, AIG was reporting healthy profits, he told me. That’s not allowed. Meanwhile, the company created a short-term bonus system for its top execs.
The massive prior bonuses should be clawed back, he said, "and we do that by establishing that there is accounting fraud and by putting in intelligent, vigorous investigators."
Speaking of which, Goldman Sachs said that it had no material exposure to AIG, but we now learn that it has received $13 billion in AIG bailout money. "That’s a felony to make a false disclosure," Black adds.
…Back to AIG. In addition to making extremely risky contracts and being leveraged to the hilt, the company failed to put in appropriate loss reserves should something go wrong. The reserves are required under Generally Accepted Accounting Principles (GAAP), according to Black. These are the rules accountants must follow in preparing financial statements.
"If you’re publicly traded, the SEC rules require that you follow GAAP," he says. "If you don’t follow GAAP, then it’s securities fraud."
The excuse that the auditor gave the accounting a green light won’t fly. Enron and the infamous Lincoln Savings & Loan had clean opinions, too.
It’s not piano wire, but maybe we could settle for the Ken Lay compromise.