Misery Index

"A Newsmax investigation of Obama/Binden campaign contributors, undertaken in conjunction with a private investigative firm headed by a former CIA operations officer, has identified 118 donors who appear to lack U.S. citizenship.

Some of these "red flag" donors work for foreign governments; others have made public statements declaring that they are citizens of Cameroun, Nigeria, Pakistan, Canada, and other countries.

A Newsmax sampling of about 3,400 donors also found hundreds more who showed "yellow flags" such as not having used a Social Security number or a known U.S. address. Most U.S.-born citizens are issued Social Security numbers at birth or by the time they enter kindergarten.

Under federal law, only U.S. citizens or permanent residents may donate to federal political campaigns. It is illegal for the campaigns to accept money knowingly from foreign donors. [...]

... it remains very difficult to identify with any precision foreign money if a campaign itself does not cooperate with the Federal Election Commission and perform its own due diligence.

Until very recently, the Obama campaign had no safeguards in its online fundraising Web site designed to weed out foreign donors. Instead, its operations appeared to be designed specifically to enhance the flow of illegal money.

The Newsmax investigation focused only on donors whose names the Obama campaign disclosed, which are available to public scrutiny through the Federal Election Commission Web site.

In addition to the donations the campaign has disclosed, however, it has taken an unprecedented $218 million from donors whose names it is keeping secret according to FEC spokesman Robert Biersack.

That money came from individuals who in theory never passed the threshold of $200, the limit the FEC set for public disclosure of a donor's name and place of residence, so there is no way of knowing how much foreign money could be included in that amount.

For example, hidden away amidst the unprecedented $150 million Obama claims to have raised from individual donors in September was more than $42 million raised from secret donors. These donations appear in the records as a single entry under the heading, "Donors, Unitemized."

Newsmax retained the services of former CIA operations officer Frederick W. Rustmann Jr. and a team of international forensic accounting experts to comb through Obama's donor list to identify those who apparently aren't U.S. citizens or residents or residents. Rustmann, a 24 year veteran field officer, operates CTC International Group Ltd., a West Palm Beach, Fla., firm that provides business intelligence services and analysis.

[...] Most of these donors gave obvious overseas addresses when they made their donations, but the Obama campaign had no security to detect them.

"Hillary and McCain demanded proof of citizenship of all their donors," Rustmann said. "Obama did not, so he benefited by receiving an enormous amount of money from foreign donors who wanted to influence the U.S. election process."

[...] Typical is Victor A. of Lagos, Nigeria, who gave $500 to the campaign in May. In the FEC database, his address is listed as Ikoyi, NA. But a closer look at the actual itemized receipts filed by the campaign shows that he declared his address as 9e Awori Street Dolphin Estate, Lagos, Nigeria.

That apparently slipped by the eagle eyes of the Obama campaign's finance team.

A survey of the Obama donor base returns 8,794 donations from individuals who gave their state as "NA." They included donors from Bangalore, India; London; Dubai, United Arab Emirates; Lagos, Nigeria; and Riyadh, Saudia Arabia.

Thousands more gave state abbreviations that, combined with the city addresses they listed, clearly referred to foreign countries. Examples include IT (Italy), FR (France), GR (Greece), NZ (New Zealand), JP (Japan), GA (Gaza).

Another 2,372 donors gave their state of residence as "ZZ", with cities including Moscow, Barcelona, Beiruit, London, Lausanne, SIngapore, Hagatna, Gunma-Ken, Buelach, Shanghai, Geneva, Prague, Aichi-Gun, Kiev, Hong Kong and others.

The Obama campaign claims that these are donors with overseas addresses are Americans living abroad, but there is no way of knowing that for certain because the campaign has not systematically required proof of citizenship from overseas donors.

[...] The Federal Election Commission had flagged 16,639 potential foreign donations as of Oct. 21 that brought in $5,249,263.96 to the campaign.

Take the case of Jo Jacquet, who gave $23,065 to Obama in 23 separate contributions last month. CTC found three people with variations of the name "Jo Anna Jacquet" who had U.S. addresses and Social Security numbers. It is not clear whether this specific Obama donor is a U.S. citizen.

"Jo Jacquet" made all of her contributions on two days, alternating between $5 and $2,300 charges to a credit card.

On all of the donations, she gave her employer as "DFDFGDFG," and her profession as "DFGDFGDFGHGFH." None of this attracted the suspicions of the Obama campaign or of Chase paymentech, the company that processes the Obama campaign's credit card donations.

The FEC requested that the Obama campaign re-attribute or re-designate all of the moeny from "Jo Jacquet" that went beyond the $4,600 limit but did not require that it be refunded. Under campaign finance rules, the campaign can shift this money into the "Obama Victory" account, a joint fundraising committee with much higher individual limits that it operates with the Democratic National Committee. [Obama just started accepting donations for his "Victory account" yesterday.......]

One apparent reason for the unusual number of foreign donors who may not hold U.S. citizenship is the fact that the Obama campaign turned off the security features most merchants demand for customers when doing online transactions, such as verifying the card number against the cardholder's name and billing address.

Another major loophole is the apparent widespread use of gift cards, which notoriously have been used for money-laundering purposes, especially in places such as Russia and Ukraine, industry security analysts tell Newsmax.

Newsmax asked James Wester, a spokesman for Chase paymentech, who was responsible for taking the unusual step of deactivating the Address Verification Service recommendation by VISA USA on the Obama Web site. Such security features can be deactivated by the processing company, or at the request of the merchant, in this case, Obama for America.

Wester said that Paymentech was "not going to be issuing a statement at this time."

[...]

Following are a few of the individuals the Newsmax/CTC International investigation found of overseas donors. To demonstrate its compliance with FEC regulations, the Obama campaign should request proof that these individuals are, indeed, U.S. citizens;

"Credit cards have typically been among the most profitable parts of Bank of America's business," said Jim Campen, executive director of Americans for Fairness in Lending, a Boston-based nonprofit that studies the credit card industry.  "As we enter the biggest financial crisis since the Great Depression, more people aren't going to be able to pay their credit cards."

CREDIT WITHOUT A SOCIAL SECURITY NUMBER

Maybe that little deal of offering credit cards to people without social security numbers (and who in the United States doesn't have a social security number)  and who didn't have any credit history but who did maintain an overdraft-free checking account for three months, is finally coming back to haunt them.  Bank of America, along with Wachovia, launched aggressive campaigns to woo illegal alien homebuyers.  And where is BoA and Wachovia today?

In 2006 BoA began offering credit cards without requirements of Social Security numbers in five Los Angeles branches.  By 2007, it was expanded to 51 Los Angeles branches.

BoA had defended the program, saying it complied with U.S. banking and antiterrorism laws.  "These people are coming here for quality of life, and they deserve somebody to give them a chance to achieve that quality of life," said Brian Tuite, bank's director of Latin America card operations and one of the architects of the program.  BoA said nearly half of the nation's Hispanic households have one of its credit cards.

It is interesting to note that BoA's domestic consumer credit card portfolio, stating that California and Florida represent about a third of the bank's card losses alone, that those two states also happen to be some of the nation's largest sanctuary areas for illegal immigrants.  Regional reports across the country have decried the subprimes meltdown's impact on illegal immigrant "victims."  A July report showed that in seven of 10 metro areas with the highest foreclosure rates, Hispanics represented at least one-third of the population; in two of those areas -- Merced and Salinas - Monterey, Calif -- Hispanics comprised half the population.

Even as recently as September 28, in Atlanta Georgia while the Mexican Consulate was issuing ID's to undocumented Georgians at the Old South Pawn Shop, representatives from Bank of America were on site distributing information on how to open a checking account.  All that was needed was an original copy of their Mexican birth certificate, two forms of picture identification (with one being current), and an item such as a power bill, to prove one's residence in Georgia.  A social security number was not required.

The Wall Street Journal had reported on one customer who had sneaked into the U.S. a decade ago, had been a customer of BoA for nine years, and had no credit history or Social Security number.  He paid a $99 fee to obtain a $500-limit Visa card, and provided he stayed within his $500 credit limit and paid his balances on time, he would receive his $99 security payment back in three to six months, with a possible credit limit.

MERRILL LYNCH

Although BoA is having serious losses due to the card services division, they are still giving out big salaries to execs.  Reuters reported that MLs head of strategy will likely leave the bank with as much as $25 million in compensation. 

The Wall Street Journal reported that Merrill's global strategy head, former Goldman Sachs executive Peter Kraus, who will be leaving, will be picking up a paycheck worth $10 million to $25 million.  Kraus will receive the exit payment because the takeover of BoA altered the terms of his contract and he is not affected by a provision in the government's bank rescue plan that curbs executive compensation.

Yet there have been reported that up to 10,000 jobs of the 60,900 employees at Merrill Lynch are at risk due to elimination by Bank of America after completion of the $50 billion acquisition.  Merrill Chief Executive John Thain had said that he expects "thousands" of job losses from the takeover by BoA with most of the cuts falling in IT (Information Technology), operations and "corporate functions," Thain said in a Bloomberg Television interview Monday of this week.

According to CNBCk, ML laid off 500 people in its trading division today.  The total layoffs at Merril since the crisis began last year, now stands at around 5,000, with about half of those in New York.

"Bank of America's 'slash and burn' style following acquisitions is likely to be pronounced at Merrill," Dick  Bove wrote, an analyst with Bloomberg.  "That company still has approximately $30 billion in securities that could be written down.  It overlaps with Bank of America in multiple divisions."

Edward M. Liddy
Chairman and Chief Executive Officer
AIG

October 20, 2008

Mr. Jim Cramer
Mad Money
CNBC
[Address Redacted]

Dear Mr. Cramer,

I was deeply disappointed last Thursday when you urged your viewers to harass AIG employees, saying:

"We should hound them in the supermarket, we should hound them in the ball park, we should hound them everywhere they are.  We should make fun of them and we should point fingers at them and we should tell them that you have no shame."

These comments are outrageous.  I demand they be retracted and that you apologize to AIG's employees.  It is one thing to criticize the executive leadership of AIG - that's fair commentary.  But it is way out of bounds to incite people to confront and harass other AIG employees - hard working, dedicated people who are running good businesses and are committed to our success.  The employees of AIG did not cause this mess, but they are paying for it - in diminished 401K savings and in some job losses as we sell companies to repay the Federal loan.  The irony is that AIG employees did not cause this problem, but they will solve it.  For that they deserve our praise and our gratitude.

I await your prompt response.

Sincerely,

Edward M. Liddy

Personally, what I would like to say to Liddy on this matter, is the following:

Dear Mr. Liddy,

I think Cramer's comments were inappropriate and he  should apologize for his unsympathetic statements towards your employees who have been through so much however, first have each employee and exec who attended the St. Regis "convention", each attendee from the Atlanta "convention", each attendee from the Europe hunting trip, and each employee from the Las Vegas golf outing send a written apology to the Oversight Committee for wasting the U.S. taxpayers money on parties first.  Talk about being uncaring, and unsympathetic!  I though Lehman Brothers was bad, but you Mr. Liddy and some of your employees, take the cake, eat the cake, and throw the empty plate to U.S. taxpayers expecting us to take out your trash.  Talk about no shame and talk about outrageous actions?  I don't think you are in any position to demand anything, since we the taxpayers OWN you, and YOU owe US for bailing your butts out.

As for YOUR employees 401(k)s and job losses which are unfortunate, what about all the non-AIG employees who lost money in their 401(k)s, and their job losses because of your company's failure affecting their employer or their lifetime savings?  What about all the stockholders who lost money because of AIG, yet certain people who work for AIG profited at the same time?   What about all the mortgage brokers who lied to potential homeowners, and now are paying the ultimate price?  And we, the U.S. taxpayers who are paying for your parties, should thank your employees for saving AIG?  Umm.. Hi!  My name is reality, and I KNOW we haven't met yet.  I know I'd like a thank you from every employee of AIG for saving their jobs since we the U.S. taxpayers are the only reason they still have a job.

As for paying back the Federal loan?  The only reason you want to pay it back so quickly is because you don't like being regulated by the Feds, with all your company's dirty little secrets being made public.

And as for stating that AIG employees did not cause this mess?  Are you going to be like Dick Fuld now, and blame everyone else for YOUR problems?  Get a therapist, your denial is showing.

Why are you worrying about one man's opinion?  Why are you even addressing this issue?  Obviously your experience as a CEO, or rather lack of, didn't tell you to ignore this issue, as it would have gone away.  Now you have done nothing but add fuel to the fire.  Your attention should be focused, and only focused on getting your company back profitable and paying the U.S. taxpayers back, not insults and opinions.  It's TV and ratings, you need to get some thicker skin, and consider the source.  By acknowledging his statement, you only give him more power over the situation and you just gave him more ratings.  I had never heard of Cramer before today, and now I plan to watch one show to see what the big deal is.  You fell for the biggest media trick in the book, and he will profit for it.

While I admire and respect you protecting your employees, you need to think about the bigger picture, outside of AIG, and the potential effects that AIG can and has had on our society through their actions, both positive and negative.  As the once infamous Schooner Tuna commercial stated "We're all in this together."   I'd like you to take the challenge of  taking off your blinders, coming down out of your office, and then walking the streets as a normal U.S. taxpayer and learn what it is really like for us. 

Your continued arrogance will be your downfall.

Sincerely,

Misery Index 2008

WEDNESDAY, Oct 15.

If you remember, on Wednesday last week New York State Attorney Cuomo assailed AIG for making "unwarranted and outrageous  expenditures" that he said violated New York law and advised them to stop "extravagant" expenditures and recover millions of dollars in unreasonable payments, or face legal action.

THURSDAY, Oct 16.

On Thursday AIG announced that they would cooperate with the NY AG and announced that it would cancel all junkets or perks not justified by "legitimate business needs" and would be canceling more than 160 conferences and events that were to cost a total of $80 million, according to AIG spokesman Ashooh.  This of course comes after the media outlets learning of a $440K retreat to St. Regis in California only days after the $85 billion loan, a "insurance convention" for execs and their wives on October 3rd to Las Vegas that included golfing, a $86K plus hunting trip in England, among other events.  And during that time, also asked for an additional $37.8 billion loan.

It was reported in the Wall Street Journal on this day that AIG was still engaging in a state-by-state effort to soften new federal regulations requiring mortgage originators get licenses and provide extensive background information.  According to a Wall Street Journal article:

AIG is currently working to ease some provisions in a new federal law establishing strict oversight of mortgage originators, according to state regulators.  The law requires that originators be licensed by the states, and that they supply comprehensive information so state regulators can track their activities.

The goal of the new rules is to hold originators accountable if they engage in the sorts of improper or fraudulent lending that ultimately contributed to AIG's downfall.  The law was passed by Congress in July as part of a sweeping housing-industry rescue package.

On Sept. 16, the day of the federal takeover of AIG, company lobbyist Brett J. Ashton was meeting with Indiana banking regulators about the law, said Judith Ripley, director of the Indiana Department of Financial Institutions.  Two weeks later, Mr. Ashton spent three days at a Hilton hotel in Beverly Hills, Calif., where he briefed other financial-service industry representatives on "key legislation and regulatory concerns."

Mr. Ashton referred questions about his activities to an AIG spokesman.  "We are maintaining government-affairs activities," said Nick Ashooh, an AIG spokesman.  "We're not the only financial-services company that has expressed concerns" about the new mortgage-lending oversight rules.  "We're rebuilding value in AIG to pay back the Federal Reserve loan and to restore AIG as a vital, ongoing concern."

AIG had said that it would continue to lobby, which it argued was important for protecting the interest of taxpayers and shareholders of the 20% of the company not in government hands.  In an October 10th article, AIG spokesman, Joseph Norton stated "We are not a GSE [government-sponsored entity] and are therefore not restricted.  We remain a share-holder owned entity and continue advocacy activities."

In 2007, AIG spent $11 million on lobbying.  In the first quarter 2008, AIG spent $3.7 million on lobbying.  The company spent more than $3 million on federal-government lobbying in the second quarter 2008 alone, and more at the state level.  During that same second quarter, AIG spent at least double on federal lobbying by outside firms than most other financial-service conglomerates, including Merrill Lynch, Citigroup, Coldman Sachs Group Inc and Lehman Brothers Holdings, according to congressional filings.

"They're trying to reintroduce things that really are superfluous and get in the way of implementing the act," said Thomas Gronstal, Iowa's superintendent of banking.  "Basically, they're just objecting to having to be regulated.  ... I frankly think that takes a lot of gall, given what the industry has done and what we're trying to do."

Kenneth Gross, an attorney at Skadden, Arps, Slate, Meagher & Flom in Washington who advises lobbyists and their clients stated:

"I would think it would be difficult to justify a sustained lobby budget of that magnitude in bailout mode."  The $3 million AIG spent on outside federal lobbyists in the second quarter "is a lot for an entity under any circumstance," Gross said.  "The industry norm is about half that."

FRIDAY, Oct. 17

Then on Friday of last week, Waxman of the Oversight Committee asked AIG for a detailed listing of all conferences, events, or retreats paid for AIG since January 1, 2008, as well as any future events during the next six months, as well as, any bonuses paid to AIG executives.  And on that same day stated they may have to additional ask for another $10 billion through the commercial paper program.  As of that day, AIG had already used two-thirds of its $122.8 billion credit line in only 30 days.

Also on Friday, Senator Feinstein (D-CA) and Senator Martinez (R-FL) wrote to AIG Chief Exec Liddy (PDF), telling him not to use its governmental loan to try and roll back tougher mortgage-industry licensing requirements and other controls.

"We are troubled that AIG is fighting against more robust oversight and regulation, given the company's role in the credit crisis and financial market instability."

"We find it unconscionable that AIG would take advantage of these taxpayer loans while paying lobbyists to rollback taxpayer protections against misrepresentations, deception, and fraud in mortgage lending."

"I will introduce legislation to prohibit the use of federal rescue funds or government loans for lobbying purposes," Feinstein said in a statement.  "Federal dollars were not intended to be used for lobbying, and it would be an unconscionable say for these companies to misuse taxpayer dollars in this way."

 

MONDAY, Oct. 20

So today, Monday, according to a Wall Street Journal article, AIG has said it will stop lobbying lawmakers and regulators, after coming under congressional pressure and questioning about how it is using more than $120 billion loaned by the government to keep the company afloat.  Ashooh said that for now, AIG was not closing any of its lobbying offices, but that workforce reductions would be part of the company's restructuring. 

"We're not suspending lobbying as a cost-saving measure but as a part of an overall review of what activities we should be involved in," Ashooh said.

And Ashooh also stated, "We haven't said we're never going to lobby again."

As part of its internal review, Ashooh said on Monday, Liddy has told employees that any personal expenses incurred during the California spa weekend must be reimbursed.

And suddenly AIG thinks they are going to have money.  Liddy said today on CNN Money that the company should start selling off pieces of its sprawling global business by year end, with some 15 to 20 buyers each walking away with a unit of AIG.  Liddy declined to comment on the prices, saying its "too soon" however, he told CNN Money that he expects to be able to repay the $85 billion loan.

Liddy also said that the company does not expect to need additional financing beyond the $85 billion to continue operating, and that AIG has already drawn down $69 billion of that loan.

He also stated "I apologize to the American people for those things [the extravagant spending on conventions & retreats].  They were terribly insensitive."

And if you wish to see Liddy talking about the asset sales, paying taxpayers back in full and the fallout from the recent company retreat, check out CNN Money's Video.

RUMOR

Purdential shares jumped by 22% today on speculation that the insurer is working on deal to buy part of AIG from $9.97 to $12.19.  The UK insurer Prudential could sell a 20 percent stake worth up to $2.1 billion in itself, according to The Sunday Times of London, in order to fund a $15 billion bid for the Asian business of AIG.

PELOSI:  This is Herbert and Marion Sandler.  Tell us your story.

HERBERT:  My wife and I had a company which aggressively marketed subprime mortgages, and then bundled them into securities to sell to banks such as Wachovia.  Today, our portfolio is worth almost nothing - though at one point, it was worth close to $19 billion.

PELOSI:  My God.  I am so sorry.  Were you able to sell it for anything?

HERBERT:  Yes, for $24 billion.

PELOSI:  I see.  So in that sense, you're not so to speak, actual victims.

HERBERT:  (chuckling):  Oh no.  That would be Wachovia Bank.

MARION:  Actually, we've done quite well.  We're very happy.

HERBERT:  We were sort of wondering why you asked us to come today.

MARION:  Anyway, it's delightful to see you, Nancy. (Kisses Pelosi.)

HERBERT:  And thank you, Congressman Frank, as well as many Republicans for helping block Congressional oversight of our corrupt activities.

FRANK:  Not at all.  [...]

The real life Sandlers, who use their wealth to finance a variety of nonprofit organizations such as the Human Rights Watch, the American Civil Liberties Union (ACLU) and ACORN,  are infuriated over the skit. 

Sandler, 77, spoke to the Associated Press in the San Francisco office of his family's charitable foundation the morning after NBC's "Saturday Night Live" broadcast a skit deriding the Sandlers as predatory lenders who had duped unsophisticated borrowers and Wachovia, too.  A caption shown during the sketch skewered the Sandlers as "people who should be shot."

Although the timing of the interview was coincidental, Sandler was seething after watching a replay of the skit on the Internet.

"I have been listening to this crap for two year," Sandler said.  "We are being unfairly tarred.  People have been telling us to speak out for some time, but we didn't think it was appropriate.  That was clearly a mistake."

The video was re- released by NBC with the statement above in red being removed from the newly posted NBC video.  Additionally during the skit,  the statement of "People who should be shot" that was shown below as a footer, was also removed.

On October 5th, a Los Angeles Times article addresses the issue of the removal of the video and a response from NBC.

The skit, a parody of a C-SPAN news conference, ridiculed subprime borrowers, housing speculator and Herb and Marion Sandler, the real-life couple who built Golden West Financial into a subprime lending powerhouse and sold it to Wachovia before the subprime collapse.  At one point in the skit, the Herb Sandler character says he made $24 billion off the subprime boom.  Graphics then appear labeling the Sandlers as "People who should be shot."

"Upon review, we caught certain elements in the sketch that didn't meet our standards," a spokesman for the program said in an e-mail message today.  "We took it down and made some minor changes, and it will be back online soon."

Ed Lasky recently reported on how the Sandlers - allies of left-wing billionaire George Soros - helped bring down Wachovia Bank:

Herbert and Marion Sandler, a New York lawyer and Wall Street analyst respectively, bought a small California thrift in 1963 and built it into GDW - one of the largest thrifts in the nation.  The company's business was built on adjustable rate mortgages (ARMs).  These were mortgages offered at low "teaser" rates that ratcheted upward as interest rates increased.  They were often sold aggressively to unsophisticated home buyers who did not comprehend the vast financial risks they were taking, or who assumed that housing prices would rise high enough to provide a profit to them when they sold their houses.  They were targets for lenders peddling mortgages that should have been stamped with a skull and crossbones, for these were among the most seductive and dangerous types of mortgage.

This book of business is the core reason for Wachovia's current difficulties.

The Sandlers knew their business far better than any other person could.  Not only were they the founders and major owners, they famously ran the company as a husband and wife team for all these years.

So why did they happen to cash out at precisely the right time?  Did they see the handwriting on the wall, realizing the massive risks inherent in the mortgages they originate throughout one of the most overheated real estate markets in the nation's history?  They are not talking, but when smart people cash in some of their chips, it's rarely a good time to bet against them.  Nevertheless, Wachovia bet 24 billion dollars and lost big time.

The collapse was primarily caused by the GDW purchase, which became an albatross around Wachovia's neck soon after the purchase.  "Wachovia found itself in ARM's Way" was the headline  of a recent Wall Street Journal article.  A huge percentage of these Wachovia ARMs were made to deep subprime borrowers with very poor credit scores.  Most of these were "inherited from its ill-timed acquisition of Golden West" at the end of the housing boom in 2006.

The Sandlers have started to invest their billions of dollars politically, in the manner of George Soros, sugar daddy of many far-left wing groups and an early and prominent supporter of Presidential candidate Barack Obama.  Soros has developed an empire of so-called 527 groups, putatively independent political activists groups that have influence within the Democratic Party.  These 527 groups include the Center for American Progress, MoveOn.org, Human Rights Watch, Media Matters and a slew of other like-minded groups...

Soros, Lewis and the Sandlers form a core group of billionaire activists and Democrat partisans who have formed a group called The Democracy Alliance.  They realize that they could magnify their power by working in unison and tapping other wealthy donors to further their agenda

(the superb Boston Globe article “Follow the money” is a good primer on how money and 527 groups have come together to have a huge impact on politics in America).

The Democracy Alliance is a major avenue to help them achieve their goals. The roster of its growing membership consists of a list of billionaires and mere multi-millionaires who collectively hope to give upwards of 500 million dollars each year to further promote a left-wing agenda. A partial roster of the Democracy Alliance membership can be found here.

Half a billion dollars a year can purchase a great deal of influence.

The Sandlers certainly know quite a bit about leverage from their savings and loan days.

Among the beneficiaries of their largesse: Air America, ACORN (a group that has very close and long lasting ties to Barack Obama and has a long history of engaging in voter fraud. Citizens for Responsibility and Ethics in Washington (basically a private detective group focused on the private faults and foibles of Republicans), Media Matters, a media watchdog group that engages in harsh partisan attacks against media figures and articles it considers supportive of Republicans). The list goes on and on.

They are not merely out to elect Democrats, but to also permanently realign U.S. politics and shift our society and culture in a far-left wing direction…

The website snlbailout.com, has followed the updates on this video, and hosts the original unedited video on their website and the edited version or just the portion of the video that was eventually edited, in unedited format.

Michelle Malkin has a transcript of the original skit on her website.

During the Committee's hearing on October 7, 2008, witnesses were asked about a week-long conference held at the St. Regis Monarch Beach Resort approximately one week after the Treasury Department agreed to spend $85 billion to save AIG from collapse.  Your predecessor, former CEO Robert Willumstand, told the Committee that the charges of $200,000 for rooms, $23,000 for spa services, and $7,000 on greens fees seemed "very inappropriate" and that he "absolutely" would not have approved them.  His predecessor, former CEO Martin Sullivan, testified that, "if I'd have seen bills like that, I can assure you as the CEO I would've been asking questions."  The next day, you sent a letter to Treasury Secretary Paulson explaining that although this retreat was "standard practice in our industry," you were "reevaluating the costs of all aspects of our operations in light of the new circumstances in which we are all operating."

Since then, there have been reports that AIG may have paid for other similar events held after receiving access to $85 billion in taxpayer funds, such as an event on September 20, 2008, at the Steven F. Udvar-Hazy Center in Washington, D.C., with over 800 people and a hunting trip in England for AIG executives that reportedly cost $85,000.  Yesterday, you and the New York Attorney General announced that AIG would be canceling over 160 conferences and events.

To assist the Committee in investigating this issue, I ask that AIG provide the Committee with a listing of all conferences, events, or retreats paid for by AIG, its subsidiaries, or affiliates from January 1, 2008, to the present, along with documents sufficient to show the charges paid for each conference, event, or retreat, including lodging, transportation, food, drink, and other charges.  I also ask that you provide a listing of any similar conferences, events, or retreats planned for the next six months.

In addition, I ask that you provide the Committee with additional information and documents relating to the actions taken by Joseph Cassano, the head of AIG's Financial Products Division; bonus payments made to AIG executives; and the use of funds provided by the federal government to date.  Specifically, I request that you provide to the Committee:

1.  All documents and communications, including e-mails, sent, received, or reviewed by Joseph Cassano, William Kolbert, Pierre Micottis, or Doug Poling during the two-year period ending on October 15, 2008;

2.  All documents relating to the weekly "Global Conference Calls" conducted by AIG's Financial Products Division, including presentations, transcripts, minutes, and audio recordings, for the two-year period ending on October 15, 2008;

3.  A listing of all compensation and perquisites provided to Mr. Cassano from 2000 to the present, other than salary and cash bonus information previously provided to the Committee;

4.  For each of the following groups, the number of employees in each group; the total amount of base salary paid to each group annually from January 1, 2006, to the present; and the total amount of non-base salary cash compensation (e.g., cash bonus or other incentive payments) paid to each group annually from January 1, 2006, to present:

  a.  All employees of AIG, its subsidiaries, and its affiliates;

  b.  Participants in AIG's Partners Plan;

  c.  Participants in AIG's Senior Partners Plan; and

  d.  Employees of the Financial Products Division;

5.  The total amount of funds received from the Federal Reserve through the $85 billion credit facility agreement announced on September 16, 2008, and the $37.2 billion securities lending agreement announced on October 8, 2008.

6.  A detailed description of the uses of the funds identified in response to question 5, including the identities of any counterparties to which funds were provided for collateral or other purposes, the date of funds were provided to the counterparties, and the amount of the funds involved.

Please provide these documents and information to the Committee by Friday, November 14, 2008.

SOURCES:

• Letter to Edward Liddy on the Oversight Website (PDF)

As I posted back on Oct. 8, Lehman was being investigated by at least three U.S. attorney offices to see whether Lehman Brothers Holdings, Inc. (LEHMQ), misled investors before its bankruptcy filing.  Those three were the U.S. Attorney's Office in New York's Southern District, New York's Eastern District and in New Jersey.

According to Bloomberg, Lehman bankruptcy lawyer Harvey Miller stated yesterday in a Manhattan federal court that "we are facing three grand jury investigations."    At the time Miller declined comment on whether Fuld was among those subpoenaed.

Today, Reuters and the New York Post is reporting that prosecutors have subpoenaed a dozen executives of Lehman Brothers Holdings Inc including CEO Dick Fuld, in connecting with three grand jury probes investigating the fall of Lehman Brothers.  Sources say the nature of the investigation is whether Lehman executives knowingly made false statements about the health of Lehman before its collapse.  More specifically, Lehman's role in the $330 billion auction rate securities market and possible crimes associated with the New York-based bank's $6 billion June stock issue, according to a person familiar with the case.

Additionally Bloomberg is reporting that investigators have subpoenaed Ernst& Young LLP, Lehman's auditor; U.K.-based Barclays Plc, which bought Lehman's North American brokerage; and the New Jersey Division of Investment, which runs a pension fund that lost $115.6 million on a $180 million investment in the June stock sale, according to people familiar with the case.  It's not clear whether these subpoenas are part of the 12 noted by Miller.

Yusill Scribner, a spokeswoman for U.S. Attorney Michael Garcia in Manhattan, declined comment on who the subpoenas are for.  Garcia, along with Brooklyn U.S. Attorney Benton Campbell, and Newark New Jersey U.S. Attorney Christopher Christie, have increased their resources for possible prosecutions associated with the credit crisis and subsequent bank failures.

Christie, the New Jersey attorney, has subpoenaed documents to determine whether Lehman failed to fully disclose its eroding financial condition at the time of the $6 billion stock offering, according to people familiar with the matter.

Campbell, the Brooklyn attorney, has opened inquiries into whether Lehman executives misled investors about the firm's financial health and whether Zurich-based UBS AG lied to investors about securities backed by subprime mortgages, according to a person familiar with the case.   UBS AG is the European bank with the biggest losses from the global credit crisis.  In a post I made on October 16, the Swiss Federal Banking Commission announced a rescue package for UBS agreeing to put $5.23 billion into UBS.  UBS had been forced to write down tens of billions on bad subprime contracts.

Also subpoenaed by federal prosecutors are Putnam Investments LLC, the Boston-based mutual fund firm that oversees about $163 billion and bought Lehman bonds and shares; New York-based fund manager BlackRock Inc., a Lehman creditor; and C.V. Starr & Co., which is run by ex-AIG CEO Maurice Greenberg, according to the same people familiar with the matter.

MISPLACED MONEY

While prosecutors were looking through Lehman's books, they found the U.S. unit of Lehman owes the European unit of Lehman $2 billion to $3 billion and the European unit owes the U.S. unit more than $8 billion, according to Reuters.  Oddly enough there is a disputed claim from the administrator of Lehman's European unit that $8 billion was transferred from Lehman Brothers European unit to the U.S. unit on the eve of Lehman's bankruptcy filing.

Many of the transactions were credit derivative transactions.  Alvarez & Marsal, a restructuring firm, is unwinding 1.5 million derivative transactions involving about 8,000 counterparties, according to Reuters.  The firm is still trying to locate data related to those trades.  The task is so complex that the restructuring firm is requesting the number of employees be increased from 100 to 400.

U.S. CLASS ACTION LAWSUIT

The Securities Law Firm of Klayman & Toskes has filed several class action lawsuits for customers who purchased Lehman Brothers Preferred Stock, Series J.  The firms included are Citigroup Global Markets, Inc; Banc of America Securities, LLC; Wachovia Capital Markets, LLC; Merrill Lynch, UBS Securities and Morgan Stanley.

According to the Complaint, the Prospectus for the Lehman Preferred Stock J contains material misstatements and omissions.  Specifically, it is alleged that the representations made in Lehman's Prospectus were materially false and misleading because at the time of the Offering, Lehman was already laboring under several negative factors that were not properly disclosed in the Prospectus, including the failure to set aside adequate allowances to cover Lehman's steadily increasing portfolio of underperforming subprime related product, and to adequately write-down residential and commercial mortgage and real estate assets.

The Complaint further alleges that the Defendants could have, and should have, discovered the misstatements and omissions in Lehman's Prospectus prior to filing with the SEC and distribution tot he investing public.  As a result of inadequate due diligence investigation on the part of Defendants, the underwrites failed to discover the misstatements and omission in Lehman's Prospectus on the Preferred Stock J.

For more information visit Klayman and Toskes Lehman page.

SINGAPORE

Singapore's central bank according to a Forbes article, said Friday its investigating allegations of misconduct by commercial bank officials in connection with the sale of about 640 million Singapore dollars ($432 million) of bonds linked to Lehman Bros.

"MAS [Monetary Authority of Singapore] confirms that we have been conducting formal inquiries into allegations of breaches of the law, inadequate or poor sales practices by their representatives," Managing Director Heng Swee Keat said during a news conference in Singapore.

The country's central bank will focus on cases of mis-selling products to "vulnerable" customers, meaning the elderly and those who are not well-educated, Keat additionally stated.  MAS has said that about 10,000 people in Singapore invested in products linked to Lehman Brothers and other institutions hit by a crisis in the US.  The Singapore investors, a large portion of them retirees who stand to lose their life savings, have said they were told they were buying into a product with low risk.  Investors interviewed by AFP said they felt "cheated" and "betrayed" because the banks did not fully inform them of the risks when they were offered the financial products.

According to an AFP article, the investments include "Lehman Minibonds" and "Merrill Lynch Jubilee Notes".  There were also those who invested in "high notes" with Singapore's DBS Bank and Morgan Stanley "pinnacle notes."

According to Reuters, these investors stand to lose over S$500 million ($339 million) in total, according to data provided by the MAS, which said it will make an announcement on action when its investigation is complete.

MAS has added that while it can impose fines and suspend the licenses of financial institutions found to be in breach of its rules, it does not have the power to order banks to compensate investors.

In a rare protest in Singapore, hundreds of investors gathered at a park on Saturday to express their anguish at potential losses from the structured notes that many say were sold to them by banks as safe investments.

Picture Source:  AFP, Irate investors in Singapore.

HONG KONG

In an AP article, two banks on Friday, who weren't identified, were referred for possible sanctions in Hong Kong as part of an investigation into misleading sales tactics in connection with Lehman Brothers investment whose values are in doubt, authorities said.  More than 40,000 Hong Kongers had bought Lehman-related investment products through banks, with the total outstanding value of the products estimated at HK$20.2 billion ($2.6 billion), according to the Hong Kong Monetary Authority.

The Hong Kong Monetary Authority sent securities regulators 24 cases involving allegations of misconduct and "mis-selling" against the lenders, the agency said in a statement.

Also in Hong Kong, thousands who bought Lehman-related products have staged street protests and pressured lawmakers in an effort to protect their investments.

"They were misleading investors on the risk.  They said the minibonds were highly stable," said W.H. Chiu, a 66-year-old retiree according to Reuters.  Chiu said he purchased about US$20,000 worth of minibonds from a branch of the Hong Kong subsidiary of Industrial and Commercial Bank of China (ICBC).  He said he was still fighting to get information on the fate of his investment and feared it would end up as "rubbish."

"The government should step in.  If the government don't pay, they should force the bank to pay," said Marty Chou, the managing director of an import firm in the same Reuters article.  He said he'd invested US$1 million in Lehman-linked products.

Also in the Reuters article, Yau stated that Lehman stated to her father, "They told him 'It's very safe.  It's just right for you.  I just found out that it's a credit-linked derivative," she said.  "He never thought he would suffer any loss."  "Right now, I don't know how long they will have to postpone their retirement.  It's very sad," she said.  "It's a very emotional event for them.  They just don't trust banks anymore."  She said her elderly father had lost US$250,000.

Regulators could impose fines and revoke the banks' license, among other penalties.

Bloomberg and the Washington Post has just published an article that states Hong Kong banks will buy back soured investment products guaranteed by Lehman Brothers Holdings Inc, after investors accused them of misrepresenting the risks involved in the securities.  The Hong Kong Association of Banks, which includes HSBC Holdings Inc. and BOC Hong Kong Ltd, agreed to a government plan to buy back at market prices so-called minibonds that were sold to the public and guaranteed by Lehman.  The banks are working on a formula for the buybacks.

Picture Source: 
  - Washington Post.  Lehman investors  protest in Hong Kong.
  - Reuters.  Investors bought financial products relating to Lehman Brothers march to the government headquarters in Hong Kong.

ADDITIONAL SOURCES:

• CNN Money
• Trading Markets
• Bloomberg
• Singapore News
• Trading Markets
• Reuters via The Boston Globe

"The taxpayers of this country don't need to fund luxury expenses for business executive," said Cuomo.  "After my meeting with Mr. Liddy, he understands the need for reform, and understands the new culture that must be brought to AIG."

Among the events that AIG has agreed to cancel are a $750K "best operator" event in Las Vegas and a $500K risk management conference scheduled for October at the Ritz Carlton in Half Moon Bay.  The company will also cancel a $350K sales conference in November at Sea Island, GA, and a $190K meeting scheduled for Scottsdale, AZ in January, 2008.

The company also will institute new expense management controls, Cuomo added, to prevent any other unwarranted expenditures, creating a governance committee to set new expense management control and will issue a new guidebook on its expense policy.  These controls are suppose to be designed at the Board level to prevent any future unwarranted expenditures, such as salaries, bonuses, stock options, severance payments, gratuities, benefits, junkets and perks.  The new controls include direct supervision by AIG Chief Administrative Officer Richard Booth.

"We're reviewing everything and making an effort to identify activities that aren't critical and reviewing executive compensation," said AIG spokesman Ashooh, declining any further comment.

NO PARACHUTE FOR YOU!

Additionally AIG has decided to not honor a $10 million severance agreement with outgoing Chief Financial Officer Steven Bensinger.

In the meeting today between Cuomo and AIG's new Chairman and Chief Executive Officer Edward Liddy today, Liddy agreed to provide an accounting of all compensation paid to AIG's senior executives and assist in recovering any illegal expenditures, Cuomo said.  The payments include those made to ex-CEO Martin Sullivan and Joseph Cassano, former head of the financial products unit for the New York-based insurer.  [Hmm.. I wonder which set of "books" they are going to show....]

"The contracts will be illegal if we find that it is unjust compensation paid to an employee, severance package, bonus, stock options of a undercapitalized company," Cuomo said.

"You had senior management who were rewarded with multimillion bonuses for good performances.  How can you pay someone for good performance when their performance was anything but?" Cuomo said in a conference call with reporters.  "If unjust compensation was paid and the company was undercapitalized, we believe we have reasonable grounds to capture funds."

Cuomo said he had not yet determined the employment contracts were illegal or, to the extent they were, how much he will seek in terms of recovery.  AIG agreed not to make payments pursuant to Bensinger's employment agreement in light of Cuomo's review. 

"These actions are not intended to jeopardize the hard-earned compensation of the vast majority of AIG's employees, including retention and severance arrangements, who are essential to rebuilding AIG and the economy of New York."

David Herzog, who was AIG's comptroller for three years, was promoted to replace Bensinger, AIG announced today.

WHO'S GOT THE KEY?

ABC News reported Thursday evening that AIG was still paying hundreds of thousands of dollars for a luxury suite at Madison Square Garden, the home of the New York Knicks and Rangers.  An AIG spokesman told ABC News that the contract for the suite was signed in February and that it had been used by its brokers and clients.

"We have a number of sponsorships and commitments that are all being reviewed right now," said AIG spokesperson Peter Tulupman.

While Tulupman would not confirm how much AIG is paying for the MSG suite, a year-long contract for a "Club Suite" ranges from $225,000 to $500,000.  Although AIG is stuck with paying for the suite, Tulupman said it will no longer be used by the company.

CURRENT GRAND TOTAL OF TAXPAYERS LOAN TO AIG

On Thursday, the Federal Reserve reported that its loans to AIG totaled $82.9 billion as of Wednesday of this week, up from $70.3 billion a week earlier.  In September, the Feds authorized a bridge loan of up to $85 billion.  This month, the central bank agreed to extend an additional $37.8 billion to the company.

"We're very grateful for the guidance of Attorney General Cuomo," said Edward Liddy.  "We know that the Attorney General shares our commitment to rebuilding AIG's business and paying back the U.S. taxpayer, and we will address the Attorney General's concerns expeditiously."

AND THE NEXT CONTESTANT IS...

Cuomo told reporters that he did not promise AIG his office would not go to court but no formal court action had been taken. 

When Cuomo was asked if his office was investigating other firms' executive compensation, Cuomo said "Yes" but added, "I can't say at this time" which companies.

"The signal to corporate America is, it's a different day," Cuomo said, adding that the changes put in place by AIG should serve as a model for other companies.  "When you're receiving taxpayer funds, the rules of the game change," he said.

"It sends a message to all of Wall Street," Cuomo said.  "The party is over."

BUT WHAT ABOUT THE REGULAR JOE?

The executives will go about their merrily way on "justified" million dollar(s) salaries, bonuses and expenses with their lives intact, maybe minus a new Jag every year.  But what about all the average American people, who now have basically no retirement accounts (401ks) thanks to people like these companies.  Their lives, their futures, their life savings put in investment, and their retirements are changed or gone forever.

Personally, I think half of AIG's loan should be called in, in one year or AIG taken over fully by the Feds.

PREVIOUS POSTS:

U.S. Representative Paul E. Kanjorski Wants AIG To Reimburse Money (10/16)

New York Attorney General Cuomo Warns AIG On Spending Taxpayers Dollars (10/16)

Wanna Know Why AIG Went Bankrupt?  (10/10)

AIG Cancels Corporate "Convention" in Half Moon Bay and Paulson fires AIG consultant and Other AIG News.  (10/10)

AIG's $440K "retreat" is "normal" and they are having another one.  (10/08)

AIG Execs use $440,000 of taxpayers money to take retreat after bailout.  (10/07)

SOURCES:

• Bloomberg
• Reuters
• New York Times
• Forbes
• AIG Press Release (10/15)
• AIG & NY AG Joint Press Release (10/16)
• CNN Money

CLASS ACTION LAWSUITS

Three class-action lawsuits -- each a consolidation of similar lawsuits filed against the company, directors, executives (and in some cases accountants and securities underwriters) -- now pending in federal court detail the sorts of conduct that a task force may be looking into as part of its investigations.

One of those suits in particular filed August 05, 2008 (PDF) -- a securities class-action suit 470 pages long representing investors who bought WaMu stock between Oct. 19, 2005 and July 23, 2008 -- uses interviews with former employees (many identified as "confidential witnesses" followed by a number) to describe what actually was going on inside the Seattle-based consumer bank and mortgage company.  The lawsuit alleges that "WaMu's concerted efforts to transform itself from a sleepy savings and loan into a high-margin bank began to include highly questionable and unlawful practices"  taking into consideration that for the years 2006 and 2007, just under 70% of WaMu's net interest income was generated by residential real estate loans and related products and over 60% of WaMu's overall average assets were generated by residential real estate loans and related products.

One of those questionable practices, the suit says, was the heavy use of option ARM's, a type of adjustable-rate mortgage on which the borrower sets the monthly payment, even if the result is that the balance owed actually increases.  WaMu's stock fell from $37.90 a share to $4.65 in that period.

"WaMu loan production personnel were compensated based on loan volume without any regard to loan quality, and were paid even more for originating riskier loans, including option ARM loans," the suit alleges.  "WaMu's employees, accordingly, targeted more and more borrowers who were less able to afford the loan payments they would have to make, and many of whom had no realistic ability to meet the obligations incident tot he loans they were sold."

Former employees, according to the suit, said that they emphasis was "always quantity rather than quality," and that borrowers weren't informed as to the structure of the loans, in which a low teaser rate would jump to a much higher rate in the loan, or that low payments would cause the balance to increase.

Some of the bank's lenders and underwriters, who sold mortgages directly to home owners, said they felt pressure to sell as many loans as possible and push risky, but lucrative, loans onto all borrowers, according to an ABC News article.

The suit adds that WaMu deliberately weakened underwriting standards on both subprime and prime mortgages to generate volume.  Loans were labeled fully documented even when they had little or no documentation of income of assets of the borrower.  Appraisers were pressured to deliver home values that would justify making loans, and warnings from risk-assessment executives, the "gatekeepers" who were suppose to protect the bank from taking undue risks, were ignored, marginalized and, in some cases, fired.

DALE GEORGE

Dale George, a former senior risk manager at WaMu, who spoke to ABC News, likened his job to the brakes on a car.  But George claims WaMu executives "took the brakes off and drove over a cliff."  As the housing bubble swelled and high-risk mortgage lending became more lucrative, the bank changed, according to George.  WaMu began approving as many loans as it could.  "Everything we refocused on loan volume, loan volume, loan volume," he told ABC News.  George said risk managers were told to "lay off" about warnings of the risks involved in mortgage loans.

And according to ABC News, they obtained an email where one WaMu executive told risk managers about a "cultural change" at the bank, and urged them to "lead the charge in modifying the perception of compliance and risk oversight from a regulatory burden to a competitive advantage."  George said this had a chilling effect:  It told risk managers that they "could not raise meaningful issues" and "really had to sweep negative findings under the carpet."  George continued with that he refused to sweep away his findings, claiming "there was a number of instances where I was pressured to fix a certain rating or upgrade the rating."

In one case, he said he refused to improve the risk rating on a $50 million commercial loan, an improvement that would have allowed the bank to significantly increase that loan.  For that, he said he was taken off the project, reprimanded by senior management, and eventually fired when he raised his concerns to top executives.  WaMu denied any wrongdoing and said the firing wasn't retaliatory.

DOROTHEA LARKIN

Another WaMu employee, former senior underwriter Dorothea Larkin, said she, too, was uncomfortable with the sift in lending standards. "It was all about making the numbers, closing all the loans that came through the door," loans like higher risk option ARMs and subprime loans, she said.

According to the ABC News report, WaMu's underwriters were told not to question whether or not a home loan should have been approved, but just to ensure certain lending procedures were followed, according to Larkin.  She called this hands-off underwriting approach "unusual."

Larkin described a bank eager to loan money at any long-term cost.  For example, she said WaMu lent millions to a borrower even after he defaulted on a multimillion dollar home construction project.  "We just kept giving him money," she said, "and I'm sure that's one of the foreclosures WaMu is still sitting on."

"The executives are the ones who made the decision to take WaMu in this direction," she said.  "Too many of the middle folks like myself said this is wrong, we're making loans we shouldn't be making, we're qualifying borrowers who we know are going to struggle to pay the loan back."

UNKNOWN WAMU EMPLOYEE

At a stockholders meeting in April, 2008, a man who identified himself as a WaMu employee and shareholder laid the blame for the company's troubles squarely on Stephen Rotella, president and chief operating officer since 2005.

The man, whose name could not be made out clearly, said that under Rotella's leadership, WaMu loan consultants were paid more for writing subprime mortgages and so-called "option ARMs" with ultra-low teaser rates than for writing safer, fixed-rate loans.

"This man [Rotella] has driven the company to the edge of bankruptcy and he should be fired, and his bonuses should be taken back from him," the man said.

LEE LANNOYE

Lannoye, 70, retired at the end of 1998 after a decade as chief credit officer and executive vice president at WaMu.    In April, 2008 he wanted WaMu's current execs to take responsibility for leading the bank down the path to losses.  "It obviously has not been very well managed the last four or five years," he said.  "They made some pretty stupid decisions." 

"...they are losing $8 billion, $12 billion [in total projected credit losses].  An not one person has been let go," he said.  "They closed down construction lending, the closed home-loan centers, but non of the people who made the strategic decisions to lower the credit standard ... they're all still there, including the board."

"None of this would have occurred if Wall Street hadn't found a way to take bad loans and make them look good, and sell them to people who didn't know any better,"  Lannoye stated.  "That doesn't excuse WaMu management for changing their risk profile and making loans to people who didn't qualify."

RIGGINING THE NUMBERS

According to the lawsuit:  "Defendants' efforts to rig the real property appraisal process relating to WaMu's loans were designed to artificially increase loan origination volume and therefore increase growth and revenue related to WaMu's core business -- residential lending -- and thereby make WaMu's financial condition appear healthier than it actually was," the suit says.

The net effect, it adds, was that "management at the highest levels (was able) to increase the level of risk assumed by the company without informing investors of this critical fact."  The amount of money that the company should have been setting aside in reserves to cover possible loan losses was inadequate, it adds, often by hundreds of millions of dollars, which further inflated earnings.   All the while, in press releases, presentations to investors and SEC filings, the company was assuring the public that it was in good shape and managing risk.

"WaMu was saying, consistently, up to the end, that they were conservative, prudent, rigorous," but in reality, "it was run in a way that was irresponsible, reckless, dangerous," contends Chad Johnson of Bernstein Litowitz Berger & Grossmann LLP, one of the attorneys representing the shareholders who filed the lawsuit.

KERRY KILLINGER

The suit also questions sale of stock by Chief Executive Kerry Killinger even as the bank's financial condition was deteriorating, especially pertaining to insider stock sales by Killinger during the time stating they were "highly unusual and suspicious."  That Killinger's stock sales increased during the time in question, and there was an increase in stock sales at the same time as WaMu initiated major stock buybacks.

APRIL, 2008 STOCKHOLDERS MEETING

In April, 2008 investors were angry with Killinger, and he pleaded with the shareholders at a meeting.  "I know it's tough," Killinger said at the meeting.  "Nobody likes a penny dividend.  Nobody likes the stock price where it is.  Nobody likes to raise capital now.  I'd never do any of that, except we have to."  Killinger continued with "[WaMu] has the capital, the passion, the commitment to ... get through this.  We're going to have terrific days ahead of us.  I just want people to calm down, have a little faith."

At that same meeting, shareholders demanded that he, other executives and directors quit to take responsibility for WaMu's troubles. 

Additionally, WaMu's 2008 executive bonus plan was roundly denounced for minimizing the impact of sound real-estate loans and foreclosure expenses.  Many observers saw that as an attempt to shield executive bonuses from the impact of the mortgage meltdown.

Alan Henry, a stockholder, accused Killinger of opting for the investment led by TPG, rather than a reported buyout offer from J.P. Morgan Chase, simply to preserve his job.  "What you've got to do is what some real men do - real men.  When you face a situation like this, you stand down.  I ask you, out of good judgement, to stand down" Henry said to Killinger.

DEFENDANTS

The following defendants in the lawsuit;  Kerry K Killinger, Thomas W. Casey, Stephen J. Rotella, Ronald J. Catheart, David C Schneider,  John F. Woods, Melissa J. Ballenger, Anne V. Farrell, Stephen E. Frank, Thomas C. Leppert, Charles M. Lillis, Phillip D. Matthews, Regina Montoya, Michael K. Murphy, Margaret Osmer-McQuade, Mary E. Pugh, William G. Reed Jr., and Orin C. Smith.  The defendants in the case haven't filed responses to the suits, other than motions to dismiss a derivative lawsuit (in which an investor sues defendants on behalf of the company) and a second class-action lawsuit representing employees who had participated in a company saving plan that bought WaMu stock.

A motion to dismiss the securities lawsuit was due earlier this month.  But the proceedings in all three suits have been complicated and delayed by the Sept. 25 action of federal regulators to seize Washington Mutual Inc.'s banking operations, subsequently sold to J. P. Morgan Chase.

Directors and former executives haven't commented publicly about what happened at WaMu.

FEDS INVESTIGATION

US authorities have opened a wide-ranging probe into the collapse of WaMu.  A statement issued Wednesday by US Attorney Jeffrey Sullivan in Seattle, Washington said investigators were looking for information on potentially illegal activity related to the thrift's failure. 

Due to the intense public interest in the failure of Washington Mutual, I want to assure our community that federal law enforcement is examining activities at the bank to determine if any federal laws were violated.  The FBI, Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG), Securities and Exchange Commission (SEC) and the Internal Revenue Service Criminal Investigations (IRS-CI) have all provided investigators to our task force.  We are asking that anyone with information for the task force contact this number:  1-866-915-8299; or this email address:  fbise@leo.gov.

For more than 100 years Washington Mutual was a highly regarded financial institution headquartered in Seattle.  Given the significant losses to investors, employees, and our community, it is fully appropriate that we scrutinize the activities of the bank, it's leaders, and others to determine if any federal laws were violated.

Press contact:  Emily Langlie, Public Affairs Officer, U.S. Attorney's Office, at (205) 553-4110.

U.S. Attorney's Office, Press Release

Neither the statement nor a spokeswoman for the U.S. Attorney's Office elaborated on what areas the task force might be looking at. 

J.P. MORGAN CHASE & WASHINGTON MUTUAL

In a bankruptcy court filing Tuesday, Washington Mutual said it had reached agreement with J. P. Morgan Chase granting it access to $4.4 billion it had on deposit at its subsidiary bank before the seizure and sale.  Washington Mutual said the settlement will help "maximize recovery for the debtor's creditors," calling the deposits "the largest asset of the estate available for distribution" to those creditors.

On Wednesday of this week, J.P. Morgan Chase reported it took a $640 million after-tax loss in the third quarter as a result of its purchase of WaMu, which it owned for only three business day before the end of the reporting period on Sept. 30.  Because J.P. Morgan only purchased WaMu's banking assets, it is not required to report the bank's third-quarter earnings.

J.P. Morgan Chase stock dropped $2.22 a share in trading on Wednesday to $38.49; a year ago it closed at $46.27.

WaMu stock has been delisted and now trades in the pink sheets, at about 10 cents a share.  A year ago it closed at $34.27.

A spokesman for J.P. Morgan Chase, Tom Kelly, declined to comment on the Feds investigation.

SOURCES:

• Seattle PI
• AP
• Atlanta Business Chronicle
• Class-action lawsuit against Washington Mutual (PDF), Filed August 05, 2008
• Seattle PI
• U.S. Attorney's Office, Press Release
• ABC News
• ABC News
• ABC News
• Seattle Times
• Seattle Times