1 Boring Old Man

Liddy’s Lies to Congress: Meet AIG’s $6.4 Million Man
By: emptywheel
March 20, 2009

As I noted this morning, Doug Poling was the guy whom AIG decided last year should get a $6.4 million "retention" bonus for sticking around a year. [He has since turned down the bonus.]

The WSJ has some details on what Poling has done to be worth so much money.

In August 2007, Douglas Poling sat in on a meeting at which Joseph Cassano, then-head of American International Group Inc.’s financial-products unit, berated an in-house auditor for raising questions about the accounting for a joint venture Mr. Poling led.

The auditor, Joseph St. Denis, resigned the next month after his reporting lines were changed to limit his communications with auditors at the parent company, according to an account of AIG’s dealings he detailed in a letter he wrote to Congress last October…

A former Wall Street lawyer who joined the AIG unit in the early 1990s, Mr. Poling oversaw legal work on the contracts that sat at the core of the unit’s business – such as customized insurance – like swaps and other derivative contracts that generated a steady stream of fees, according to former colleagues…

In May 2007, as AIG’s swaps problems began developing, Mr. Poling expressed confidence about the business approach of AIG’s financial unit toward one of its products, in an investor presentation with Mr. Cassano.

"We are very careful and disciplined and rigorous in the way in which we structure and document these transactions, and are very sensitive to ensuring that we have early termination rights so that if the rules change, we’re able to unwind those transactions and move on to other segments of the business that are more attractive," Mr. Poling said, according to a transcript of the investor presentation…

The Poling-led joint venture discussed at the meeting preceding Mr. St. Denis’ resignation was a partnership announced in March 2007 between AIG’s financial-products unit and closely held Tenaska Energy in Omaha, Neb. AIG began unwinding the partnership in January.

So, our $6.4 million man was one of the people cheering the safety of AIG’s CDS business, and one of the guys in charge of an energy deal that seemed to be based on dicey accounting. [For more on Tenaska, see page 6-7 of this]. Now, when he testified before Congress the other day, Edward Liddy repeatedly assured the Committee that the people who had put together the CDS business were gone. He stated clearly that the people left over were the good guys, people tied to "traditional" derivatives business. For example, here’s Liddy telling Bill Posey that the guys managing the derivatives–who are distinct from the guys who brought the company to its knees–are getting the bonuses.

Liddy: Nothing has come to light that I am aware of. It really is easy to paint with one brush. There are people who worked on one piece called CDS. Another regulatory capital. Derivitives book. For the most part those are separate people. Those are the ones that brought our company to our knees. In the derivatives book those are the ones we’re asking to please wind this down. Those are the ones that got the bonuses.

Question 9: What precipitated your resignation?

I resigned because on multiple instances beginning in the late summer of 2007, Mr. Cassano took actions that I believed were intended to prevent me from performing the job duties for which I was hired. One such instance involved AIGFP’s investment in Tenaska, a natural gas storage and distribution operation in Omaha, NE. In December 2006, I traveled to Omaha to perform pre-transaction accounting due diligence and immediately identified errors in Tenaska’s hedge accounting. I communicated these findings to AIGFP’s senior management, specifically Doug Poling and Mark Balfan, and to Tenaska. Tenaska told me that it would fix these problems prior to the effective date of the merger. In June of 2007, I went back to Tenaska and found that it had not corrected the problems. Again I reported these findings to Poling and Balfan. At the time I left AIGFP, it was my understanding that Tenaska had indeed corrected the issues, but I left before I was able to verify this…
During August of 2007, Mark Balfan pulled me out of a meeting with Doug Poling and brought into AIGFP’s HALO room where Mr. Cassano was on from London. Mr. Cassano berated me for several minutes for going to Tenaska and finding the problems. He shouted obscenities at me, and seemed especially angry with Elias Habayeb, the CFO of FSD, whom he repeatedly referred to in disparaging language. The source of Cassano’s anger was, in my understanding, a list of "closing issues" that Mr. Habayeb had prepared relating to third quarter issues. At one point Mr. Cassano held up the list and shrieked, "I’ve bent over backwards for this [expletive deleted] and still I get these [expletive deleted] lists!!" Mr. Habayeb had expressed interest in my findings at Tenaska, which was not surprising to me given that it was his job to make sure that AIGFP’s accounting followed GAAP, and an error in Tenaska’s financial results would be carried through to AIGFP’s financial statements through the equity pickup. Mr. Habayeb had included the item "Tenaska hedge accounting" on the list, apparently to prompt him to follow up. Mr. Cassano told me in no uncertain terms during this session that I worked for him, not FSD or OAP. Doug Poling, Mark Balfan, and William Kolbert also attended this meeting…