Cummings Requests Investigation, Hearing Regarding New AIG Counterparty Allegations

Press Release

Congressman Elijah E. Cummings (MD-7) Thursday sent two letters of request, both regarding revelations contained in media reports Thursday morning of potential pressure applied by the Federal Reserve Bank of New York (FRBNY) on AIG. Reports indicate that the massive insurance company was pressured to avoid or delay disclosing, to the Securities and Exchange Commission, credit default swap contract settlement payments.

In 2008, payments were made, using government funds made available to AIG by the FRBNY, to holders ("counterparties") of these contracts. Payments were made at 100 percent of their assigned value, despite negotiations undertaken by both AIG and the FRBNY, to lower the amount owed.

Criticism has been leveled at the FRBNY by TARP Special Inspector General (SIGTARP) Neil Barofsky, indicating that more could have been done to lower the amount paid, and better transparency could have been observed in reporting the negotiation process.

The recent media reports highlighted E-mail messages indicating that the FRBNY may have pushed AIG to avoid fully disclosing the counterparty payments when making required SEC filings.

The first letter sent Thursday by Congressman Cummings requests that House Oversight and Government Reform Committee Chairman Edolphus Towns open a full investigation, including committee hearings, into this issue and the revelations.

"It is critical that we understand if the FRBNY did request the withholding of information and what the extent and nature of the pressure exerted by the FRBNY on AIG may have been," Cummings wrote. "If evidence indicates that the FRBNY did indeed ask that AIG withhold information from its SEC filings, I believe the Committee should examine the specific nature of the information that the FRBNY allegedly asked AIG to withhold as well as the relevant statutory and regulatory disclosure requirements that applied to AIG at that time."

The letter to Chairman Towns also requests that Treasury Secretary Tim Geithner and Barofsky be called to testify at any potential hearing.

Last year, Barofsky delivered a report, requested by Cummings and 26 other Members of Congress, regarding the counterparty payments.

Barofsky is also the recipient of the second letter, containing several questions:

1. In conducting his audit, was Mr. Barofsky aware of, and did he have access to, the email exchange between AIG officials and attorneys representing the FRBNY?;

2. If he had access to the exchanges, why were they not mentioned in the report auditing AIG counterparty payments; or if he did not have access to the email exchange, how would this information have affected the conclusions reached and lessons learned in the audit?;

3. Finally, in light of this information, does Mr. Barofsky believe it necessary or appropriate to re-open his audit?

In closing the letter to Chairman Towns, Congressman Cummings detailed the key reason for both letters:

"In all cases, the money provided by the FRBNY to AIG came from U.S. taxpayers and taxpayers had the right to know at the time the money was being provided how it was to be used -- particularly if such information was required to be disclosed by AIG under SEC authority.

"While full disclosure may not have occurred at the time the FRBNY provided federal aid to AIG, we can continue to work to ensure that the circumstances under which that aid was provided and the uses to which it was applied are now fully transparent."

Text of both letters can be obtained from Congressman Cummings' office.

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