Posted Jan 26, 2010 04:16 pm CST
When American International Group used bailout money to pay $62 billion to its bank trading partners to retire bad bets on credit default swaps, lawyers scrambled to keep the arrangement under wraps.
Their solution: Send all securities filings, press releases and significant communications to the Fed’s outside counsel, Davis Polk & Wardwell, Forbes reports. The magazine says the “damage control effort” was revealed in e-mails between in-house lawyers for the New York Fed and Davis Polk, its outside firm.
Some of the e-mails from in-house lawyers for the New York Fed discussed a Securities and Exchange Commission request for the full payment schedule, Corporate Counsel reports. In-house lawyer James Bergin expressed concerns, but one of his later e-mails showed the resolution, the story says. The documents would be reviewed by only two people at the SEC, and if the confidentiality request was approved, the papers would be stored in a special SEC area for national-security related files.
The payments have been labeled a “back door” bailout for banks such as Goldman Sachs and Deutsche Bank, Reuters reports.
Neal Barofsky, the inspector general for the bailout program, will investigate any misconduct surrounding the payments, according Reuters and the Wall Street Journal (sub. req.). Barofsky will testify Wednesday, along with New York Fed general counsel Thomas Baxter, Reuters says.
The e-mails were among 250,000 New York Fed documents produced for the House Committee on Oversight and Government Reform in response to a subpoena.