Hhhm, are investigations disappearing into the night just like FDIC resolutions, Friday night massacres so as not to upset the great unwashed public?

Joe Cassano, head of AIG’s Financial Products Group and individual most responsible for the insurer’s collapse, will not be prosecuted. Per the Wall Street Journal:

Federal prosecutors will not bring criminal charges against current and former American International Group Inc. executives for their role surrounding financial contracts that nearly brought down the insurer about two years ago

Yves here. Now how could this possibly have come to pass? Wellie, if you rope your advisors like your accounting firm into signing off on your stupid or possibly even criminal behavior, then you get off scot free:

But after a series of meetings with the targets of their probe, prosecutors obtained information about Mr. Cassano’s disclosures to AIG senior executives and AIG’s outside auditor, PricewaterhouseCoopers LLP. That changed the course of the investigation, these people said.

Yves here. Now why hasn’t the bright spotlight been turned on PwC? They are too big too fail. Now that there are only four accounting firms deemed capable of auditing Fortune 500 companies, no one in the officialdom is about to launch an action against them that might lead to their demise, no matter how well deserved it might be. Francine McKenna has written at considerable length about the fact that PwC was auditor to both Goldman and AIG, and was clearly signing off on valuations of the SAME instruments at DIFFERENT prices at each firm:

Why didn’t PwC speak up, act more strongly to match mismatched valuations between entities like AIG and Goldman Sachs, raise their hand and shout fire, or at least warn of suffocating black smoke obscuring woefully inadequate risk management and of pricing “models” strung together like so many holiday lights electrical cords, faulty wiring and all, ready to blow the circuits? Was it the fees? Well, there’s certainly $230 million plus reasons in 2008 to play nicey-nice between the two clients. But that explanation would be too simple.

Another little problem which has been completely missed in our rush to get Potemkin financial reforms in place is that prosecutors often cannot pursue lawyers and accountants even when they play a key role in perpetrating dubious or even criminal conduct. As we wrote in ECONNED:

Legislators also need to restore secondary liability. Attentive readers may recall that a Supreme Court decision in 1994 disallowed suits against advisors like accountants and lawyers for aiding and abetting frauds. In other words, a plaintiff could only file a claim against the party that had fleeced him; he could not seek recourse against those who had made the fraud possible, say, accounting firms that prepared misleading financial statements. That 1994 decision flew in the face of sixty years of court decisions, practices in criminal law (the guy who drives the car for a bank robber is an accessory), and common sense. Reinstituting secondary liability would make it more difficult to engage in shoddy practices.

Another perverse aspect is that the fact that AIG as a company, as opposed to individuals, may have engaged in criminal conduct is deemed to be moot. The attitude seems to be, “AIG is a ward of the state, why bother?” But that misses the point. UBS, which was rescued by the Swiss government, had to have outside investigators prepare a report of what went wrong. Why hasn’t every other bailed-out entity been required to make similar reports? The public, and more important, regulators and legislators would have a much better understanding of why the financial system went off the rails. And in the case of AIG in particular, there is ample evidence the company at a minimum had poor accounting and controls (recall the scenes in Andrew Ross Sorkin’s Too Big to Fail, where the AIG top brass has only a dim idea of how bad its cash shortfall is, and at a very advanced stage, discovers a $20 billion leak in its securities lending operation).

Given that AIG had a dubious and contested relationship with a sister firm, C.V. Starr (controlled by Hank Greenberg), which appears to have served as an executive enrichment vehicle, the sloppy accounting may have served as a cover for other types of executive-wallet-flattering activities. But the decision has clearly been made to pull a veil over AIG, to the detriment of the interest of taxpayers who are paying for its lapses.