Cassano, Goldman's Cohn to Testify at Crisis Panel's Derivatives Hearing

Joseph Cassano, whose bad bets on subprime mortgages pushed American International Group Inc. to the brink of collapse in 2008, will appear before the Financial Crisis Inquiry Commission next week to give his first testimony since leaving the insurer more than two years ago.

Cassano, 55, had shied away from public statements as U.S. and U.K. regulators investigated his role in the money-losing trades, which he said in December 2007 would be profitable. Probes by the Justice Department and U.K. regulators were dropped last month.

“Perhaps he thinks now is the time that he would be able to speak more freely,” Ernest Patrikis, a former AIG general counsel, said in an interview. “It’s not going to be a pleasant thing. It takes a lot of fortitude for him to do it. He owes an awful lot to the people of AIG who were harmed financially,” said Patrikis, now a partner at White & Case LLC.

Cassano oversaw an AIG unit managing $2 trillion in derivative trades tied to bonds, currencies, commodities and stocks. As markets turned in 2008, New York-based AIG was unable to meet collateral calls from Wall Street firms including Goldman Sachs Group Inc. on credit-default swaps. AIG was saved by a U.S. bailout that swelled to $182.3 billion and ensured payment of $12.9 billion to Goldman Sachs on contracts including the swaps.

Goldman Sachs President Gary Cohn and Chief Financial Officer David Viniar will also testify, as will ex-AIG Chief Executive Officer Martin Sullivan, according to a statement yesterday on the FCIC’s website. The hearing will be held June 30 and July 1 in Washington.

Reviewing Crisis

The panel, led by former California Treasurer Phil Angelides, is reviewing the role of derivatives in the credit crunch. Angelides announced on June 7 that the FCIC had subpoenaed New York-based Goldman Sachs, claiming the company tried to hinder a probe by overwhelming the panel with documents and resisting attempts to interview managers including CEO Lloyd Blankfein.

The commission is “examining causes of the collapse of major financial institutions that failed or would likely have failed had they not received exceptional government assistance,” according to the statement.

Lawmakers appointed the 10-member FCIC last July to investigate the causes of the worst financial crisis since the Great Depression. The panel, which has the power to issue subpoenas, has until December to report its findings to Congress.

‘Now Is the Time’

Cassano was under investigation as regulators sought to determine whether executives misrepresented the value of AIG’s swaps portfolio, which insured bonds tied to the U.S. housing market. The U.K. Serious Fraud Office said on May 26 that a review of the business Cassano oversaw didn’t turn up any criminal violations. U.S. prosecutors also won’t bring charges, a person familiar with the investigation said last month.

The resolution of the investigations may prevent Cassano from sidestepping FCIC questions by invoking the Fifth Amendment right against self-incrimination, Patrikis said.

Michael DuVally, a spokesman for Goldman Sachs, and Mark Herr of AIG declined to comment on the FCIC hearing. Joseph Warin and Jim Walden, Cassano’s lawyers at Gibson, Dunn & Crutcher LLP, didn’t immediately return calls for comment. Tucker Warren, a spokesman for the FCIC, said next week will be Cassano’s first testimony since his departure from AIG.

Cassano told investors in December 2007 that “it is very difficult to see how there can be any losses” in the swaps portfolios of AIG Financial Products.

AIG is yet to repay about $49 billion in Treasury assistance and owes about $25 billion on a Federal Reserve credit line. Goldman Sachs, the most profitable firm in Wall Street history, has paid back bailout funds with interest.

The Securities and Exchange Commission sued Goldman Sachs in April for misleading clients in trades involving collateralized debt obligations. Goldman Sachs has said the suit is unfounded.

Robert Lewis, AIG’s chief risk officer, will testify at a panel on June 30 with Sullivan and Cassano. Cohn will testify later that day.

Viniar, former New York Insurance Superintendent Eric Dinallo, and Gary Gensler, chairman of the Commodity Futures Trading Commission, are among those scheduled to appear July 1.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Sarah Frier in New York at sfrier@bloomberg.net.

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