So what can be done? On the securities side, President Barack Obama has called on Congress to impose regulations on derivatives like credit default swaps. On the monitor side, the House Judiciary subcommittee on commercial and administrative law is holding hearings on Pascrell's bill, dubbed the Accountability in Deferred Prosecution Act of 2009.
The bill would take the selection of federal monitors out of the hands of U.S. Attorneys and place it with federal judges, who would maintain oversight of the company. It also would require full disclosure of agreements by placing the text of the prosecution deals on a public Web site, including the terms, compensation, and conditions of any monitor contract.
Using the already overworked federal courts is not such a good idea, says Hochberg, the former prosecutor. He argues that Justice may be better equipped than any judge to supervise a company because "it already knows all the relevant facts and the parties." He also says that there's an ongoing debate over whether corporations should be prosecuted at all, and whether holding individuals responsible for bad acts might be more effective.
Other U.S. Attorneys are avoiding pretrial prosecution agreements and corporate monitors altogether, and have taken companies to court. For example, the U.S. Attorney in Houston reached a plea deal with BP Products North America Inc., a unit of British oil giant BP Plc, on charges stemming from a 2005 explosion that killed 15 workers at a Texas refinery. BP pled guilty in court on March 11 and agreed to pay a $50 million fine -- the largest criminal environmental fine ever. The company also accepted three years on probation, to be overseen by the court and not a corporate monitor.
Hochberg, though, doesn't think charging companies is the right answer. "Am I trying to cause a company to change policies and become a good corporate citizen? Then the use of nonprosecution agreements by government is a more efficient way to do that," he argues. "If prosecutors had to indict and try every corporate case, it would be logistically impossible."
Comey would probably agree. But he also encourages the debate. Recalling the intense public pressure on government to reform renegade corporations in the Enron era, Comey said, "It's still present today, in spades. And I can't imagine a topic any more important right now."
ROAD TO RUIN
Since early 2000, American International Group Inc., took part in what the Securities and Exchange Commission called "reckless" financial behavior. Much of it centered on hiding financial risk from investors and regulators. Then came its very public downfall. Some landmark dates:
Nov. 30, 2004: U.S. deputy attorney general James Comey announces that AIG and its subsidiary, AIG Financial Products Corp., entered a deferred prosecution agreement for securities fraud. The company accepts responsibility for setting up so-called special-purpose entities from 2000 to 2002 in which other public companies could, in effect, hide troubled assets off their balance sheets. Under the terms of the 13-month deal, the U.S. Department of Justice would not criminally prosecute AIG if the company implemented a series of reforms, established a transaction review committee, paid $126 million, and hired an independent monitor.
January 2005: AIG, after consulting with Justice and the SEC, hires James Cole, a former federal prosecutor and now a partner at Bryan Cave in Washington, D.C., as monitor. A government press release says his duties include conducting "a retrospective review of certain transactions effected by a third party with AIG" and reviewing "the policies and procedures of the transaction review committee." Cole reports jointly to Justice, the SEC, and AIG. As of press time, his reports have not been made public.
Oct. 6, 2005: A managing director at AIG is one of three men indicted by the U.S. attorney in Manhattan on charges related to a scheme to bribe senior Azerbaijan government officials. The three sought an advantage for their investment consortium in the anticipated privatization of that country's national oil company. AIG, part of the consortium, is not charged.
Feb. 7, 2006: AIG, Justice, and the SEC reach a $1.6 billion settlement involving securities fraud committed by AIG between 2000 and 2004. This time Justice, which again agreed not to prosecute the company, says AIG booked fake reinsurance deals to bolster its bottom line and to hide losses. In the scandal's fallout, AIG ousts chief executive Maurice "Hank" Greenberg, fires a vice president who was later convicted and sentenced to four years in prison, and sends general counsel Ernest Patrikis into retirement. The company agrees to expand the role of its corporate monitor to include accurate financial reporting and corporate governance.
September 2006: The company hires Anastasia Kelly, formerly of MCI WorldCom, to replace Patrikis as general counsel.
December 2007: Although AIG finishes the year with a net income of $6.2 billion, it is already feeling the impact of its risky credit default swap business. The last quarter of 2007 sees a $5.3 billion fourth-quarter loss, largely because of the $11.2 billion in write-downs of credit default swaps. It would get worse.
Sept. 12-14, 2008: Drowning in red ink, AIG meets with federal banking officials and regulators. Their talks eventually lead to U.S. bailouts of nearly $180 billion, and to the government installing its own chief executive and taking over 80 percent ownership.
October-December 2008: Congress approves the bailout plan, and federal officials move in to supervise AIG's restructuring. For the fourth quarter of 2008, AIG reported a net loss of $61.7 billion-the worst fourth- quarter loss in U.S. corporate history. It finishes 2008 some $99 billion in the red.