Monitoring the Monitors

Sue Reisinger

Corporate Counsel

06-01-2012

A federal judge in April ordered American International Group Inc. and the Securities and Exchange Commission to make public the corporate monitor reports on AIG leading up to the economic collapse of 2008. But AIG is appealing the order, which was based on a motion seeking access filed by Corporate Counsel senior reporter Sue Reisinger. The ruling is believed to be the first time that a court has ordered the release of a monitor's reports.

In granting the motion, U.S. District Judge Gladys Kessler of the District of Columbia gave the parties until May 1 to make the reports available, and said that the documents could be redacted to delete AIG's proprietary information. But when AIG appealed, the judge extended the release date to May 16. Neither AIG nor the SEC responded to messages seeking comment.

In her April 16 opinion, Kessler found that the reports were judicial records, and that the public interest in disclosure was "overwhelming." Kessler wrote: "Given the financial meltdown of 2008, the recession it spawned, and the suffering the country has endured because of it, and given the role that AIG played in that financial meltdown, the public needs to know whether the obligations AIG undertook in [a 2004] consent order were complied with, whether the SEC was carrying out its enforcement and monitoring responsibilities . . . and what, if any, role the compliance—or noncompliance—with the consent order may have played in the devastating events of 2008."

The motion was prepared by attorney Joshua Wheeler of the Thomas Jefferson Center for the Protection of Free Expression, based in Charlottesville, Virginia. He was assisted by students in the University of Virginia's law school clinic. Wheeler said he was aware of no other case in which a court ordered a monitor's reports to be opened.

Kessler thwarted one of the motion's arguments, saying that the First Amendment does not apply in this civil case. But she ruled that there is a common law right of access to judicial records. The reports of the monitor "are relevant to the judicial function and therefore are properly considered judicial records," she wrote. "The reports themselves may give rise to a substantive judicial decision in this case."

Reacting to the ruling, Wheeler says: "Judge Kessler's decision properly recognizes the critical need for the public and press to have access to judicial records such as these in order to effectively monitor the actions of our government. As Thomas Jefferson wrote, 'An informed citizenry is the only true repository of the public will.' "

In their joint motion opposing the unsealing, AIG and the SEC had argued that the reports are not "judicial records" subject to public access, and that the release would be "inconsistent with the need for confidentiality" to protect AIG's business interests. David Korn­blau, a partner in Covington & Burling's New York office and cochair of its securities enforcement practice group, says the ruling is a bad precedent for the SEC because companies might be less willing to accept settlements with monitors.

The case began in 2004, when the SEC filed a complaint against AIG for securities violations. Filed with it was a settlement that included a consent order in which AIG agreed to retain a monitor selected by the U.S. Department of Justice. The department selected James Cole, then a partner at Bryan Cave in D.C. and now Justice's deputy attorney general. Cole declined to comment for this story.