Gunning for AIG's Joe Cassano? Good Luck!

Better late than never. Today’s Wall Street Journal reports that the Securities and Exchange Commission and the Department of Justice will take aim at former American International Group Financial Products boss Joseph Cassano.

“Federal prosecutors, capping an 18-month investigation, are preparing to impanel a grand jury in Brooklyn, N.Y., to consider an indictment of a former senior American International Group Inc. executive, according to people familiar with the matter,” says the paper. The charge is likely to be securities fraud.

The story would probably have Cassano, a balding recluse, quaking in his boots. Except those boots are in London.

Thus far, all the transatlantic outrage coming from this country has had little effect on Cassano and the other AIG London executives who happily cashed their bonus checks earlier this year - in spite of threats by Congress and New York Attorney General Andrew Cuomo to nail their hides to the wall. But that would be hard to do unless they willingly return to the U.S.

Not bloody likely, since the SEC has been and remains a toothless tiger. It already went after former AIG CEO Hank Greenberg, to whom Cassano originally reported. But after three years the SEC succeeded in squeezing only $15 million out of the billionaire, who still controls 12 percent of AIG. Greenberg laughed all the way to the bank, still saying he had done nothing wrong.

So will federal prosecutors fare any better? The standard of proof for fraud is very high. Author Michael Lewis, who investigated Cassano for months before writing an article for Vanity Fair, discovered that Cassano was a bully, but found no evidence he was a crook. “Much as they despise him personally, (AIG traders) refuse to believe Cassano was engaged in any kind of fraud,” says Lewis.

Those who follow AIG know the story is much more complicated, and Cassano will likely tell this version if the case ever gets to court:

“In 2005 we recognized that many of the mortgage instruments we were investing in were flawed and we stopped buying them. Subsequently we saw that while subprime mortgages in 2006 and 2007 were failing, the earlier ones were holding up. So we felt safe.

“What did us in was the fall of Lehman Brothers in 2008. The whole financial system started to collapse and people demanded huge amounts of collateral. We simply couldn’t pay. You can accuse me of bad judgment, but not fraud.”

It’s hard to sympathize with Cassano who, even after he left AIG, was making a million dollars a month as a consultant while he raced around London on his bike. But, given the mistakes that everyone else made during this mortgage crisis, it will be even harder to convict him.