United States prosecutors poring over the collapse of AIG are examining whether Joseph Cassano, the former head of its London-based financial products division, misled investors over the health of the derivatives investments that ultimately brought down the insurance giant.
Mr Cassano was engaged in a fierce internal battle with auditors and trading partners about the value of its credit default swaps, the derivatives which the investment guru Warren Buffett once derided as "financial weapons of mass destruction". Yet, at the same time last December, he told an investor conference he did not expect the CDS positions to generate losses, and that even the writedowns so far would be made back.
This September, AIG was brought to the brink of bankruptcy by losses in the CDS market, and is being kept alive only by an infusion of cash and loans from the US government. Its effective nationalisation came at the height of the autumn financial panic, and has turned the once-respected insurance firm into a symbol of the excesses that enveloped Wall Street.
A lawyer for Mr Cassano said the executive did not act unlawfully and was co-operating with investigators. He has become one of the faces of the credit crunch, damned in congressional hearings for earning $280m (£183m) during his eight years at the helm of AIG Financial Products and named one of CNN's "10 Most Wanted" culprits of the crisis.
Internal documents from November 2007 reveal PricewaterhouseCoopers, the auditors, wrote memos to AIG's chief executive, Martin Sullivan, challenging the London unit's financial controls and questioning how they valued CDS contracts protecting $62bn in mortgage-backed securities.
At the same time, Goldman Sachs, one of AIG's trading counter-parties, was questioning the value of collateral posted by the insurance company. On 5 December, Mr Sullivan and Mr Cassano told an investor meeting in Manhattan not to fear losses on the CDS portfolio. "It is very difficult to see how there can be any losses in these portfolios," Mr Cassano said, according to a transcript of the meeting shown to Bloomberg News. Though he said the contracts had dropped in value by $1.1bn in October and November 2007, Mr Cassano told investors the "losses will come back".