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We’re still trying to sort out what happened at AIG in the prelude to, and the aftermath of the federal bailout in 2008. Sources report to us that in the run up to the meltdown, Kathleen Chagnon, then-AIG Deputy General Counsel and Chief Compliance Officer, was in charge. Chagnon was reportedly a close friend of General Counsel Anastasia Kelly before arriving, and she was on good terms with the Independent Monitor, James Cole, after she settled in. Cole, of course, was in place at AIG to report to the SEC as part of a settlement of a lawsuit against the former AIG CEO for fraud. A major part of his job was to keep Kelly, Chagnon and later Folsom, honest.

Before turning up at AIG, Chagnon had enjoyed a jumpy career. At 49, she’s a veteran of Hogan & Hartson, The Saint Paul Companies, Constellation Energy, Saul Ewing, LLP., DLA Piper, AIG, and now Remedi Senior Care. She resigned under a cloud from AIG after a series of complaints in July 2008, just as the Financial Products debacle began to unravel.

In the wake of the Chagnon regime, Suzanne Folsom, on the lam from the World Bank, took over and terminated about half of the AIG Compliance Office staff in October 2008 for reasons we do not fully understand. With Kelly’s blessing, and unimpeded by Independent Monitor Cole, Folsom blithely dismissed AIG’s anti-money laundering officer, risk management officer, foreign-corrupt practices officer, global compliance trainer and shared services officer. In their place, consultants who were well-connected to Kelly and Folsom arrived. One salient example is Sara Brown Meeham, who took up residence in an AIG office on a regular basis. Meeham was a consultant working for Levick Communications, where Kelly has served on the Advisory Board. She didn’t actually deal with compliance; she’s a PR specialist, according to Levick.

That may be what’s ailing AIG with these people running the show. They think that good PR is an adequate substitute for real compliance with regulation. And as it turned out, once Kelly and Folsom collected their ample severance packages, even the best corporate hack/flack in the world couldn’t have made AIG look good.

Originally posted to Bea Edwards on Mon May 03, 2010 at 02:16 PM PDT.

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