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Presentation By David Yerushalmi Suing The Fed On Grounds AIG Takeover Was Illegal Money Laundering Scheme

Courtesy of Tyler Durden

Some time ago, the law office of David Yerushlami, which a week ago filed a lawsuit in the Federal District Court challenging the constitutionality of Obamacare, sued the Fed over its takeover of AIG claiming the entire transaction was illegal and was in essence a money laundering scheme. Below we present the powerpoint presentation prepared by the law firm. Here is how Yerushalmi explains his motive: “The Law Offices of David Yerushalmi, P.C. presents an online PowerPoint presentation fully narrated illustrating rather graphically just how Timothy Geithner, who was then (Sept. 2008) the president of the Federal Reserve Bank of New York, orchestrated the illegal acquisition of 77.9% of AIG’s equity and voting rights. As the presentation makes clear, while the FED certainly had authority to loan AIG billions and to take all of the company’s assets as collateral, which it did, it had no legal authority to acquire nearly 80% of AIG’s shares and voting rights. But this is exactly what it did when it created with great fanfare what is called the AIG Credit Facility Trust.” Attached also is a latter by David to SIGTARP Barofsky, discussing the same.

From: David Yerushalmi [mailto:david.yerushalmi@verizon.net]
Sent: Sunday, January 31, 2010 9:52 AM
To: ‘sigtarp@do.treas.gov’
Cc: ‘Frank Gaffney’; ‘Robert Muise’

Subject: Is the AIG Credit Facility Agreement Trust legal?

Dear Mr. Barofsky: I am an attorney who has worked in the securities litigation arena for more than 25 years and I also serve as General Counsel to the Center for Security Policy, a highly-respected think tank in Washington, D.C., headed up by former Reagan administration official Frank Gaffney, which focuses on matters of national security. I have cc’d Mr. Gaffney on this email.

In this capacity, I am representing Kevin Murray in a First Amendment/Establishment Clause case against the Fed and the Sec. of the Treasury in his official capacity as head of the Treas. Dept. We have alleged that the takeover of AIG by the US Government encourages, promotes and indeed sustains AIG’s advocacy of Shariah-Islamic insurance products worldwide in violation of the First Amendment. The government filed a motion to dismiss which was denied. I have attached that opinion. Currently, we are in the throes of discovery and awaiting the court’s ruling on our motion to compel Secretary Geithner’s deposition, which was necessitated by the fact that the Fed and Treasury Rule 30(b)(6) deponents either testified inaccurately or feigned ignorance (no surprise to you I am sure). I have attached our Motion to Compel and our companion Response to the government’s Motion for Protective Order.

I write to you today because in the course of our discovery investigation, we effectively uncovered a fraudulent artifice which allowed the Fed/FRBNY and the Treasury (using TARP funds) to accomplish that which it could not accomplish legally at the time (pre-EESA)—the acquisition of 77.9% of AIG’s equity and voting rights. We discovered this because we were looking at “standing” issues relative to the Fed/FRBNY funds provided to AIG under the Credit Facility approved in the latter half of Sept. 2008. But, what we learned was quite simply astounding. 

The FRBNY wanted more than just a standard debt deal; it wanted absolute control and ownership of AIG. But, it was illegal for the FRBNY to hold equity and the Treasury Dept. did not yet have the legislative authority, later granted under EESA, to do so. But this didn’t stop then-President Geithner or his general counsel Thomas Baxter. They crafted the AIG Trust to accomplish the same goal. But the Trust was transparently invalid and illegal for two fundamental reasons: One, the FED maintained absolute control over the Trust’s existence, its terms, and the Trustees through Section 1.03 of the Trust Agreement. This, as we explain in our Response papers attached, invalidates the trust; yet the government continues to speak about this as an “independent” Trust. 

Two, the Fed/FRBNY could not take legal title to the equity but neither could the Treasury Department during this pre-EESA period. So, the FRBNY named the U.S. Treasury (in the Trust Agreement) as the beneficial owner. But again, as our Response papers point out, it is elemental trust law that a beneficiary must be a person or entity that can actually hold title. While the Treasury Department can hold title, the U.S. Treasury can no more hold title than a bank account – because that is what it is. You can deposit funds or assets into a depository account but the account cannot have “ownership” because it has no more authority to do so than a tree log. But, the FRBNY had to conceal the fact that this transaction was really for the benefit of the Treasury Department (something the Treasury Dept’s Rule 30(b)(6) deponent conceded under oath (also provided in our Response papers), because the Treasury department had no legal authority. And, even if it did, as under EESA a few months later, to grant the federal government voting rights would be to create a Gordian Knot of conflicts-of-interest, which is why presumably the legislation seeks to avoid the government from taking both the equity and exercising voting rights. But, at the time of the AIG Trust, there was absolutely no legislative authority for the Treas. Dept to take control of AIG. Yet, this is what the Trust purportedly accomplished.

In the world of finance, and you certainly know this as well as I, if you seek to accomplish an illegal financial transaction (“specified unlawful activity”) through false means (the Trust structure), you are in violation of federal anti-money laundering statutes (18 USC § 1956). I have attached a ppt presentation my office has prepared for oral argument in our case (although the criminal violation is not at issue insofar as we don’t have standing to raise it). Since this artifice included TARP funds, you, in your capacity as the SIGTARP, do. Please feel free to use this material as you deem best.

I will be in Washington, D.C. on Tuesday meeting with some Congressional leaders on this point, and would be more than willing to discuss this in greater detail. Thank you.

cc:        Frank J. Gaffney, Jr, Pres., Center for Security Policy
Robert Muise, Esq., co-counsel to Kevin Murray in Murray v. Geithner et al., U.S. D. Ct. E.D. MI, No. 2:08-cv-15147-LPZ.

David Yerushalmi
Law Offices:
Washington, D.C., New York, California & Arizona
T: 646.262.0500
F: 801.760.3901
E: david.yerushalmi@verizon.net
W: www.davidyerushalmilaw.com

Full Presentation:

 

The transcript for the presentation is presented below:

Slide 1

Understanding the Government’s Takeover of AIG In support of Plaintiff’s Motion to Compel Defendant Geithner’s Deposition Testimony in Murray v. Geithner et al., Case No. 2:08-cv-15147-LPZ-MKM (U.S. D. Ct. E.D. Michigan) © Law Offices of David Yerushalmi, P.C. All rights reserved. 2010

Slide 2

But the Fed and the FRBNY wanted more than a debt deal; they wanted absolute control over AIG and needed to come up with a way to take almost 80% of AIG’s equity and voting rights. So they decided to use $40 BN of the Credit Facility as “Placeholder” funds to accomplish through the artifice of the AIG Trust what they could not do legally. . . HOW THE U.S. GOVERNMENT TOOK OVER AIG--SUPPORTING AND FUNDING ITS SHARIAH-C0MPLIANT INSURANCE BUSINESS--THROUGH WHAT IS ARGUABLY AN ILLEGAL ARTIFICE While it made no sense to “fix” AIG’s debt-driven crisis by giving it $85 BN of more debt, the Credit Facility up to this part of the structure was typical and made at least structural sense. A second problem with the Trust: Q: Was it proper for the FRBNY to name a bank account—the U.S. Treasury—as a beneficiary when it cannot own anything? A: No; the Trust is invalid on its face! Geithner, FRBNY, Fed, and Treasury Dept: “The FRBNY created a truly independent Trust with non-governmental Trustees to take legal title to 77.9% of AIG’s shares to avoid illegalities and any conflicts-of-interest.” And that is why the Treasury Department’s deponent testified that the real beneficiary is the Treasury Department and why everyone agrees that the ultimate beneficiary is the U.S. tax payer. But how is the Trust and its Trustees “independent” of the U.S. Government when § 1.03 of the Trust Agreement gives the Fed absolute and unfettered control over the Trust’s existence and its terms??? § 13(3) Fed. Res. Act AIG $$$ SCF 1 SCF 2 SCF 3 SCF 4 Credit Rating Agencies Debt-driven credit rating downgrade FED Federal Reserve Bank of New York (President Geithner) $85 BN Debt Credit Facility Collateral: ≈100% of AIG Assets via Stock Pledges/Liens Transfer of Legal Interest in 77.9% of AIG Equity + Voting U.S. Treasury U.S. Department of the Treasury (Sec. Geithner) (Rule 30(b)(6) Deponent) And this leaves the final tranche of the disguised “Placeholder” structure where the “US. Tax Payer”, at the hands of the Treasury Dept., sends $40 BN to the FRBNY as a credit to AIG, which is in reality “payment” for the 77.9% of AIG received through the Credit Facility and Trust structure. AIG in crisis runs to Geithner at FRBNY Geithner runs to the FED The FED calls upon the “unusual and exigent circumstances” of FRA to permit non-member bank AIG to borrow FED funds from FRBNY

Slide 3

§ 13(3) Fed. Res. Act AIG $$$ SCF 1 SCF 2 SCF 3 SCF 4 Credit Rating Agencies Debt-driven credit rating downgrade $40 BN Portion of Debt Credit Facility $40 billion TARP paid to FRBNY but credited to AIG And now we’ll see the same illegal Placeholder transaction but without the artifice of the “independent” Trust . . . Now we eliminate the $40 BN “Placeholder” funds provided by the FRBNY Credit Facility and the bottom line deal with the true flow of the real deal’s “consideration” comes into plain view . . .

Slide 4

Understanding the Defendants’ Takeover of AIG § 1956. Laundering of monetary instruments (3) Whoever, with the intent— (A) to promote the carrying on of specified unlawful activity; (B) to conceal or disguise the nature, location, source, ownership, or control of property believed to be the proceeds of specified unlawful activity; or (C) to avoid a transaction reporting requirement under State or Federal law, conducts or attempts to conduct a financial transaction involving property represented to be the proceeds of specified unlawful activity, or property used to conduct or facilitate specified unlawful activity, shall be fined under this title or imprisoned for not more than 20 years, or both. For purposes of this paragraph and paragraph (2), the term “represented” means any representation made by a law enforcement officer or by another person at the direction of, or with the approval of, a Federal official authorized to investigate or prosecute violations of this section. © Law Offices of David Yerushalmi, P.C. All rights reserved. Under § 1956(c)(7)(D), “specified unlawful activity” is defined as a violation of § 1005.

Slide 5

Understanding the Defendants’ Takeover of AIG § 1005. Bank entries, reports and transactions Whoever makes any false entry in any book, report, or statement of such bank [FED member bank], company, branch, agency, or organization with intent to injure or defraud such bank, company, branch, agency, or organization, or any other company, body politic or corporate, or any individual person, or to deceive any officer of such bank, company, branch, agency, or organization, or the Comptroller of the Currency, or the Federal Deposit Insurance Corporation, or any agent or examiner appointed to examine the affairs of such bank, company, branch, agency, or organization, or the Board of Governors of the Federal Reserve System; © Law Offices of David Yerushalmi, P.C. All rights reserved. This “any other company” is AIG, which was forced by the FRBNY and the FED to give up 80% of its equity/voting rights when it was illegal for the FRBNY to even hold equity.

Slide 6

Understanding the Defendants’ Takeover of AIG § 1956. Laundering of monetary instruments (3) Whoever, with the intent— (A) to promote the carrying on of specified unlawful activity; (B) to conceal or disguise the nature, location, source, ownership, or control of property believed to be the proceeds of specified unlawful activity; or (C) to avoid a transaction reporting requirement under State or Federal law, conducts or attempts to conduct a financial transaction involving property represented to be the proceeds of specified unlawful activity, or property used to conduct or facilitate specified unlawful activity, shall be fined under this title or imprisoned for not more than 20 years, or both. For purposes of this paragraph and paragraph (2), the term “represented” means any representation made by a law enforcement officer or by another person at the direction of, or with the approval of, a Federal official authorized to investigate or prosecute violations of this section. © Law Offices of David Yerushalmi, P.C. All rights reserved.

Slide 7

Transfer of Legal Interest in 77.9% of AIG Equity + Voting § 13(3) Fed. Res. Act AIG $$$ SCF 1 SCF 2 SCF 3 SCF 4 Credit Rating Agencies Debt-driven credit rating downgrade FED Federal Reserve Bank of New York (President Geithner) $85 BN Debt Credit Facility Collateral: ≈100% of AIG Assets via Stock Pledges/Liens U.S. Treasury Absolute FED Control: § 1.03 Trust Agreement U.S. Department of the Treasury (Sec. Geithner) (Rule 30(b)(6) Deponent) AIG in crisis runs to Geithner at FRBNY Geithner runs to the FED The FED calls upon the “unusual and exigent circumstances” of FRA to permit non-member bank AIG to borrow FED funds from FRBNY It is at this point, that this Placeholder artifice becomes a money laundering scheme in violation of Title 18 § 1956 of the federal criminal code. How? Because the FRBNY and the FED want absolute control of AIG (meaning its equity and voting rights), but neither they nor the Treas. Dept. have any legal authority, to do so. The taking of 77.9% of AIG is the “specified unlawful activity” and the Trust is the fraud to accomplish it. This emergency action was perfectly legal and understandable. The Credit Facility was also perfectly legal, albeit stupid. Giving debt to a company drowning in debt simply makes no sense unless it was a necessary step to accomplish that which the FED could not accomplish directly.


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