Securities and Exchange Commission v. American International Group, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
SECURITIES AND EXCHANGE )
COMMISSION, )
)
Plaintiff, )
)
v. ) Civil Action No. 04-2070 (GK)
)
AMERICAN INTERNATIONAL GROUP, )
INC., )
)
Defendant. )
______________________________)
MEMORANDUM OPINION
This civil action brought by the Securities and Exchange
Commission (“SEC”) against the American International Group (“AIG”)
under the Securities Act of 1933, 15 U.S.C. § 77a et seq., the
Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., and Rules
promulgated pursuant to the Securities Exchange Act, is now before
the Court on Sue Reisinger’s Motion for Leave to Intervene for
Access to Monitor’s Reports (“Reisinger Mot.”) [Dkt. No. 18]. Upon
consideration of the Motions, Opposition, Reply, and the entire
record herein, and for the reasons stated below, Reisinger’s Motion
is granted.
I. Background
On November 30, 2004, the SEC filed a Complaint against AIG,
alleging violations of federal securities laws [Dkt. No. 1]. On the
same date, the SEC submitted to the Court the Consent of Defendant
American International Group, Inc. (“Consent Order”) [Dkt. No.
1-1]. In this document, AIG consented to entry of Final Judgment
without admitting or denying the allegations of the Complaint. The
Court entered Final Judgment, incorporating the Consent Order, on
December 7, 2004 [Dkt. No. 2].
Under the terms of the Consent Order, AIG agreed to take on
two main responsibilities. First, AIG consented to establish a
Transaction Review Committee to review transactions taking place
after the entry of Final Judgment. The Committee was charged with
setting up procedures to identify transactions that would involve
heightened legal, reputational, or regulatory risk. Under the
Consent Order, these transactions require review and approval by
the Committee before they can be completed.
Second, AIG agreed to retain an independent consultant,
selected by the Fraud Section of the Department of Justice and
acceptable to the SEC, to review the Transaction Review Committee’s
policies and procedures as well as all transactions that AIG
entered into between January 1, 2000, and the date of the Final
Judgment and that had “a primary purpose of enabling a Reporting
Company to obtain an accounting or financial reporting result.”
Consent Order ¶ 3.a.1. The purpose of the review of past
transactions was for the Independent Consultant to determine
whether they were used or designed to permit counter-parties to
violate generally accepted accounting principles (“GAAP”) or rules
-2-
promulgated by the SEC. These transactions formed the basis of the
SEC’s Complaint.
At the conclusion of his or her review, the consultant was
required to provide copies of reports of his or her findings (“IC
Reports”) to the SEC, the DOJ, and AIG’s Audit Committee. AIG was
then required to implement all reasonable recommendations made by
the consultant. If AIG violated certain designated provisions of
the Consent Order, the SEC was permitted to petition the Court to
vacate the Final Judgment and restore the action to its active
docket, i.e., to proceed with litigating the Complaint. Further,
the Court retained jurisdiction over the case in order to enforce
all terms of the Final Judgment, including provisions related to
the IC Reports.
More than a year and half later, on June 14, 2006, the SEC and
AIG filed a Joint Motion for Clarification of Consent of American
International Group, Inc. (“Joint Mot. for Clarification”) [Dkt.
No. 3]. According to this Joint Motion, “[i]t was not the parties’
intent that [the information provided by AIG to the independent
consultant] be disseminated or available to anyone outside of the
entities identified in the Consent.” Joint Mot. for Clarification
3. Accordingly, the SEC and AIG requested that the Court “clarify”
the Consent Order by adding a provision prohibiting public
dissemination of the IC Reports.
-3-
The Court granted the Joint Motion for Clarification on June
14, 2006 [Dkt. No. 4]. Since that time, the Court has twice granted
requests to release IC Reports: once on October 23, 2007, to the
Office of Thrift Supervision at the request of the SEC and AIG
[Dkt. No. 8], and once on May 4, 2009, to the House of
Representatives Committee on Oversight and Government Reform at the
request of the SEC [see Dkt. No. 11].
According to Reisinger’s Motion, she filed a Freedom of
Information Act request with DOJ on January 6, 2011, requesting
disclosure of the IC Reports. Reisenger Mot. 5. The DOJ told her
that they could not find the IC Reports, but that they had also
been filed with the SEC. Id. On March 9, 2011, Reisinger filed a
FOIA request with the SEC. Id. On April 21, 2011, the SEC denied
the request, citing this Court’s June 14, 2006 Order restricting
dissemination of the IC Reports. Id.
On April 29, 2011, Reisinger sent the Court a letter
requesting release of the IC Reports [Dkt. No. 12-1]. On May 4,
2011, the Court posted the letter on the docket and ordered the
parties to file responses [Dkt. No. 12]. On June 6, 2011, upon
consideration of the responses, the Court notified all relevant
parties that any request to unseal and release the IC Reports must
be made by formal motion [Dkt. No. 17].
On February 7, 2012, Reisinger filed her Motion to Intervene
for Access to Monitor’s Reports. On February 28, 2012, the SEC and
-4-
AIG filed a Joint Opposition (“Joint Opp’n”) [Dkt. No. 20]. On
March 16, 2012, Reisinger filed a Reply [Dkt. No. 22].
II. Analysis
Reisinger argues that the Court should order the SEC to make
the IC Reports publicly available on two grounds: (1) a First
Amendment right of access to judicial proceedings and (2) a common
law right of access to judicial records. Reisinger Mot. 5. Each
argument will be addressed in turn.
A. First Amendment Right of Access
In Richmond Newspapers, Inc. v. Virginia, the Supreme Court
held that “the right to attend criminal trials is implicit in the
guarantees of the First Amendment.” 448 U.S. 555, 580 (1980). The
Supreme Court fleshed out this right in Press-Enterprise Co. v.
Superior Court, 478 U.S. 1 (1986). In that case, the court held
that a qualified First Amendment right of public access attaches to
criminal proceedings and related materials where (1) “the place and
process have historically been open to the press and general
public” and (2) “public access plays a significant positive role in
the functioning of the particular process in question.” Id. at 8.
Once a presumptive right attaches, “the proceedings cannot be
closed unless specific, on the record findings are made
demonstrating that closure is essential to preserve higher values
and is narrowly tailored to serve that interest.” Id. at 13-14(internal quotations omitted). Reisinger argues that the IC Reports
-5-
are analogous to documents supporting a plea agreement in a
criminal trial and are therefore entitled to a presumption of
access under the First Amendment. Reisinger Mot. 6-7.
The limits of this First Amendment right of access are clear
in this Circuit. As the Court of Appeals has stated, “neither this
Court nor the Supreme Court has ever indicated that it would apply
the Richmond Newspapers test to anything other than criminal
judicial proceedings.” Ctr. for Nat’l Sec. Studies v. DOJ, 331 F.3d
918, 935 (D.C. Cir. 2003) (emphasis in original); accord Flynt v.
Rumsfeld, 355 F.3d 697, 704 (D.C. Cir. 2004). The SEC brought a
civil, not criminal, action against AIG.
Moreover, even if the First Amendment right of access were to
be extended to proceedings in civil actions, as other circuits have
done, Reisinger has not even attempted to make the requisite
showing that “such access has historically been available.”
Washington Post v. Robinson, 935 F.2d 282, 288 (D.C. Cir. 1991);
Press-Enterprise, 478 U.S. at 8. Because “it is impossible to say
that access to such a document has historically been available
. . . intervenor[’s] claim fails to satisfy the first of the two
necessary criteria for a First Amendment right of access.” United
States v. El-Sayegh, 131 F.3d 158, 161 (D.C. Cir. 1997). Therefore,
there is no First Amendment right of access to the IC Reports.
-6-
B. Common Law Right of Access
Reisinger also argues that the IC Reports should be publicly
available under the common law right of access to judicial
records.1 As courts are quick to observe, “[t]he common law right
of access to judicial records antedates the Constitution.” El-
Sayegh, 131 F.3d at 161 (citing Leucadia, Inc. v. Applied Extrusion
Techs., Inc., 998 F.2d 157, 161 (3d Cir. 1993)). This right of
access reflects “the citizen’s desire to keep a watchful eye on the
workings of public agencies.” Nixon v. Warner Commc’ns, Inc., 435
U.S. 589, 598 (1978); El-Sayegh, 131 F.3d at 161. “The presumption
of access is based on the need for federal courts, although
independent--indeed, particularly because they are independent--to
have a measure of accountability and for the public to have
confidence in the administration of justice.” United States v.
Amodeo, 71 F.3d 1044, 1048 (2d Cir. 1995) (“Amodeo II”); see also
El-Sayegh, 131 F.3d at 162-63.
In order to determine whether a document should be accessible
to the public, a court must proceed in two steps. First, the court
must determine whether the document is a judicial record. El-
Sayegh, 131 F.3d at 162-63; Washington Legal Found. v. U.S.
Sentencing Comm’n, 89 F.3d 897, 902 (D.C. Cir. 1996). Second, the
1
Reisinger alternatively contends that the common law right
of access should extend to the IC Reports on the theory that they
are public records. Reisinger Mot. 10-11. It is not necessary to
reach this question, since, as explained below, the IC Reports are
disclosable as judicial records.
-7-
court must balance the competing interests in publicity and in
secrecy. Nixon, 435 U.S. at 602; Washington Legal Found., 89 F.3d
at 902.
1. Judicial Records
Our Court of Appeals defined the contours of judicial records
in El-Sayegh. In this circuit, “what makes a document a judicial
record and subjects it to the common law right of access is the
role it plays in the adjudicatory process.” El-Sayegh, 131 F.3d at
163. According to this standard, a document must relate to a
judicial decision bearing on the litigants’ substantive rights to
constitute a judicial record. Id. at 162. Hence, a repudiated plea
agreement in a case where the indictment has been dismissed--i.e.,
where there is nothing further for the court to do--is not a
judicial record, id. at 163, but an exhibit submitted in support of
a motion for summary judgment--i.e., where the court has to decide
the motion--is. Lugosch v. Pyramid Co. of Onondaga, 435 F.3d 110,
121 (2d Cir. 2006).
For the following reasons, the Court concludes that the IC
Reports are relevant to the judicial function and therefore are
properly considered judicial records. El-Sayegh, 131 F.3d at 163;
Lugosch, 435 F.3d at 119. First, the IC Reports themselves may well
give rise to a substantive judicial decision in this case. See
Lugosch, 435 F.3d at 121-22 (documents that may be relied upon in
deciding a motion for summary judgment constitute judicial
-8-
records). The Reports may provide information leading the SEC to
return to this Court to secure further relief. In other words, the
Consent Order empowers the Court to retain jurisdiction for the
purposes of enforcing the Consent Order, including compliance with
the IC Reports. Consent Order ¶ 14.
In this sense, this case is analogous to United States v.
Amodeo. 44 F.3d 141 (2d Cir. 1995) (“Amodeo I”). There, the Court
of Appeals for the Second Circuit held that reports generated
pursuant to a consent decree by an independent court officer, which
the officer did not intend to make public, were judicial records
subject to a common law right of access because the consent decree
made the reports “relevant to the performance of the judicial
function and useful in the judicial process.” Id. at 146.
Specifically, the consent decree permitted the officer “to apply
for necessary and appropriate assistance to execute her powers, and
the progress report certainly would be germane in assessing such an
application.” Id. Additionally, the consent decree allowed “any
party to seek enforcement of, or relief from, any of the provisions
of the Decree,” and empowered the court “to grant relief
‘consider[ing] the record of all proceedings . . . to the date of
the application.’” Id. (quoting consent decree).
Just as the officer in Amodeo I could apply to the court for
assistance in executing her powers, so too the SEC may apply to
this Court to enforce the provisions of the Consent Order. Just as
-9-
the officer’s reports in Amodeo I could prove useful to that
court’s evaluation of compliance with the consent decree, so too
the IC Reports may prove critical to this Court’s assessment of
conformity to the Consent Order.
The SEC and AIG attempt to distinguish Amodeo I on the ground
that “[t]he IC here is in no way analogous to a ‘Court Officer’
with court appointed Receiver powers.” Joint Opp’n 8. However,
neither the holding of Amodeo I nor any other case that the SEC and
AIG have pointed to suggests that the powers of the author of the
document in question have any bearing on whether that document is
a judicial record. The sole question, as explained above, is
whether the document is relevant to the adjudicatory process. El-
Sayegh, 131 F.3d at 163; Amodeo I, 44 F.3d at 146.
Second, the central role the IC Reports play in the operation
of the Consent Order makes them precisely the kind of documents
that must be open to the public in order for the federal courts “to
have a measure of accountability and for the public to have
confidence in the administration of justice.” Amodeo I, 71 F.3d at
1048; see also Nixon, 435 U.S. at 598; El-Sayegh, 131 F.3d at 162-
63. As explained above, the Final Judgment and Consent Order
replaced a full adjudication on the merits in this case. Though
filed after, rather than before, the Consent Order itself, the IC
Reports are an integral part of the Consent Order because they are
intended to document and ensure AIG’s compliance with the IC’s
-10-
investigation and final recommendations. Such compliance is central
to the effectiveness of the Consent Order. Indeed, for this very
reason, the Court retains jurisdiction to enforce AIG’s adherence
to the Consent Order’s terms. Consent Order ¶ 14.
Therefore, the IC Reports are not just relevant to a future
adjudicatory function, but are necessary to ensure public
accountability for the actual adjudication of this case--namely,
the approval of the original Consent Order. Nixon, 435 U.S. at 598;
El-Sayegh, 131 F.3d at 162-63; Amodeo I, 71 F.3d at 1048. In this
sense, the IC Reports are no different than executed plea
agreements with their statements of facts to which the defendant
pleads and motions for summary judgment with their many attached
exhibits, both of which substitute for a full adjudication of the
litigants’ rights on the merits, and both of which are
presumptively available to the public. Robinson, 935 F.2d at 292;
Lugosch, 435 F.3d at 121.
In sum, the IC Reports are relevant to both the potential
compliance adjudication contemplated by the Consent Order and the
original Final Judgment in this matter. Hence, the IC Reports are
judicial records. El-Sayegh, 131 F.3d at 163.
2. Balancing
“At this point, [the Court is] faced with the task of weighing
the interests advanced by the parties in light of the public
interests and the duty of the courts.” Nixon, 435 U.S. at 602; see
-11-
also Washington Legal Found., 89 F.3d at 902 (“the court should
proceed to balance the government’s interest in keeping the
document secret against the public’s interest in disclosure”). The
decision to grant access to judicial records is left to the trial
judge’s discretion, “to be exercised in light of the relevant facts
and circumstances of the particular case.” Nixon, 435 U.S. at 599;
accord El-Sayegh, 131 F.3d at 160.
The SEC and AIG advance two interests that they contend urge
non-disclosure. First, the SEC and AIG argue that “[b]oth the
Commission and AIG expected at the signing of the Consent that the
information provided to the IC, and the IC Reports, would remain
confidential.” Joint Opp’n 12-13. Therefore, they argue, the
Reports should remain confidential in order to protect this
expectation as well as the SEC’s ability to enter into similar
agreements in the future. Id.The SEC and AIG’s position is belied by a simple fact: it took
over a year and half after entry of the Final Judgment and Consent
Order--which included no confidentiality provision--for the SEC and
AIG to return to this Court and request modification of the Consent
Order to prevent disclosure of the IC Reports. It is true, as the
SEC and AIG point out, that their June 2006 Joint Motion for
Clarification states that “[i]t was not the parties’ intent that
this information be disseminated or available to anyone outside of
the entities identified in the Consent.” Joint Mot. for
-12-
Clarification 3. But it is hard to believe that confidentiality was
very significant to the parties at the time the Consent Order was
signed, if such an important provision was forgotten or overlooked
by all the high powered and highly paid attorneys on both sides.
Whatever the parties may have said they intended, with the
benefit of hindsight, when jointly requesting the confidentiality
provision, the original Consent Order does not demonstrate that it
was predicated on confidentiality. In light of this fact, the SEC
and AIG’s argument that cooperation between the SEC and future
defendants will be jeopardized by the release of the IC Reports
rings hollow.
Second, “AIG believes that disclosure of the IC Reports here
would cause competitive commercial harm to AIG and to the customers
whose transactions were reviewed by the IC.” Joint Opp’n 13.
Reisinger has already offered a compromise to answer this concern:
the IC Reports can be redacted. Reisinger Mot. 12-15. Limited
redactions to withhold proprietary information that would be
valuable to AIG’s competitors--exactly the information the Joint
Motion for Clarification purported to protect--would allay fears
that AIG’s position would be negatively affected while advancing
the public’s interest in disclosure.
As to the public’s interest in favor of disclosure of the IC
Reports, it is overwhelming. First, as Reisinger states, “access to
the Independent Consultant Reports will allow the public to
-13-
evaluate the contents and see that the consent agreement process is
legitimate and fair.” Reisinger Mot. 14. Second, and most important
of all, 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 the
Consent Order were complied with, whether the SEC was carrying out
its enforcement and monitoring responsibilities under the Consent
Order, and what, if any, role the compliance--or noncompliance--
with the Consent Order may have played in the devastating events of
2008.
For these reasons, there is no question that the public
interest far outweighs AIG’s or the SEC’s interest in
confidentiality, especially given the availability of redaction.
III. Conclusion
For the reasons set forth above, Sue Reisinger’s Motion for
Leave to Intervene for Access to Monitor’s Reports is granted, and
the parties must make the redacted IC Reports available to the
public.
An Order will issue with this opinion.
/s/
April 16, 2012 Gladys Kessler
United States District Judge
Copies via ECF to all counsel of record
-14-