Updated June 2025

Tavakoli Structured Finance has been analyzing massive risks and windfall opportunities presented by grave flaws in structured finance for over two decades. This analysis examines the developments from a historical perspective beginning with July 16, 2010, and provides a comprehensive update on the outcomes of major cases and investigations through 2025.

The Persistent Pattern: Accountability Failures

Despite massive bailouts by U.S. taxpayers, meaningful investigations into widespread criminal activity at U.S. banks and investment banks remained limited. Investigators continued to be starved for expertise and budget resources, while regulators consistently looked the other way. The narrative manufactured by Washington, regulators, and banks to shelter the guilty persisted: the public was told the world teetered on the brink of collapse with unimaginably dire consequences, and that the lesser of two evils would be to let people escape consequences rather than risk a collapse in confidence.

The Goldman Sachs-Abacus Settlement and IKB’s Role

On July 16, 2010, Goldman Sachs settled fraud allegations with the SEC for $550 million regarding the packaging and selling of a CDO called Abacus 2007-AC1. Goldman Sachs admitted to no wrongdoing in this settlement. IKB was an investor in the Abacus 2007-AC1 CDO that Goldman underwrote, suffering losses of $150 million, which it recovered from the SEC’s settlement with Goldman.

Stefan Ortseifen Conviction and Aftermath

Initial Conviction (July 2010): Stefan Ortseifen, IKB’s CEO at the time of the CDO investment, was found guilty of market manipulation by a German court. He received a 10-month suspended jail sentence and was fined €100,000 for misleading investors about IKB’s precarious financial situation.

The conviction centered on a July 20, 2007 press release claiming IKB’s exposure to subprime was limited and that the bank was well-positioned to make forecasted profits. This was issued just days before IKB’s near-collapse, when the bank was actually drowning in losses that would eventually require more than €10 billion in government-backed bailouts.

Subsequent Legal Defeats: Ortseifen’s legal troubles extended far beyond the criminal conviction:

• Civil Litigation Loss (2015): The Düsseldorf Regional Court ruled that Ortseifen’s dismissal in 2007 was justified due to his failures. The court ordered him to repay approximately €805,000 in excess bonuses and €186,000 for unauthorized renovations to his company villa.
• Appeal Outcomes: Ortseifen’s attempts to appeal various rulings were unsuccessful, leaving him financially exposed to the bank’s claims.

The German taxpayer-funded bailout of IKB exceeded €10 billion, with the bank eventually being sold to U.S. investor Lone Star after being taken over by state development bank KfW.

Joseph Cassano: The Man Who Escaped Justice

Joseph Cassano, the AIG Financial Products officer who resigned in February 2008, became a central figure in one of the most glaring accountability failures of the post-crisis period. Despite being the architect of AIG’s distress through credit derivatives written against flawed CDOs, Cassano escaped both civil and criminal prosecution.

Financial Windfall: Cassano reportedly earned $315 million in total compensation from 1987 to 2008, much of it during the period when he put AIG at the greatest risk. Even after the crisis began, he continued receiving $1 million per month through September 2008, well after the taxpayer bailout began.

Investigation Outcomes:

• Criminal Investigation Dropped (May 2010): After a two-year investigation, the U.S. Department of Justice announced it would not bring criminal charges against Cassano, finding insufficient evidence that he deliberately misled investors or auditors.
• SEC Investigation Concluded: The Securities and Exchange Commission also declined to file charges.

Key Quote from 2007: During the height of his confidence, Cassano told analysts: “It is hard for us, and without being flippant, to even see a scenario within any realm of reason that would see us losing $1 in any of those transactions.” AIG ultimately suffered $99 billion in losses and required a $182 billion taxpayer bailout.

Cassano’s successful defense was handled by lawyers Jim Walden and F. Joseph Warin of Gibson, Dunn & Crutcher, who utilized a proactive strategy of engaging prosecutors early to present evidence rather than allowing the case to develop in public.

Goldman Sachs: Settlements Without Individual Accountability

Financial Crisis Settlements: Goldman Sachs faced multiple significant settlements related to its conduct during the financial crisis, but consistently avoided individual prosecutions:

• 2010 Abacus Settlement: $550 million to the SEC
• 2016 Mortgage-Backed Securities Settlement: $5.06 billion to resolve state and federal probes, including $2.39 billion in civil penalties and $1.8 billion in relief to distressed borrowers

Department of Justice Decision (August 2012): Despite a comprehensive Senate investigation that referred the matter for criminal prosecution, the Justice Department announced it would not file charges against Goldman Sachs or its employees for trades made during the crisis.

Individual Prosecutions – Minimal:

• Only Fabrice Tourre, a 28-year-old Goldman salesman, was individually sued by the SEC for his role in the Abacus deal
• No senior executives faced criminal charges related to financial crisis conduct

More Recent Prosecutions: Goldman has faced criminal charges only in cases involving foreign corruption:

• 1MDB Scandal (2020): Goldman paid over $2.9 billion in a coordinated settlement for bribing Malaysian and Abu Dhabi officials. Two former Goldman bankers, Tim Leissner and Roger Ng, were criminally prosecuted, with Ng convicted in 2022.

Systemic Failures and Ongoing Risks

Accounting Rule Changes: In April 2009, U.S. accounting rules were changed to help cover up problematic balance sheets at the largest too-big-to-fail banks, increasing opacity rather than transparency.

Lack of Deterrent Effect: The pattern of large corporate settlements without individual accountability continued throughout the post-crisis period. As noted by former federal prosecutor Paul Pelletier, who left the Justice Department in frustration: “People didn’t get prosecuted during the financial crisis or high level executives simply because of a lack of commitment, competence, and courage by the political leaders in the Department of Justice.”

The Holder Doctrine: The 1999 memo by Eric Holder (later Attorney General) recommending that prosecutors consider “collateral consequences” when prosecuting corporations became a de facto shield for major financial institutions, as prosecutors feared that criminal charges could destabilize the financial system.

Updated Assessment: What Changed (and What Didn’t)

Twelve years later, the pattern remains largely unchanged:

1. Corporate Penalties, Individual Immunity: Financial institutions continue to pay large settlements while executives avoid personal accountability
2. Too Big to Jail: The concept that major financial institutions are too systemically important to face serious criminal consequences has become entrenched
3. Regulatory Capture: The revolving door between major banks and regulatory agencies continues, with former Goldman executives holding key positions in government

Limited Exceptions: The 1MDB case represents one of the few instances where individual Goldman bankers faced serious criminal consequences, but this involved foreign corruption rather than domestic financial crisis conduct.

Implications for Investors and Taxpayers

Investors remain largely on their own when assessing the risks and rewards of structured financial products and the systemic risks they pose. The global financial system has become even more opaque than before the financial crisis, with increased concentration among too-big-to-fail institutions.

The taxpayer-funded bailout of AIG continues to represent one of the most problematic aspects of the crisis response, as it helped Goldman Sachs and other counterparties avoid the full consequences of their risk-taking while socializing the losses.

Key Takeaway: The fundamental problems identified in 2013 persist today – a two-tiered justice system where corporations pay fines while individuals escape accountability, creating moral hazard and encouraging continued risk-taking in the structured finance markets.

Conclusion

The cases of Stefan Ortseifen’s conviction in Germany versus the complete immunity granted to Joseph Cassano and Goldman Sachs executives in the United States illustrate a stark contrast in accountability standards. While a mid-level German bank CEO faced criminal prosecution for misleading investors about his institution’s relatively modest losses, the architects of far larger systemic risks in the United States faced no meaningful consequences.

This disparity in treatment has profound implications for market discipline and the prevention of future crises. The pattern established in these cases – corporate settlements without individual accountability – has become the norm rather than the exception, suggesting that the fundamental incentive structures that contributed to the 2008 crisis remain largely intact.

Related Articles

• Tavakoli, Janet. “Goldman Sachs and AIG: The Hidden Financial Crisis Story.” November 10, 2009. Updated June 2025.
• Tavakoli, Janet. “AIG Bailout Litigation and Crisis Accountability: 2025 View.” Tavakoli Structured Finance, August 7, 2013. Updated June 2025.
• Tavakoli, Janet. “LBBW vs Goldman Sachs and TCW” Davis Square VI Case Outcome.” Tavakoli Structured Finance, October 5, 2015. Updated June 2025.