Law Offices of David Yerushalmi
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Law Offices of David Yerushalmi, P.C. presents online video demontration of how Timothy Geithner as head of the NY Fed created an illegal and invalid trust to acquire 77.9% of AIG
February 04, 2010

The Law Offices of David Yerushalmi, P.C. presents an online PowerPoint presentation fully narrated illustrating rather graphically just how Timonthy 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.

Below the presentation is an email sent by David Yerushalmi explaining this criminal behavior to the Special Inspector General of the TARP funds (SIGTARP), who is charged with safeguarding the TARP program from exactly this type of suspect behavior.

[We apologize for the low volume; something apparently happens when we convert from PPT to Adobe Flash; try turning up the volume switch and if you have headphones, even better. We're working on a fix.]


IMPORTANT UPDATE: U.S. government lawyers effectively confirm our analysis: the AIG Credit Facility Trust is patently invalid and an illegal artifice created for the government to take ownership of AIG illegally. We have just received the government's "reply" brief in their effort to prevent Secretary Geithner's deposition. To our first argument, that the Trust is not independent because the Trust agreement includes a provision that gives the FED absolute control over the Trust's existence and its terms, the government is mute. No response. And, that is because there is no response that would have any credibility. As to our second argument, that the naming of the U.S. Treasury as the beneficiary is facially invalid since the U.S. Treasury is nothing more than a bank account, the government lawyers simply reply by saying that by statute, the regional FED banks are required to deposit their excess profits into the U.S. Treasury. But that is no response at all. Of course that is true, but that does not render the U.S. Treasury a "person or entity" capable of owning assets. This glaringly meaningless reply is telling.

From: David Yerushalmi [mailto:[email protected]]
Sent: Sunday, January 31, 2010 9:52 AM
To: '[email protected]'
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
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