Yerushalmi and Muise quickly realized that, in acquiring 77.9% of AIG, the New York Fed may have set up an illegal trust, with the knowledge that what they were to do was illegal. Tuesday, Murray’s attorneys issued a subpoena for the Federal Reserve Bank of New York.

Here’s the latest update from David Yerushalmi:

Now that the court has allowed us to amend the complaint to add additional bad acts by the government (done and filed today) and at the same time rejected the government’s efforts to stay discovery and to end run to the Sixth Circuit Court of Appeals, and while we await the court’s ruling on our motion to force Secretary Geithner to sit for a 3-hr deposition, we have today sent out for service the following Subpoena for the Federal Reserve Bank of New York.

This deposition will effectively allow us to learn the government’s rationale (however lame) of the How and Why of the invalid and illegal trust used to gain control over AIG.

We are expecting a battle over this one because the real skeletons of this deal are here at the NY Fed where at the time (Sept-Dec 08) Secretary Geithner served as the president and de facto Treasury Secretary, having been tapped by Obama as the new administration awaited the inauguration in Jan 2010. To understand this, read through the attachments (Notice of Service of Subpoena Commanding Deposition Testimony and the Production of Documents, Electronically Stored Information, or Tangible Things) at the substantive information we are seeking. The rest, as they say, is just commentary.

In the meantime, America awaits a ruling on whether Treasury Secretary Geithner will have to tell “the truth, the whole truth and nothing but the truth” in a three-hour deposition.

Here are the questions from the subpoena:

1. The decision(s) to provide government financing to and otherwise bailout American International Group, Inc. (hereinafter “AIG”) and how the financing bailout was structured.

a. This matter specifically includes decisions regarding how and why the original financing provided by the government was funds provided by the FRBNY in the form of a credit facility;

b. This matter specifically includes the decision by the Fed to authorize the FRBNY to loan $85 billion to AIG pursuant to Section 13(3) of the Federal Reserve Act (12 U.S.C. § 343);

c. This matter specifically includes decisions requiring AIG to grant the FRBNY a pledge on assets and to transfer to the AIG Credit Facility Trust (hereinafter “Trust”) Series C preferred shares, which provided the Trust, inter alia, 79.9% (later reduced to 77.9%) of any dividend payments by AIG and of any aggregate voting rights of AIG common stock;

d. This matter specifically includes the decision to establish the Trust on behalf of the U.S. Treasury and to include section 1.03 in the AIG Credit Facility Trust Agreement granting the Board of Governors of the Federal Reserve System authority to terminate the Trust or amend its terms;

e. This matter specifically includes all subsequent decisions regarding the structuring of the government financing and bailout of AIG, including the decisions about when, how, and why to use (1) funds authorized by the Emergency Economic Stabilization Act of 2008, 12 U.S.C. § 5201 et seq. (hereinafter “EESA”); (2) funds not authorized by EESA, but otherwise under the control or authority of the U.S. Treasury and/or Treasury Department; (3) funds under the control or authority of the Federal Reserve Board; (4) funds under the control or authority of the FRBNY; and/or (5) any other funds under the control or authority of any other entity or agency subject to the direction and/or control of the U.S. Treasury and/or Treasury Department, the Federal Reserve Board, and/or the FRBNY.

f. This matter specifically includes the actual and permissible use(s) of funds from any government source (including the FRBNY) by AIG.

2. The information made available to the Office of the Special Inspector General for the Troubled Asset Relief Program (hereinafter “SIGTARP”) established by EESA, including information and communications to and from SIGTARP regarding the actual and permissible use(s) of funds from any government source (including the FRBNY) by AIG.

3. The facts, including communications, related to the FRBNY’s knowledge of and/or information about Islamic law (i.e., Shariah), Shariah-compliant financial products, the Shariah obligation of jihad (i.e., kinetic war and/or terrorism), the Shariah obligation of dawa (i.e., the effort to both convert non-Muslims to adherence to Shariah and/or the effort to convert all political systems or political orders to Shariah-adherent political systems), and the use of Muslim charitable donations by individuals and/or Islamic and/or Shariah-compliant financial institutions to support jihad and/or dawa, including the use of donations by certain Muslim charitable organizations to support terrorist activity.

It appears that, through it’s 77.9% control of AIG’s equity and voting rights, the NYFed “sought to accomplish an illegal financial transaction through false means” by creating an “independent”: trust that was in fact not independent, placing it “in violation of federal anti-money laundering statutes (18 USC § 1956).” Here we elaborate a bit further, laying out the issue in the text of a letter submitted to Neil Barofsky, Special Inspector General for TARP (SIGTARP)– as the government takeover of AIG was accomplished using funds provided to the Troubled Asset Relief Program.

First, however, some context: Crucially, these facts were discovered while securities litigator David Yerushalmi and the Thomas More Law Center was representing Iraq War vet Kevin Murray in Murray vs. Geithner, et al. Mr. Murray is rightfully horrified that the very doctrines of the enemy he faced in combat would be promoted by the US government. Specifically, prior to the U.S. government’s takeover of the insurance giant AIG, the company was the world’s leading promoter of Shariah-compliant finance products and businesses. Bailing out and forcefully (and illegally) taking ownership of AIG put the American taxpayer in the position of advocating Shariah-compliant finance, which is troubling on many levels:

First, the Shariah authorities themselves tell us that Shariah is a holistic and indivisible whole and that you cannot carve out “business law Shariah” from any other of its constituent parts, like the law of jihad. And, you can see this in that part of Shariah called civil law or fiqh al-muamalat. According to Shariah, AIG cannot invest its takaful funds in a business that might rent space to a church, because that would violate the principle of not supporting any religion other than Allah’s. Further, AIG may invest its funds in a military armament factory for Muslim armies but not US or infidel armies. In other words, these laws which seemingly have nothing to do with business concerns or ethics but rather everything to do with theo-political concerns apply as forcefully to Shariah-compliant finance as the laws on interest. And, of course the reason for this we know because the Shariah authorities tell us: Shariah makes no distinction between religion, law, politics and war. It is all subsumed under Allah’s law called Shariah.

Second, the very Shariah authorities who have the legitimacy to be Shariah board members for such an international concern are themselves advocates of violent jihad or they are the students and disciples of such Shariah authorities. For example, AIG employs Mufti Imran Usmani, who is the son, student and disciple of Mufti Taqi Usmani, the very authority who sat on the Dow Jones Islamic Index Shariah advisory board for almost 10 years beginning in 1999 and who wrote a book and had it translated into English also in 1999 which called on western Muslims to rise up and engage in violent jihad against the West. Now, either Dow Jones was recklessly blind to this fact or willfully blind to it. Now, we see that AIG and the US Treasury have succumbed to the same reckless disregard of what are now quite obvious facts.

Shariah-compliant finance is the use of Shariah (Islamic law) to sell financial products that are approved by Shariah Islamic authorities. Principally this means that since interest is illegal under Shariah, interest payments are disguised as profits or payments for services rendered. While there is nothing wrong with the use of legal fictions, there is when the details of the guiding force—Shariah—is not disclosed to the investing public. Most problematic, is Shariah’s call for the murder of apostates and global jihad against the very infidels in the West buying these Shariah products. Among some financial institutions’ ‘Shariah advisors’  is Sheikh Yusuf al-Qaradawi (who moonlights as spiritual leader of the Muslim Brotherhood). He famously promoted Shariah-compliant finance as “jihad with money.”

For an in-depth look at Shariah-compliant finance, see David Yerushalmi’s Utah Law Review article, “Shariah’s ‘Black Box’: Civil Liability and Criminal Exposure Surrounding Shariah-Compliant Finance”. Look for a video tomorrow called, “Understanding the Takeover of AIG.”

The following is a letter sent by Mr. Yerushalmi to Neil Barofsky, Special Inspector General for TARP:

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 purportedly Trust 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.

David Yerushalmi. Esq.

Senators have made public statements indicating that there may be non-public information that is hurting this nominee.  Senator Jim DeMint (R-SC) said that “the Fed continues to stonewall Congress and the public.”  Senator Jim Bunning (R-KY) referenced “ongoing examinations by Congress and the GAO of the Fed’s AIG bailout” and that there are “unpleasant facts for the Fed and Chairman Bernanke” that will come out after “full public disclosure of all information about the AIG bailout” that has only been shared with “select Congressional Committees and the GAO.”  Senator David Vitter (R-LA) said, “it is vitally important that Congress has the ability and time to adequately review the Federal Reserve’s bailout of AIG.  Although some of our offices have had time to review some of the documents, not all are available at this time and Congress should wait until GAO’s review before proceeding with his nomination vote.”

It appears that there is non-public information about Bernanke’s role in the AIG bailout that is leading Senators to jump ship on his nomination.

This is the same Eliot Spitzer who stonewalled attempts by the New York State Senate Committee on Investigations and the New York Commission on Ethics to obtain the E-Mails of Spitzer and his top aides surrounding the abuse of power in his using the New York State Police to spy on his political opponents. Likewise, Spitzer attempted to prevent his top aides from testifying. This man’s hypocrisy knows no bounds.

The idea of former New York Governor and Attorney General Eliot Spitzer criticizing the AIG bailout is ridiculous; Spitzer is responsible for the economic condition of the company for which they needed a bailout. In fact, Spitzer’s crackdown on Wall Street caused the firms to increase leverage because he took away the ability for them to make money in research and underwriting, and they looked for other ways to make money; like securitizing subprime mortgages.

In fact, if Spitzer hadn’t removed Maurice “Hank” Greenberg from AIG, the company would never have crashed. Greenberg was a much more conservative investor, and had tighter risk management rules that were suspended by the company only after Spitzer drove Greenberg out over charges that proved bogus in the courts.

The billion dollar investment in credit default swaps which were not hedged brought the company and the economy down. This insurance was written only after Greenberg was forced out and never would have been written under Greenberg’s risk management rules. Thus, Eliot Spitzer is partially responsible for the current economic crisis, not some Boy Scout crying an early warning.

This is as typical of his reign as Attorney General, where he blackmailed companies by press release; threatening to destroy your company’s value unless you pled to infractions you hadn’t actually committed. Most saw the futility of winning in court after Spitzer had destroyed their company, so they settled. When cases actually went to trial most were dismissed or those Spitzer apprehended were acquitted.

Spitzer’s assault on the New York Stock Exchange’s Ken Grasso, Ken Langone and Greenberg, while not also pursuing NYSE board member Carl McCall for fear of offending key African American political leaders, stands out as the kind of perverted justice Spitzer pursued. Spitzer made baseless charges against Greenberg, drove him from the company, and set the stage for AIG’s collapse.

Above all, while Spitzer was chasing-but not catching-guys on Wall Street, the Madoff scandal, where Spitzer does have jurisdiction, went on under his nose. Likewise, the New York State Pension scandal where  associates of Spitzer’s fellow Democrat Alan Hevesi’s, raked off millions.

Spitzer’s avoidance of prosecution for money laundering and violation of the Mann Act (that is, transporting a woman across state lines for the purposes of prostitution (which a New York State Supreme Court Justice was convicted and jailed for in 2009), while the Madam who booked him prostitutes, spent four months on Rikers Island, is nothing but sexist.

Why should this bald , pasty faced meglomaniac walk, while everyone else in the case did time?

Ten months into the Obama Presidency, it is pretty clear that Obama is living up to his Absentee Legislator past.  Painful examples abound:

1. Trying Khalid Sheikh Mohammed in Criminal Court.  Arguably one of the most detrimental legal and foreign policy decisions of our time, and Obama openly admits it wasn’t his call – it was an underling’s call – Eric Holder.  It was a terrible decision and, as Senator Lindsey Graham pointed out, an unprecedented decision.  While I doubt Obama sat purely on the sidelines on this decision, it shouldn’t surprise anyone that someone other than Obama has to take responsibility for this decision – good or bad.  And when it goes bad, then Obama will simply dump Holder.  Problem solved.
2. Health Care.  What’s a President to do when he is devoid of any significant legislation to his name?  Allow the most significant piece of legislation in the last 40 years to be written and managed by others.  Literally.   Before us is the biggest makeover of the relationship of the private sector and government since the Great Depression and Obama is merely a passenger on a bus being driven by Nancy Pelosi and Harry Reid.  When it fails the American people, and it will, Obama will rightfully claim it wasn’t his bill.  Such is the prerogative of an Absentee President.
3. The Stimulus Bill.  It’s failing.  Indeed, over 3 million jobs have been lost since the Stimulus Bill was passed – a bill laden with pork because its passage was driven by someone other than Obama (not to say he would have passed a trimmed down bill).  Beyond that, we find out that the AIG bailout money was misspent – who would have thought?  Since the President can’t be in charge of such failures, and Obama can’t blame Pelosi or Reid,  the fall guy will be Treasury Secretary Timothy Geithner – because, in time, simply blaming President Bush won’t be effective anymore.
4. The November Elections.  Even though Obama went and put his personal prestige on the line for New Jersey Governor Corzine, Corzine was soundly beat – as was the Democrat candidate in Virginia – a race Obama wouldn’t touch.  But those results, according to Obama, had nothing to do with him – those were races with local implications not national influences.

What about a policy Obama pushed, like the closing of Guantanamo?   It was supposed to be closed within a year.  It won’t be – not that it ever should have been closed.  Now someone has to take the blame for it – ignobly at that.  And the answer to that is Greg Craig, the White House counsel, for a policy Craig didn’t create.

You can expect more of the same as the ship of state sails on without a leader at the helm.  Remember, next year the Bush tax cuts expire.  That impending doom is hurting the prospects for a recovery  – but  – it won’t be Obama’s fault, that was legislation signed by someone else.

And as for the other major problems affecting our nation?  Well, the biggest problem going forward is that Obama is present.