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Mack Whittle is being sued by a shareholder of South Financial, who is trying to block his $18 million compensation package.

The shareholder, Vernon Mercier, said the suit was prompted by last week's announcement that South Financial would receive bailout funds, reports a South Carolina TV station.

A judge declined Mercier's request for an injunction blocking the payment, but delayed a decision on a motion to dismiss the suit.

A lawyer for Whittle, Billy Wilkins, told the court: "Mack Whittle and his family have given a lot to this community and it's a tough time for him. Particularly to be ridiculed as he has been in the press and accused of things that he didn't do: getting a golden parachute, taking advantage of the taxpayers. All of that stuff is absolutely not true."

Wilkins continued: "[Whittle's] retirement benefits are based solely on an employment contract that had been in existence for over two years when he retired. He's getting nothing more or less than that what he is legally entitled to."

Mack Whittle was a member of John McCain's South Carolina finance team for the Arizona senator's recent presidential bid, and was on the finance committee for South Carolina senator (and McCain pal) Lindsey Graham's 2002 Senate campaign. Whittle also raised money for George Bush's run in 2000.

That's according to a press release sent out by McCain's campaign in March 2007, and reported by the States News Service (via Nexis). It lists 40 members of the finance team, including:

Mack Whittle of Greenville, CEO of the South Financial Group. Bush Fundraiser 2000. Graham for Senate Finance Committee 2002.


Whittle also serves on the board of the University of South Carolina, according to published reports.

And according to the transcript (via Nexis) of an October 22 conference call with reporters, Whittle will remain on South Financial's board. On the call, Whittle said: "I have a three-year term on the board, and I just plan on continuing to serve out that term."

Whittle retired late last moth with an $18 million severance package. South Financial recently received $347 million in bailout money.

Late Update: In 2003, Bush also appointed Whittle a member of the Advisory Committee on the Arts, says this White House press release.

One other point worth noting on the story of Mack Whittle -- the former CEO of a South Carolina bank, whose expedited retirement date ensured that his company could get bailout money without his compensation package being limited by restrictions on CEO pay that were part of the bill.

Whittle got an $18-million golden parachute when he left late last month. But as the bank itself, South Financial, noted in a statement in response to the controversy, less than 15 percent of that total would have exceeded the pay limit imposed by Congress.

In other words, the limits on executive pay that Congress insisted on turn out to have very few teeth. That's in part because there are no limits on pensions -- so Whittle's $9 million pension would have been unaffected.

Senate Democrats last month tried to push the Treasury Department toward establishing stricter limits on executive pay. But during negotiations over the bailout, Treasury expressed the concern that stricter limits would reduce participation in the program.

Pro Publica notes the remarkable tale of Mack Whittle, the former CEO of South Financial Group, a South Carolina bank.

Whittle founded South Financial back in 1986, and under his leadership it grew to be the largest bank in the state. It expanded into North Carolina and Florida, eventually boasting $13.7 billion in total assets and 180 branch offices.

But Florida was one of the hardest hit states when the housing market crashed, and South Financial suffered. In early 2007, the bank's stock was above $26. Today it's at about $3.50. In the third quarter this year, South Financial posted a $25 million net loss.

In early September, Whittle announced that he planned to retire by year's end. A few weeks later, the financial crisis struck, and Congress soon passed a $700 billion bailout bill for banks. South Financial quickly announced that it would apply for bailout money.

Then, in a federal regulatory filing dated October 28, the bank quietly announced that Whittle had in fact stepped down as CEO a day earlier. No reason was given, and Whittle's successor as CEO had not yet been named.

So, why the expedited schedule? Perhaps because Whittle's new leaving date meant that he wasn't subject to limits on executive pay that were imposed as a condition of the bailout. As a result, Whittle enjoyed an $18 million send off, which includes a $9 million pension benefit, and perks like a $133,920 auto allowance and $75,000 for "financial planning." (He'll need some!)

And -- proving you can have your cake and eat it too -- earlier this week, it was announced that South Financial will receive $347 million from U.S. taxpayers as part of the bailout program.

South Carolina governor Mark Sanford, a Republican, has suggested that Whittle may have been "gaming the system" by moving up his retirement date, and has called for a Treasury Department investigation.

The bank said in a statement that the hefty package "reflected [Whittle's] 20 year career with [South Financial Group] as its founder and only CEO."

One expert on executive compensation told Pro Publica: "The whole idea was to avoid these types of arrangements" The Treasury "doesn't want the companies receiving taxpayer funds, terminating executives and having them walk away with excessive golden parachutes."

In this case -- and perhaps in others yet to be revealed? -- it looks like Treasury may have fallen short, to say the least.

Late Update: Given that its South Carolina governor Mark Sanford who's calling on the Treasury Department to investigate Whittle, it's worth noting that -- according to the Columbia paper The State (via Nexis) -- in 2006, Whittle was at the forefront of a group of state business executives who were dissatisfied with Sanford's policies toward business as governor, and backed a potential primary challenger, former state commerce secretary Bob Royall. Royall ultimately decided not to run, but it seems likely that Whittle isn't at the top of Sanford's Christmas card list, to say the least.

Yesterday we told you about the key role of the credit ratings agencies in helping to trigger the current financial crisis.

And today, the Wall Street Journal reports that a probe by the Senate's Permanent Subcommittee on Investigations will focus in part on that very subject.

As we explained, the leading ratings agencies -- Moody's, Standard and Poor's, and Fitch -- are paid by the banks whose securities they rate, creating a clear incentive for them to inflate their ratings.

The Senate investigation is expected to go more deeply into the problem than did hearings held last month by Rep. Henry Waxman's House Oversight Committee.

Norm Coleman, the subcommittee's ranking Republican, who will lead the portion of the investigation focusing on the ratings agencies, told the Journal: "We're going to look at the root causes of this, looking at whether the inherent conflict clouded the judgment of the agencies. Somebody missed something here. Was it because of the complexity or was it in the zeal to make money?"

The SEC, as well as New York Attorney General Andrew Cuomo, are already looking into the agencies. An SEC report released in July found "serious shortcomings" in their practices.

The cause of death of two U.S. soldiers is in dispute and the Army has reportedly shredded documents related to the case. The military claims the men died in enemy action in Iraq, but a Salon October report, based on eye-witness testimony and video footage, suggested they were killed by friendly fire and that the Army was engaged in a coverup. (Salon)

Washington lawmakers took some steps to install an oversight apparatus for the bailout yesterday, naming the last two members of the Congressional Oversight committee and vetting Neil Barofsky, President Bush's nominee for bailout inspector general, before the Senate Banking Committee yesterday. But senators said they were worried that, as currently structured, the bailout bill does not give the inspector general enough power. The committee said it would vote on Barofsky by the end of the week. (Washington Post)

A Government Accountability Office report released today blasts the Homeland Security Department for spending billions of dollars of taxpayer money on projects, like luggage scanning equipment and illegal immigrant raids, that are not properly reviewed before or after they start. (USA Today)

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Looks like Thomas Kontogiannis -- who's now in jail for helping launder bribes for his friend, former GOP Congressman Randy "Duke" Cunningham -- has more legal woes. He's been accused in a newly filed lawsuit of participating in a scheme to steal more than $50 million, reports Newsday.

The lawsuit, filed by Manhattan-based DLJ Mortgage Capital, alleges that Kontogiannis and others drew up false loan applications on residential properties in Brooklyn and Queens, which they either owned or planned to develop.

Newsday goes on:

The applications were approved by one of Kontogiannis' mortgage funding firms, which then obtained the money from DLJ and the other institutions, according to court papers.

DLJ and the other lenders eventually discovered that the mortgages were never recorded, the complaint stated, adding that the scheme was only uncovered when monthly mortgage payments ended. A further investigation revealed that many of the properties were then sold by Kontogiannis and the other defendants, DLJ said in its complaint.


Kontogiannis' wife Georgia, and other relatives, are also named as defendants.

Cunningham pleaded guilty in 2005 to conspiracy to commit bribery and is serving an eight year sentence in federal prison.

During Cunningham's recent sentencing, a prosecutor told the judge that there was an ongoing criminal investigation into Kontogiannis' alleged mortgage fraud.

This morning, reports the Wall Street Journal, credit ratings agency Standard & Poor's sharply downgraded its rating for bond insurer Ambac Financial, anticipating that the company's debt obligations would continue to absorb losses.

Why should we care?

Because this seemingly mundane piece of financial news offers a window into one of the crucial -- and often under-covered -- causes of the financial crisis currently shaking Washington and the country: the role of the credit ratings agencies. And inside that wider crisis, as we'll be making clear in the coming weeks, there's perhaps as much muck, both personal and institutional, as anything the Bush administration has given us over the last eight years.

First, a very quick and dirty rundown of the issue:

The banks and insurers felled by the collapse of the housing market relied on the three major credit ratings agencies -- S&P, Moody's, and Fitch -- to rate the mortgage-backed securities that they offered to investors. But here's the problem: the ratings agencies are paid for their work by the very banks and insurers for whom they're producing ratings. If the banks don't like the rating they receive from one ratings agency, they can simply go to another agency that's willing to produce a more favorable score -- what's known as "ratings shopping."

As a result, the agencies have an obvious incentive to knowingly inflate their ratings -- and sometimes even to rate junk securities that shouldn't even get a rating at all. And since many of these securities turned out to be all but worthless pools of home-loan mortgages, that's exactly what the ratings agencies often did.

Internal agency documents released last month as part of an investigation by Rep. Henry Waxman's House Oversight and Government Reform Committee show that at least some ratings analysts were aware that their ratings were more about increasing their company's bottom line than accurately gauging the value of the securities at issue.

Here's one IM exchange from April 2007, between two S&P analysts, reported last month by the Wall Street Journal --:

Rahul Dilip Shah: btw -- that deal is ridiculous. Shannon Mooney: I know right ... model def does not capture half of the risk Shah: we should not be rating it. Mooney: it could be structured by cows and we would rate it.


And in a 2007 presentation to directors, Moody's CEO Raymond McDaniel wrote:
Analysts and MDs [managing directors] are continually 'pitched' by bankers, issuers, investors -- all with reasonable arguments -- whose views can color credit judgment, sometimes improving it, other times degrading it (we 'drink the kool-aid'). Coupled with strong internal emphasis on market share & margin focus, this does constitute a 'risk' to ratings quality.


At a hearing he held on the issue, Waxman himself quoted another S&P analyst asserting:
Rating agencies continue to create an ever-bigger monster, the CDO market. Let's hope we are all wealthy and retired by the time this house of cards falters.


The ratings agencies are now being forced by events to at last downgrade some of these securities -- hence today's news about S&P's belated move to downgrade Ambac, which sent the company's stock plummeting.

Indeed, this same dynamic preceded the collapse of insurance giant AIG in September. Until the 15th of that month, S&P had rated its unsecured debt at AA minus, far above what it merited given the value of the underlying mortgages -- leading investors to see AIG as a secure bet. When, on that day, S&P suddenly and severely cut their rating to bring it into line with reality, the company was required to post $14 billion to comply with the terms of the credit default swap agreements they had entered into. That was $14 billion AIG didn't have, and all of a sudden, U.S. taxpayers were on the hook.

It doesn't have to be this way. Sean Egan is a founder of Egan-Jones, an independent ratings agency that's paid not by insurers, but by investors. In testimony before Waxman's committee, and again in an interview with TPMmuckraker, Egan emphasized that -- despite the apparent personal corruption of individual analysts and senior management at the agencies -- the only way to fix the problem is for the federal government to take steps to re-align the system of incentives that prevails on the agencies. If they're rewarded for giving investors an accurate picture of the value of securities, they'll be likely to do so. If not, they'll keep pumping up their ratings to please the banks. And soon enough, a new house of cards will rise and fall.

Barack Obama looks likely to pick Eric Holder -- who during the Clinton administration held the number two post at Justice -- to be his next attorney general.

Under Bush, as TPMmuckraker has chronicled, the department was subjected to an unprecedented degree of politicization, and generally exhibited a striking lack of independence from the priorities of the White House -- problems for which ex AG Alberto Gonzales, who had been George Bush's personal attorney in Texas, was ultimately forced to resign.

So we've combed through Holder's record of public comments to see whether, on these crucial issues, he seems likely to continue what Bush started, or to reverse it. Here's what we found:

For one thing, unlike Gonzo -- and despite Holder's failure to stop Clinton's last-minute pardon of the financier Marc Rich, for which he's already begun receiving heat -- he doesn't seem likely to be the president's stooge.

As The American Lawyer wrote in a profile this year, Holder was independent enough that he advised then-AG Janet Reno to allow the widening of Ken Starr's investigation into the Monica Lewinsky affair -- which ultimately led to Clinton's impeachment. And in a 2006 interview with National Journal for a story about Gonzales' performance as AG, Holder called the attorney general "the one Cabinet member who's different from all the rest." He continued: "The attorney general serves first the people, but also serves the president. There has to be a closeness, at the same time there needs to be distance."

Holder also seems less willing than his potential predecessors under Bush to take an expansive view of presidential power.

In 2004, Holder told CNN:

"If you're going to listen in on attorney/client conversations, as we did in the Clinton administration, the difference was we asked a judge to authorize it as opposed to simply saying we in the executive branch by ourselves can do this without any supervision by a judge. You also need to report to Congress on a regular basis to let them know what you're doing under the act."


Two months later, introducing (pdf) Al Gore at an American Constitution Society (ACS) discussion of "Institutionalized Dishonesty in the Bush Administration," Holder observed:
Military success and respect for civil liberties can -- and in fact, they must -- coexist. In achieving victory, we must not lose our nation's soul.


He added:
And we must also be mindful of the tactics we employ because the contemporary world, and ultimately history, will judge us only--not only by the magnitude of our inevitable victory, but also by the manner in which it was won.


And this June, in another speech at ACS, he spoke out against the Justice Department's stance on torture and the Geneva Convention:
I never thought I would see the day when a Justice Department would claim that only the most extreme infliction of pain and physical abuse constitutes torture and that acts that are merely cruel, inhuman and degrading are consistent with United States law and policy, that the Supreme Court would have to order the president of the United States to treat detainees in accordance with the Geneva Convention, never thought that I would see that a president would act in direct defiance of federal law by authorizing warrantless NSA surveillance of American citizens. This disrespect for the rule of law is not only wrong, it is destructive in our struggle against terrorism.


Still, as Salon's Glenn Greenwald has noted, Holder hasn't always taken that position. In January, 2002 -- admittedly, during a period when 9/11-induced panic was prompting a lot of otherwise smart people to take a hard line on these questions -- he told CNN:
One of the things we clearly want to do with these prisoners is to have an ability to interrogate them ... Under the Geneva Convention ... you are really limited in the amount of information that you can elicit from people.


In other words, despite some blemishes, it seems likely that under Holder, DOJ will begin a much-needed shift back towards being the non-partisan, independent law enforcement agency that, until Bush, it was known as.

Why is it taking so long for the Justice Department to answer written questions from members of the Senate Judiciary Committee?

That's the question Judiciary Chair Pat Leahy posed to Attorney General Mukasey in a letter sent today demanding answers to hundreds of written queries from 11 Judiciary hearings going back over a year. Over one hundred of the unanswered questions were directed to then-AG Alberto Gonzales in July 2007.

Leahy writes:

It is my hope that the Department will answer all outstanding questions before the adjournment of the 110th Congress. You can set an example by promptly returning responsive answers to the questions posed to you in connection with the July 9 oversight hearing, which was more than four months ago.


The questions are typically submitted in writing to the DOJ in the days after committee hearings, and witnesses have two weeks to respond, Leahy says in the letter. Attached to the letter is a chart with the list of unanswered questions -- there are over 300 -- date of submission, and the submitters. The questions, on issues like department oversight and voter protection, were submitted by senators of both parties to officials including FBI Director Robert Mueller and Mukasey himself.

A staggering 104 of the unanswered questions were submitted for Gonzales following this storied July 2007 hearing, at which the AG was grilled on his visit to John Ashcroft's hospital room. The Gonzales item indicates that "partial answers" have been received.

So what exactly are the unanswered questions about? The letter doesn't specify, but we'll look into it and let you know what we find.

TPMLivewire