DO NOT SEAL EVIDENCE OR THE RECORD

[David A. Szwak]

Judge Lectures Counsel On Request to Make Documents 'Disappear'

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By Anthony Lin
New York Law Journal
February 14, 2006


A federal judge in Manhattan has blasted a pair of private equity executives, both of whom are also lawyers, for asking him to make allegations against them "disappear" after the settlement of a suit that accused them of "fundamentally dishonest behavior."

American International Group Inc., filed suit Feb 1. against two former top executives of its AIG Capital Partners private equity arm, Chief Executive Peter Yu and General Counsel William Jarosz. The insurance giant accused them of stealing confidential client information from AIG computers to help them launch a new private equity fund.

The parties settled under confidential terms last week, a day after a forensic computer specialist submitted a declaration that Mr. Yu appeared to have accessed thousands of documents on AIG computers in the weeks following his termination last April.

As part of the settlement, David S. Golub, the lawyer for the two executives, asked Southern District Judge Lewis A. Kaplan at a hearing last Wednesday to vacate and then seal an earlier temporary restraining order (TRO) issued against the defendants.

"I'm quite uncertain, literally uncertain as to whether I want to be a party to that," the judge responded.

According to a transcript of the hearing, Judge Kaplan expressed concern about the swiftness of the settlement following the introduction of forensic evidence showing Mr. Yu "plugged his laptop into the AIG system and took the crown jewels, loosely speaking."

"The minute that assertion was made and the evidence placed before me," the judge continued, "Mr. Golub, like the good lawyer that I know him to be, picked up the phone, called his client and faced with what, if there were any truth to the allegations, could be a disaster for the defendants, suddenly the case was settled, and now the defendants are saying 'make it disappear'."

He likened the request to vacate and seal the prior TRO to a hypothetical cover-up by a manufacturer "accused of making a dangerous and defective product"

"[W]hen evidence finally surfaces to support the idea that that is, in fact, true, the case gets settled and everybody agrees that the case will disappear and the evidence will disappear," the judge said.

Judge Kaplan said he understood the strong argument in favor of the private settlement of disputes but he said he had to weigh that against the allegations of dishonesty against defendants "who are in the business of raising a fund, an investment fund, whereby they want to manage other people's money."

He said there was a strong argument for the public interest in such a situation.

"That may be defeated where a private settlement deprives the public of information that has been placed before a federal court, and that indicates a risk of harm to members of the public, and I wondered whether that analogy isn't present here," said Judge Kaplan.
The judge, a former litigation partner at Paul, Weiss, Rifkind, Wharton & Garrison, told Mr. Golub he understood the defendants' "PR concerns" but he also questioned the value to them of sealing the temporary restraining order while keeping the complaint, the evidence, and the fact the defendants had "put up a mighty fight to keep the [TRO] language secret" in the public record.

"[W]ith all due respect," the judge said, "I think what I would say if I were representing your clients is what are you doing here? You're making it so much worse for yourself."

Despite expressing his "very substantial reservations" about granting the requested relief, Judge Kaplan said he would vacate and seal the TRO in the interests of the settlement, noting that no other parties had expressed any interest in it anyway.

"If nobody cares about this outside the litigants in this case, then it is not a hard problem, and there would be no harm in it being sealed," the judge said. But he added that he was "quite skeptical" that there would be grounds to maintain the seal "if somebody intervened with proper standing and so forth to challenge the continued sealing."

Mr. Yu, a Harvard Law School graduate who clerked for U.S. Supreme Court Justice John Paul Stevens and was an advisor to President William J. Clinton, was fired in April 2005 as the CEO of AIG Capital Partners.

In an affidavit in which he also denied accessing AIG computers, Mr. Yu suggested his dismissal was due to his opposition to overseas investments that were later investigated by the Federal Bureau of Investigation, resulting in the indictment of another AIG executive.

Mr. Yu and Mr. Jarosz, another Harvard Law School graduate and a former Debevoise & Plimpton associate, had also reportedly been upset that AIG backed out of a deal to sell the private equity business to them.

Mr. Golub is with the Stamford, Conn., firm of Silver, Golub & Teitell. AIG has been represented in the case by Michael Carlinsky of Quinn Emanuel Urquhart Oliver & Hedges.

AIG last week agreed to pay $1.64 billion to settle federal and state charges over alleged accounting fraud and bid-rigging at the insurance giant. The company is also currently embroiled in litigation against its former CEO, Maurice "Hank" Greenberg, who it claims is trying to lure AIG clients away to his C.V. Starr & Co. group of insurance brokerages. Mr. Greenberg also continues to face civil charges for his role in alleged fraud at AIG.

— Anthony Lin can be reached at alin@alm.com.