Cuomo to Investigate AIG's Pay Practices
Thursday, October 16, 2008
American International Group, the insurance giant U.S. taxpayers recently rescued from bankruptcy, is under scrutiny by New York investigators for possibly breaking the law by giving hefty executive bonuses while company leaders knew AIG was in danger of going broke.
New York Attorney General Andrew M. Cuomo notified AIG's board in a letter yesterday that his office will investigate the tens of millions of dollars the company paid to its departing chief executive and another senior executive linked to the company's losses. He also demanded that AIG account for its recent expenditures on executive compensation, travel and perks, and said he will seek reimbursement.
Cuomo argued that the bonuses, along with expensive junkets in recent weeks to hunt in England and golf in California, were illegal under New York law. The law prohibits corporate insiders from enriching themselves and endangering creditors when their firm is in danger of insolvency. Cuomo also threatened legal action if AIG did not immediately cease spending "irresponsible and damaging" sums for executive compensation and trips while the company is receiving a $123 billion federal bailout.
"The party is over," Cuomo said at a news conference on Wall Street. "No more hunting trips. No more luxury resorts. They are not going to have the party and leave the hangover for the taxpayers."
AIG spokesman Peter Tulupman said the board was being notified of Cuomo's concerns.
"On October 10, we issued a directive ending all activities that are not absolutely essential to the conduct of our business," Tulupman said. "AIG's priority is to continue focusing on actions necessary to repay the Federal Reserve loan and emerge as a vital, ongoing business."
Cuomo said unnecessary expenditures were approved as AIG was "teetering toward bankruptcy." Records provided to congressional investigators show senior AIG officials had been alerted to the firm's looming debts and the threat of bankruptcy as early as the fall of 2007.
Cuomo cited the AIG board's March decision to award then-chief executive Martin Sullivan a $5 million cash bonus and a departure package worth $15 million. He noted that the board also agreed in February to continue $34 million in bonuses and pay a $1 million-a-month consulting fee to a departing senior executive, whose division was largely responsible for the guarantees on mortgage-backed investments that caused AIG $25 billion in losses. That executive is Joseph Cassano, former head of AIG Financial Products, who departed this spring.
Lawmakers fumed last week when they learned that the company paid $440,000 for a week-long resort retreat in California for top-performing insurance agents. The expenditure occurred just days after Sept. 16, when the government announced its $85 billion loan. This month, as AIG asked for an additional $38 billion in taxpayer financing, top AIG executives spent thousands on a hunting trip in England.
Federal and many state laws prohibit corporate leaders from making "fraudulent conveyances," or transactions that do not fairly benefit a firm when it is in financial peril.
Separately, sources close to former AIG chief executive Maurice R. "Hank" Greenberg confirmed that he cited his fifth amendment rights in declining to answer questions last weekend from lawyers in Cuomo's office concerning controversial transactions with insurer General Re. Cuomo's office has been looking into Greenberg's involvement in a $500 million deal in 2000 that investigators think AIG used to conceal its ability to cover losses.