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N.Y. Attorney General Investigates AIG’s ‘Staggering’ Bonus Mess

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Posted on Mar 17, 2009
AP photo / Mark Lennihan

American International Group’s New York office building. The U.S. government now holds an 80 percent stake in AIG, thanks to successive bailouts estimated in the neighborhood of $170 billion.

In a letter to House Financial Services Committee Chairman Barney Frank, reprinted here, New York Attorney General Andrew Cuomo shares what his office has discovered so far about AIG’s scandalous bonuses, which “made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout.”

STATE OF NEW YORK
OFFICE OF THE ATTORNEY GENERAL
120 BROADWAY
ANDREW M. CUOMO
Attorney General
NEW YORK, NY 10271
March 17, 2009
(212) 416-8050

Honorable Barney Frank
Chairman, House Committee on Financial Services
United States House of Representatives
2129 Rayburn House Office Building Washington, DC 20515

Re: AIG 2008 Retention Bonuses

Dear Chairman Frank:

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I am writing to provide you and your Committee with information regarding an ongoing investigation my Office has been conducting of executive compensation at American International Group (“AIG”). I hope this information will be useful to the Committee at its hearing on AIG tomorrow.

We learned over the weekend that AIG had, last Friday, distributed more than $160 million in retention payments to members of its Financial Products Subsidiary, the unit of AIG that was principally responsible for the firm’s meltdown. Last October, AIG agreed to my Office’s demand that no payments be made out of its $600 million Financial Products deferred compensation pool. While this was a positive step, we were dismayed to learn after the fact that AIG had made multi-million dollar payments out of its separate Financial Products retention plan on Friday.

AIG now claims that it had no choice but to pay these sums because of the unalterable terms of the plan. However, had the federal government not bailed out AIG with billions in taxpayer funds, the firm likely would have gone bankrupt, and surely no payments would have been made out of the plan. My Office has reviewed the legal opinion that AIG obtained from its own counsel, and it is not at all clear that these lawyers even considered the argument that it is only by the grace of American taxpayers that members of Financial Products even have jobs, let alone a pool of retention bonus money. I hope the Committee will take up this issue at its hearing tomorrow.

Furthermore, we know that AIG was able to bargain with its Financial Products employees since these employees have agreed to take salaries of $1 for 2009 in exchange for receiving their retention bonus packages. The fact that AIG engaged in this negotiation flies in the face of AIG’s assertion that it had no choice but to make these lavish multi-million dollar bonus payments. It appears that AIG had far more leverage than they now claim.

AIG also claims that retention of individuals at Financial Products was vital to unwinding the subsidiary’s business. However, to date, AIG has been unwilling to disclose the names of those who received these retention payments making it impossible to test their claim. Moreover, as detailed below, numerous individuals who received large “retention” bonuses are no longer at the firm. Until we obtain the names of these individuals, it is impossible to determine when and why they left the firm and how it is that they received these payments.

If AIG were confident in its claim that those who received these large bonuses were so vital to the orderly unwinding of the unit, one would expect them to freely provide the names and positions of those who got these bonuses. My Office will continue to seek an explanation for why each one of these individuals was so crucial to keep aboard that they were paid handsomely despite the unit’s disastrous performance.

As you may know, my Office yesterday subpoenaed AIG for the names of those who received these bonuses, and we plan to do everything necessary to enforce compliance. American taxpayers deserve to know where their money is going, and AIG’s intransigence and desire to obscure who received these payments should not be tolerated. Already my Office has determined that some of these bonuses were staggering in size. For example:

  • The top recipient received more than $6.4 million;
  • The top seven bonus recipients received more than $4 million each
  • The top ten bonus recipients received a combined $42 million;
  • 22 individuals received bonuses of $2 million or more, and combined they received more than $72 million;
  • 73 individuals received bonuses of $1 million or more; and
  • Eleven of the individuals who received “retention” bonuses of $1 million or more are no longer working at AIG, including one who received $4.6 million;

Again, these payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG. Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout. Something is deeply wrong with this outcome. I hope the Committee will address it head on.

We have also now obtained the contracts under which AIG decided to make these payments. The contracts shockingly contain a provision that required most individuals’ bonuses to be 100% of their 2007 bonuses. Thus, in the Spring of last year, AIG chose to lock in bonuses for 2008 at 2007 levels despite obvious signs that 2008 performance would be disastrous in comparison to the year before. My Office has thus begun to closely examine the circumstances under which the plan was created.

I look forward to continuing to cooperate with the Committee in any way possible to ensure that taxpayer funds are not misspent on unjustified bonuses or otherwise misused.

Andrew M. Cuomo, Attorney General of the State of New York


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By garth, March 18, 2009 at 1:34 pm Link to this comment

And these monies should be paid ASAP to ensure that these financiers remain happy.  We cannot break the covenant of the contract, or else, the next thing they’ll do is break the covenant of the old testament.  As you envagelical Christians will soon find out, you’ll have to give up your Bibles and start reading the Koran and kneel down for prayer to their God five times a day.
Who knows what evil lurks in the minds of men?  The Shadow knows.

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By Old Ed Of The Delta, March 18, 2009 at 12:56 pm Link to this comment

It is in my opinion that the confidentiality of the individuals who received or plan to receive the bonus money from American International Group must be held in the strictest secrecy.

The reason for keeping the identity of the proposed recipients confidential is to insure the safety of their families and themselves.

If the names of these folks became public knowledge then they could be come targets for terrorist, kidnappers, robbers, and other criminal elements lurking in society.

If they are entitled to any of these funds is another subject that can be addressed later in the courts or held in closed Congressional meetings.

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By garth, March 18, 2009 at 12:02 pm Link to this comment

I doubt very seriously that these Wall Street winderkinds are the ONLY ONES who can untangle this financial Gordian knot. 
Rep Marcy Kaptur urged people facing foreclosure to stay put because a lot of the mortgage companies did not have the appropriate paperwork to force anyone out of his or her home.
If the past is any indicator on why these Wall Street people do anything, then I suggest that they don’t want anyone to see exactly what it was that they did.  This cry for employee retention is simply the need for continuity in the coverup.  They know where the bodies are buried and how to send up a smoke screen in case someone asks some serious questions.
I’d go back to the sudden demise and takeover of WAMU.

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By Old Ed Of The Delta, March 18, 2009 at 10:39 am Link to this comment

The Financial Black Hole - We Are Forced To Pay Tribute - Like It Or Not.

We have right here on the planet Earth a financial black hole that relentlessly pulls billions of dollars towards its center of gravity.

This black hole is called the American International Group, Inc. The pull for money of this phenomenon is so great that it defies explanation by esoteric experts in such fields as credit default swaps and derivatives.

This black hole was conceived by some of the greatest business minds on Wall Street. This device appeared to run like a perpetual money making machine that did not obey the laws of economics.

The machinations of these devices was so complicated that only a few of the chosen management could be expected to successfully operate it. The drones in the regulatory agencies with in the Federal government, with little or no training in this field, could not be expected to comprehend the inter workings of these intricate machines. The brain power was vested in Wall Street firms, not in government. A few brilliant private and academic individuals suspected flaws in theses unregulated schemes, but it was more theoretical than being a sustainable fact.

Criminal intent: An opportunity to gain unjust enrichment through the chicanery in the development and manipulation of these complex financial instruments. This is a legal avenue that should be explored by the United States Attorney General office, the Justice Department and the Securities and Exchange Commission. If sufficient evidence can be uncovered that In the formative stages of these complex financial instruments, that key players at AIG had the opportunity and intent to support their motives of unjust enrichment.

 

The American International Group was an good operation until the fine hand of the Federal government forced such entities as Fannie Mae and Freddie Mac to make home loans inconsistent with the value of the collateral for these loans and the ability of the bowers to repay the loans. This resulted in an world wide economic domino effect where as AIG did not have the capital of meet their insurance default obligations.

Now we have a black hole of such monetary gravitational pull that failure to keep feeding this machine will result in a world wide financial melt down of unprecedented consequences.


Only the anointed ones can untie this economic Gordian knot.

The only people who have the expertise that created these devices are the very ones who can subsequently dismantle this black hole as they are schooled in the science of computer programs, complex trades, derivatives and the ascertainment of the current values of theses questionable financial instruments.  Any bail out of AIG will depend on their skills according to Edward Liddy, CEO of the American International Group, Inc.

“Mistakes were made at AIG on a scale few could have every imagined possible,”
a company whose financial transactions were so intricate and intertwined that it was considered simply too big to fail. “

Liddy said the company’s new management team found that the company’s “overall structure is too complex, too unwieldy and too opaque for its component businesses to be well managed as one company.”

Thus, we have all the necessary elements to perpetuate white collar crime on a gigantic scale. 

Sorry to say that these are the individuals who are the proposed recipients of bonus money from the coffers of AIG.

According to Mr. Liddy’ theory, some of these folks that have quit AIG a must be enticed to come back to the company to salvage it.

Perhaps withholding them of their bonus money they can successfully complete the task of the dismantlement of this black hole and the economy shows some form of recovery.

It is the old story of “just follow the money” and who got paid off. The threat of some jail time seems to have a very personal effect when it comes to memory enhancement and the loosing of tongues.

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By garth, March 18, 2009 at 8:44 am Link to this comment

And here’s how they’re going to do it.  This article appeard in the back pages of the Home / Business section of Sunday’s Boston Globe.

Merc gets OK to trade swaps

Associated Press / March 15, 2009
WASHINGTON - The Securities and Exchange Commission on Friday approved temporary exemptions from agency rules that will allow the Chicago Mercantile Exchange to operate as a central clearinghouse for transactions involving credit default swaps.

It was the third such approval granted by the SEC to a trading firm since December. The moves go toward creating a new system of central clearinghouses for the swaps, complex investments traded globally that have been partly blamed for the financial crisis.

Well-regulated central clearinghouses should help promote stability in the financial markets by reducing the risks from the default or financial distress of a major market player, the SEC says.

The Chicago Mercantile Exchange, the world’s largest financial exchange, is part of Chicago-based CME Group Inc., along with the Chicago Board of Trade and the New York Mercantile Exchange. The Chicago Merc, as it is known, joined with Citadel Investment Group LLC, one of the biggest hedge funds, to apply to operate the new clearinghouse.

Traded in a $60 trillion market that is unregulated and secretive, credit default swaps have come under scrutiny by Congress and federal regulators in the wake of the financial and credit crises that have plunged economies around the world into recession.

The swaps are commonly used contracts to insure against the default of financial instruments such as bonds and corporate debt. But they also are bought and sold as bets against bond defaults.


What I meant by all over is democracy as we thought we knew it.  Maybe some of us were/are naive.

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By Blackspeare, March 18, 2009 at 8:32 am Link to this comment

It’s not over yet——the worst is yet to come:

In about a week the government is set to giveaway up to $2 trillion to the “shadow banking system,” an almost completely unregulated, mostly entirely unknown sector within our nation’s financial infrastructure comprised primarily of hedge funds. They’re calling this program the “Term Asset Loan Facility (“TALF”).

The purpose of this latest Wall Street welfare giveaway is to provide “loans” so that they may purchase all of those toxic assets from the formal banking system.  (You remember them, right? They’re the ones that have also received all of those TARP funds, to date)

Here’s why your head would explode if you were actually aware of what was going on with this quintessential travesty—without exaggeration perhaps the biggest boondoggle of all time.  The $2 trillion in taxpayer funds with have no salary restrictions. The Federal Reserve has decided that all employee salary/bonus compensation restrictions—a la AIG—will be lifted for all of the unregulated shadow banking firms that will participate in this program.

As I like to call it——the search for more money!

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By garth, March 18, 2009 at 7:45 am Link to this comment

It might be getting close to the time when we have wake up that bald little fraud from California, Whacky Waxman, to get on his high horse and investigate the use of drugs in baseball, or to muss up Rep Markey’s hair and get him riled about the cable rates.
Eamon Javers of Roll Call said this brouhaha is not a coverup for the huge payments that AIG is making because this story, the bonuses one, broke before the AIG major payout did.  Duh! 
Who knew?
Now, $165 bn is a lot of cash.  Let’s turn the page and see what’s on page 2.  Hmmmmm, health care bill the maintains the insurance companies and negates the possibility of single payer.  Unimportant, minor legislation that has no effect on peoples’ lives.  Like Sen Lautenberg of NJ said after he voted for the Bankruptcy bill, “It won’t affect that many people.”
Or better yet that unimportant, bubble of the future, the Cap ‘n Trade. 
Lest we forget, it’s all over!
Or maybe it’s cover for the new handy man, Barack Obama, becuase he doesn’t seem to be demonstrating any of the great intelligence that he was so noted for in the drum beat to end the War in Iraq.

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By Purple Girl, March 18, 2009 at 5:27 am Link to this comment

RICO and ECONOMIC TREASON!!!!!
Through embezzlement, and money laundering these Capos have distroyed our Economy and the Worlds.
then they come to US to kick down some more funds- ‘do it of the place goes up in flames’...That’s extortion.
I gotta give it to the Mafia, at least they never fucked over the entire country.Of course they were never stupid enough to allow their greed to destroy their future business.they actually had concern about the continuation of the ‘Family Business’.These asholes didn’t give a shit about the country nor even their own descendants- they stole it all and left US all to suffer the consquences. Hell their Kids should be turning them in like Madoff’s did! ‘Daddy got a 10 million dollar bonus- now you Sonny get to pay it off over the course of your life time, along with your kids!!Oh on now the Economic situation is such you will have to HOPE you can get a Janitorial Job to do it’
Screw this Asking, even legislating to try and get our money back- Start Prosecuting for Organized Crime and Economic Treason. “commit Suicide”, Not on you life….Send them to prison for life and put them in General Pop- Let the others use them as ‘Boy Toys’- that includes any woman who were involved too!CHOO CHOO!!!

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By mud, March 17, 2009 at 10:11 pm Link to this comment

Good idea congress. Put on a another show while the plain plummets from the sky. Maybe no one will notice the ground getting closer.

Keep repeating. Greedy homeowners cased this mess. Bonuses caused this mess. It had nothing to do with the burst of a derivatives bubble equaling $190K for every person on the Planet.

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By Blackspeare, March 17, 2009 at 7:44 pm Link to this comment

As I said the bigger story is where the bulk of the bailout money went….go to:

http://www.slate.com/id/2213942/

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By ApprxAm, March 17, 2009 at 7:14 pm Link to this comment

Hey, gang.  Remember when Eliot Spitzer, yeah the Governor-John of NY, as AG, had AIG in the cross hairs and every RePugNaCon complained that he was show-boating and bucking for higher office.  Anyhoo, something must have scared him off then because he caved and settle with them.

Huff-Po is claiming that a provision to cancel bonus payments at AIG was removed and as of yet, no one knows who.

It’s official, AIG is GOD spelled backwards.

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By Blackspeare, March 17, 2009 at 6:36 pm Link to this comment

The next bailout payment is scheduled to be $80 billion.  Just reduce that amount by the value of the bonuses and they’ll just get $79.825 billion——that will teach them!!!!!

What a waste of time.  Better to find out where the rest if the bailout money was spent.

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By Eric Welch, March 17, 2009 at 5:42 pm Link to this comment
(Unregistered commenter)

It would seem that contracts are a big issue for the right.  How dare we break their contracts. Fine.  Take the $80+ billion back they were loaned and don;t give them any more. Then they can enjoy the fruits of the free market and give themselves all the bonuses they want.

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By Eugene e. Jarrel, March 17, 2009 at 3:59 pm Link to this comment
(Unregistered commenter)

Barney Frank C. Dodd are trying to cover their behinds by NOW suggesting AIG did some TERRIBLE deeds by giving AIG personnel their just contractual bonuses. Both Frank and Dodd KNOW that they used AIG to funnel BILLIONS of dollars to other banks and foreign governments. AIG is nothing more than their Laundering Bank. When will the truth come out. Cuomo is nothing but a lap dog for the Liberals and his “investigation” will lead nowhere.
Now Obama is playing same blame game.
Who wrote their scripts, the inbred snapping turtle Carville?

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