New York Attorney General Andrew Cuomo announced yesterday thatAmerican International Group has agreed to freeze a $600 millionemployee compensation and bonus pool, as well as payments to formerchief executive Martin Sullivan.

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Mr. Sullivan would have been paid approximately $19 million plusother benefits, according to a letter Mr. Cuomo sent to EdwardLiddy, AIG's current chairman and chief executive officer.

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Mr. Sullivan left his post in June after the company postedbillions in losses and was replaced by Robert Willumstad. Mr.Willumstad AIG when the cash-strapped company arranged for an $85billion Federal Reserve Bank loan in exchange for giving thegovernment a 79.9 percent interest in the conglomerate.Subsequently the firm increased its borrowing.

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The attorney general has been monitoring AIG spending sincethreatening to sue the company if it did not halt "outrageous"expenditures for lavish meetings and executive compensation.

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AIG "has agreed and confirmed that no funds will be distributedout of the $600 million deferred compensation and bonus pools ofAIG's Financial Products subsidiary," Mr. Cuomo said in the letterhe released. The money would be withheld until the company repaysthe government..

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His message to Mr. Liddy said it is his position "that until thetaxpayers are repaid with interest the more than $120 billion thathas been used in the rescue financing of AIG, no funds should bepaid out of these pools to any executives."

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The letter said further Mr. Cuomo understood that Joseph Casano,the former head of AIG's Financial Products subsidiary, has a $69million share of the $600 million fund, while five other executiveshave a total share of $93 million.

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"The Financial Products subsidiary was largely responsible forAIG's collapse and Casano has been terminated," noted Mr.Cuomo.

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"We must ensure that executive pay package structures no longercreate improper incentives for executives to over-leverage theircompanies and manipulate the books for their own short-termfinancial benefit," his letter proclaimed.

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It also said in part that "given the overall circumstances andthe damage incurred by the American taxpayer, their interestsshould be paramount. I applaud the different tone you are nowsetting at AIG, which augers well for the company going forward,and I hope it will set a new standard for corporate culture atsimilarly situated firms."

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Last week AIG agreed to cancel 160 meetings that would have costthe company about $80 million.

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Mr. Cuomo's latest agreement and criticism of AIG follows angryremarks by Rep. Paul Kanjorski who called on the Federal ReserveBoard to better "police" AIG's spending and impose executive paylimits. Otherwise, Rep. Kanjorski said, "I will do itlegislatively." According to one attorney the Fed has no power toregulate executive pay.

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Rep. Kanjorski, D-Pa., is chairman of the Capital MarketsSubcommittee of the House Financial Services Committee. He made hiscomments during a hearing on how financial services industryregulation should be revised to prevent the type of activity thatresulted in the need for AIG to seek a bailout from thegovernment.

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After all, Mr. Kanjorski said during a hearing, "the FederalReserve lending money to AIG is no different from the Treasuryinvesting capital in a bank." The Fed is exercising directoversight of AIG through government ownership of 79.9 percent ofits shares under the bailout deal.

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