New York Attorney General Andrew Cuomo yesterday excoriated American International Group over multi-million dollar outlays for executive bonuses, "golden parachutes" and executive junkets during its fiscal crisis, and threatened to sue if the company did not act to recover the money.
Mr. Cuomo, who held a press conference to denounce the company, released a letter he sent AIG, stating that "the taxpayers of this country are now supporting AIG through rescue financing, which makes such expenditures even more irresponsible and damaging."
He added a "demand" that the AIG board of directors "cease and desist any such further expenditures, and review, rescind and recover all past unreasonable expenditures."
In response, AIG said it would fully cooperate with Mr. Cuomo's office, noting that "on October 10, we issued a clear directive ending all activities that are not essential to the conduct of our business. We will continue to take all measures necessary to ensure that these activities cease immediately. AIG's priority is to continue focusing on actions necessary to repay the Federal Reserve loan and emerge as a vital, ongoing business."
AIG outlays first came into the spotlight for criticism at an Oct. 7 hearing in Congress by the House Oversight and Government Reform Committee, where members of the panel slammed the company for expenditures that included $440,000 for a function at a the posh St. Regis Monarch Beach Resort in California.
It was originally described as a retreat for executives, but later AIG said it was a function to reward independent life insurance agents. The company last week canceled a similar event for property-casualty agents.
However, Mr. Cuomo said the company after the Fed's original $85 billion loan had paid "hundreds of thousands of dollars for luxurious retreats for its executives, including an overseas hunting party and a golf outing." The spending, he said, violated New York's debtor and creditor law, which deems such payments to be fraudulent conveyances.
The congressional hearing also revealed that with problems mounting in 2007–and with AIG losing $5 billion in the final quarter alone–the AIG board gave its then chief executive officer, Martin Sullivan, a cash bonus of more than $5 million, as well as a new compensation contract that provided him with a golden parachute worth $15 million. Mr. Cuomo's letter criticized these moves.
Also disclosed by Congress was the fact that Joseph Cassano–who headed the AIG Financial Products unit that put the company in its current financial bind with its sale of credit default swaps to protect mortgage-backed securities–after being terminated in February without cause, was allowed to keep up to $34 million in unvested bonuses and was placed on a $1 million retainer by AIG.
Mr. Cuomo's letter said AIG had made "unwarranted and outrageous expenditures…even as the company slipped towards insolvency."
In addition to seeking to recover monies, Mr. Cuomo wrote that the company's board "must also immediately institute new protections to prevent future abuses, and provide this Office with an accounting of executive compensation and benefits. We hereby place AIG and its Board on notice that this Office will seek appropriate sanctions and remedies if the Board does not comply."
The AIG board, he said, must review, rescind and recover all improper payments where appropriate, and provide his office with "an accounting of all executive compensation, including but not limited to bonuses, stock options, severance payments, gratuities, benefits, junkets, and any and all other perks from Jan. 1,2007, to date."
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