AIG Freezes Bonuses, Severance Payments, Halts Lobbying, Cancels Events

This includes $19 million plus other benefits owed former CEO Martin Sullivan under the terms of his contract. Also included is $69 million owed to Joseph Cassano, head of the London-based AIG Financial Products unit, where the sale of credit default swaps on mortgage-backed securities prompted AIG's financial crisis.

In addition, Mr. Cuomo said, besides Mr. Cassano, five other top executives in AIGFP are due $93 million from the $600 million fund. Those payments, too, will be frozen.

Mr. Cuomo said he justified the decision because "the Financial Products subsidiary was largely responsible for AIG's collapse, and [Mr.] Cassano has been terminated."

"I believe that rebuilding trust in our capital markets requires executive compensation packages that are rational, fair and based on bona fide performance measures that are disclosed to the public," he added. "We must ensure that executive pay package structures no longer create improper incentives for executives to over-leverage their companies and manipulate the books for their own short-term financial benefit."

He said "the American taxpayer is now supporting AIG, making the preservation of these taxpayer funds a vital obligation and a priority responsibility of your company."

At the same time, a lawyer familiar with the document said the loan agreement between the Fed and AIG has no language giving the Fed authority to set limits on executive pay, bonuses or retention payments.

Prior to AIG's latest announcement, Rep. Paul Kanjorski, D-Pa., had called on the Federal Reserve Board to better "police" AIG's spending and impose executive pay limits. Otherwise, Rep. Kanjorski said, "I will do it legislatively."

Rep. Kanjorski, who chairs the Capital Markets Subcommittee of the House Financial Services Committee, made his comments during a hearing last week on how financial services industry regulation should be revised to prevent the type of activity that resulted in the need for AIG to seek a bailout from the government.

After all, Rep. Kanjorski said during the hearing, "the Federal Reserve lending money to AIG is no different from the Treasury investing capital in a bank." The Fed is exercising direct oversight of AIG through government ownership of 79.9 percent of its shares under the original $85 billion bailout deal, with another $37.8 loaned to company shortly thereafter.

Earlier, AIG announced that it had replaced its chief financial officer, cancelled 160 conferences and events, and halted its lobbying activities, while promising to seek to recover bonus payments to executives.

AIG made a joint announcement on Oct. 17 with Mr. Cuomo, who the previous day had threatened to sue the company unless it acted to recover "unwarranted and outrageous" spending on junkets and golden parachutes for former executives.

AIG and Mr. Cuomo said the firm's action came after a "candid discussion" Mr. Cuomo held in his office with Mr. Liddy.

The company said it would provide an accounting of executive compensation and assist his office in "recovering any illegal expenditures. This includes all forms of compensation paid to former CEO Martin Sullivan and the former head of the Financial Products Unit, Joseph Cassano."

Mr. Cassano was let go in February without cause and allowed to keep up to $34 million in unvested bonuses. He was also placed on a $1 million retainer by AIG.

Meanwhile, AIG agreed with Mr. Cuomo to cancel about 160 events scheduled for coming months–expected to cost a total of $80 million, an AIG representative said. The move was prompted by criticism of AIG's $440,000 sales incentive meeting for life producers, held shortly after the firm secured its government loan to stay afloat.

AIG has "behaved like a pig at the taxpayer's trough, and it must stop," Rep. Kanjorski said in a letter to Federal Reserve Board Chairman Ben Bernanke. He suggested the Fed and Mr. Cuomo expand their initiatives to recoup unnecessary spending by AIG to recover "all unnecessary perks paid by AIG since the time it sought and received government assistance."

Rep. Henry Waxman, D-Calif., chair of the House Oversight and Government Reform Committee, asked AIG to provide information on the pay of all its executives over the last few years and to disclose how much it has spent on junkets for agents and brokers since it applied for government help in mid-September.

The letter from Rep. Waxman also demanded that AIG provide information on the oversight of AIG Financial Products.

Rep. Waxman said the committee wants information on the conference calls AIG's corporate headquarters held weekly with officials in the Financial Products unit, as well as "all documents and communications" between the company and the people who ran the swaps unit during the last two years.

In his letter, Rep. Kanjorski also suggested that the Fed review Mr. Cuomo's agreement, which deals with state laws, compare it to the executive compensation standards in the new federal law allowing the federal government to spend up to $700 billion to provide capital and funding to troubled financial institutions, and "impose the stricter of the two on AIG or any other company that receives a direct loan from the Federal Reserve in the future."

Rep. Kanjorski also asked in his letter that the Fed create an ombudsman to deal with consumer complaints relating to AIG, its affiliates and subsidiaries, and any other company receiving assistance from the Federal Reserve.

In a related development, last week the carrier also decided to "suspend all lobbying activities in conjunction with a review of all AIG expenditures and activities."

According to the Center of Responsive Politics, in the 30 months from Jan. 1, 2006 to June 30, 2008, AIG spent $26 million for outside lobbyists. CRP said this year, AIG has spent $6.6 million on in-house lobbying activity, while outside lobbyists have been paid $768,000.

Sen. Dianne Feinstein, D-Calif., and Sen. Mel Martinez, R-Fla., wrote a letter to Mr. Liddy that asked him not to use AIG's government loan to try to roll back tougher mortgage-industry licensing requirements and other controls. The provisions were contained in an amendment to a housing bill passed by Congress in July that was sponsored by the two senators.

"AIG has spent millions to lobby states to soften the licensing provisions, even after taxpayers loaned AIG more than $120 billion to prevent its collapse precipitated by excessive risk-taking," the senators wrote in their letter. "We find it unconscionable."

An AIG representative, Joseph Norton, said AIG employees in Washington and elsewhere who engage in lobbying will remain on the payroll pending the company's lobbying review, undertaken "to ensure that everything the company does goes to restore its profitability and return every cent of taxpayer help to the American people."

Meanwhile, the company named David Herzog as executive vice president and chief financial officer, replacing Steven J. Bensinger, who had served since May as vice chairman for financial services and acting CFO. Mr. Bensinger will not get a multimillion-dollar pay package that had been previously arranged.