Obama Seeks A Block Of AIG Bonuses; N.Y. AG Begins Probe

WASHINGTON--President Obama today ordered Treasury Secretary Tim Geithner to "pursue every legal avenue" to block $165 million in retention bonuses being paid to executives at American International Group's embattled Financial Products unit.

At the same time, New York Attorney General Andrew Cuomo said he has commenced an inquiry, and was issuing subpoenas to investigate the possibility the AIG retention payments were illegal.

In a letter sent today to AIG Chairman and Chief Executive Officer Edward Liddy, Mr. Cuomo asked for information on whether any of the retention payments that are the target of outraged comments by Congress and government officials "may be considered fraudulent conveyances under New York law."

An AIG spokesperson reacted to the comments by President Obama and Attorney General Cuomo by pointing to Mr. Liddy's letter to Secretary Geithner, where he describes them as "distasteful."

Mr. Liddy said the firm is bound by contract to pay them and faces "serious legal as well as business consequences for not paying." He added that the firm cannot attract top talent "if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

"No one is trying to micromanage, but we do want fairness," Mr. Cuomo in response to Mr. Liddy's statement.

Mr. Cuomo told the company he wanted information about the retention bonus contract to be submitted by 4 p.m. today, or he "will issue subpoenas and seek, if necessary, to enforce compliance in court."

After 4 p.m. at a hastily called teleconference the attorney general said, "we're going to be issuing subpoenas as we speak."

Mr. Cuomo asked Mr. Liddy to show him the contracts "you now claim obligate you to make these payments."

He also asked for information on who negotiated the bonus contracts and who developed this retention plan "so we can begin to investigate the circumstances surrounding these questionable bonus arrangements."

Mr. Cuomo said the he understood that the bonus checks had been mailed out Friday and the company was taking the position that it was a moot legal question because "the horse is out of the barn."

The attorney general said he thought a case could be made that the contracts were a "fraudulent conveyance."

If the company in signing the contracts was paying money it didn't have "and they knew or had reason to know the [financial] landscape was changing. You could argue they were fraudulent conveyances."

Mr. Cuomo said he hopes to determine if the management signed contracts "when you knew the company was going south."

President Obama made his comments at a media event he had scheduled late last week to disclose how he proposed to help small businesses survive the current economic downturn by opening new lending options.

But he opened the meeting by taking on AIG, saying, "This is a corporation that finds itself in financial distress due to recklessness and greed."

The president said that given that AIG has been provided $173 billion in cash in order to remain solvent, with $30 billion in aid also available, "under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay."

"How do they justify this outrage to the taxpayers who are keeping the company afloat?" he asked. "This isn't just a matter of dollars and cents. It's about our fundamental values," he added.

"All across the country, there are people who work hard and meet their responsibilities every day, without the benefit of government bailouts or multimillion-dollar bonuses," he said.

"And all they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules," President Obama said.

Secretary Geithner had tried to persuade Mr. Liddy to forego payment of the bonuses to the derivatives unit based in London held primarily responsible for AIG problems paying collateral on credit default swaps.

By the end of 2007, credit default swaps issued by AIG to protect owners of debt securities backed by subprime mortgage insured $527 billion in debt whose value has since declined substantively.

A statement released by AIG yesterday said $52 billion of the $173 billion in cash provided by the government from Sept. 16 to Dec. 31, 2008 was used to pay counterparties to the CDS the losses on their purchases.

In his letter, Attorney General Cuomo said the decision to pay the bonuses without disclosing the names of recipients to him "breeds further cynicism and distrust in our already shaken financial system."

He concluded by saying, "Taxpayers of this country are now supporting AIG, and they deserve at the very least to know how their money is being spent.

"And we owe it to the taxpayers to take every possible action to stop unwarranted bonus payments to those who caused the AIG meltdown in the first place," he added.

This article updated 4:53 p.m.