New York Attorney General Andrew Cuomo will issue subpoenas to insurance giant American International Group on Monday after the company missed a deadline to give him details about employees set to receive millions of dollars in bonuses.
Cuomo says his office will investigate whether the employees were involved in the insurance giant’s near-collapse and whether the $165 million in bonus payments are fraudulent under state law. AIG reported this month that it lost $61.7 billion in the fourth quarter of last year, the largest corporate loss in history.
Cuomo sent a letter to CEO Edward M. Liddy on Monday morning, setting a 4 p.m. deadline for the company to send him a list of employees who were to receive bonus money.
“We were disturbed to learn over the weekend of AIG’s plans to pay millions of dollars to members of the Financial Products subsidiary through its Financial Products Retention Plan. Financial Products was, of course, the division of AIG that led to its meltdown and the huge infusion of taxpayer funds to save the firm,” Cuomo wrote.
“We have requested the list of individuals who are to receive payments under this retention plan, as well as their positions at the firm, and it is surprising that you have yet to provide this information,” he added. “Covering up the details of these payments breeds further cynicism and distrust in our already shaken financial system.”
The news comes after President Barack Obama announced his administration will “pursue every legal avenue” to stop the company from paying the $165 million in executive bonuses.
Obama made the declaration at the outset of an appearance at the White House to announce new steps to ease loans for small businesses hurt by the economic crisis.
Obama said he has asked Treasury Secretary Timothy Geithner to use the leverage of government assistance to AIG to get the company to roll back the bonuses. He said the company cannot justify “this outrage to the taxpayers” who are keeping it afloat.
“It is unacceptable for Wall Street firms receiving government assistance to hand out million dollar bonuses, while hard-working Americans bear the burden of this economic crisis. That is why Secretary Geithner has made it clear to AIG that their bonus structure for senior executives is inappropriate,” an official told CBS News.
The official said the bonuses have “long been known about inside and outside AIG” but that the administration didn’t want to accept them.
The White House is clearly concerned that public reaction the bonuses could affect the president’s overall economic goals, reports Maer. But the company insists some of the bonuses are part of legally binding contracts signed before the government’s AIG bailout.
Meanwhile, on NBC’s “Today” show this morning, Democratic Rep. Barney Frank, chairman of the House Financial Services Committee, said the bonuses amounted to “rewarding incompetence.”
“These people may have a right to their bonuses. They don’t have a right to their jobs forever,” Frank said. “Maybe it’s time to fire some people.”
Yesterday, White House National Economic Director Lawrence Summers called the bonuses “outrageous” on CBS’ Face The Nation.
Meanwhile, American International Group Inc. used more than $90 billion in federal aid to pay out foreign and domestic banks, some of whom had received their own multibillion-dollar U.S. government bailouts.
Some of the biggest recipients of the AIG money were Goldman Sachs at $12.9 billion, and three European banks – France’s Societe Generale at $11.9 billion, Germany’s Deutsche Bank at $11.8 billion, and Britain’s Barclays PLC at $8.5 billion. Merrill Lynch, which also is undergoing federal scrutiny of its bonus plans, received $6.8 billion as of Dec. 31.
The embattled insurer’s disclosure on Sunday came amid outrage on Capitol Hill over its payment of tens of millions in executive bonuses, and followed demands from lawmakers that the names of trading partners who indirectly benefited from federal aid to AIG be made public.
The company, now about 80 percent owned by U.S. taxpayers, has received roughly $170 billion from the government, which feared that its collapse could cause widespread damage to banks and consumers around the globe.
In an exclusive interview aired Sunday on 60 Minutes, Federal Reserve Chairman Ben Bernanke spoke with unusual candor of the frustration he felt in bailing out AIG.
“Of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG,” Bernanke told 60 Minutes correspondent Scott Pelley.
“Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, we had a situation where the failure of that company would have brought down the financial system,” Bernanke said.
“It makes me angry. I slammed the phone more than a few times on discussing AIG. I understand why the American people are angry. It’s absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets, that was operating out of the sight of regulators, but which we have no choice but to stabilize, or else risk enormous impact, not just in the financial system, but on the whole U.S. economy,” he told Pelley.
The $90 billion chunk of the bailout money went to banks to cover AIG’s losses on complex mortgage investments, as well as for collateral needed for other transactions.
Other banks receiving between $1 billion and $3 billion from AIG’s securities lending unit include Citigroup Inc., Switzerland’s UBS AG and Morgan Stanley.
Municipalities in certain states, including California, Virginia and Hawaii, received a total of $12.1 billion under guaranteed investment agreements.
The company said it used billions more to fund its Maiden Lane business, which was set up following the federal bailout to purchase toxic assets, and to repay debt and provide capital for some of its operations.
The details from AIG came after Obama administration officials and top Republicans voiced sharp criticism over $165 million in bonus payments AIG said it must make Sunday. The contracts are part of a larger total payout which has been reportedly valued at $450 million.
In a letter to Treasury Secretary Timothy Geithner dated Saturday, AIG Chairman Edward Liddy said outside lawyers informed AIG that it had contractual obligations to make the payments and could face lawsuits if it did not do so.
Liddy said the company entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout.
AIG has agreed to the Obama administration’s requests to restrain future payments.
(Source: CBS News)