AIG, the emerging "poster company" for corporate greed in the current financial meltdown, is coming under increasing pressure. New York Attorney General Andrew Cuomo has threatened legal action against the company unless it reigns in its lavish executive pay and perks and recovers what has already been spent.
Last month the U.S. Federal Reserve invested $85 billion in taxpayer funds in the company, which insures mortgages and other corporate debt, to keep it from sliding into bankruptcy. The step was justified at the time as necessary to prevent a collapse of the financial system.
Since then AIG's executive suite has been under close scrutiny, as stories about executive retreats and other perks have outraged both investors and taxpayers.
"As you of course know, the taxpayers of this country are now supporting AIG through rescue financing, which makes such expenditures even more irresponsible and damaging," Cuomo said, in a scathing letter to the AIG Board of Directors. "As described below, we demand that the Board of Directors cease and desist any such further expenditures, and review, rescind, and recover all past unreasonable expenditures. The board must also immediately institute new protections to prevent future abuses, and provide this office with an accounting of executive compensation and benefits."
In the last several months, as AIG was teetering toward bankruptcy, and operating with unreasonably small capital, Cuomo says AIG nevertheless made numerous extraordinary expenditures in the form of executive compensation payments, junkets, and perks for its executives.
For example, in March 2008, ignoring the massive losses AIG was experiencing, Cuomo says the board awarded its CEO a cash bonus of over $5 million and a golden parachute worth $15 million. In February 2008, a top-ranking executive who Cuomo says was largely responsible for AIG's collapse was terminated, but still permitted by the board to keep $34 million in bonuses.
"This same individual apparently continued to receive $1 million a month from the company until recently," Cuomo said.
Even after the taxpayer-funded bailout of AIG, Cuomo maintains the company paid hundreds of thousands of dollars for luxurious retreats for its executives, including an overseas hunting party and a golf outing. They were not only out of line, says Cuomo, but probably broke the law by constituting "fraudulent conveyances."
"Accordingly, the board should immediately cease and desist these improper and extravagant expenditures which exploit the taxpayers of this nation," said Cuomo. "The board must also immediately institute policies, procedures, and protections that will ensure Board review of all such company expenditures going forward. In addition, the Board must review, rescind, and recover all improper payments where appropriate, and provide this 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 January 1,2007, to date."
If the board fails to take these actions, Cuomo said he will bring fraud charges against the firm.
