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States Wants AIG Bonus Probe

States want expanded federal investigation

By Mark Huffman
ConsumerAffairs.com

June 22, 2009

Not only are taxpayers getting fed up with federal bailouts, so are some state governments. Eleven states have asked the Special Inspector General for the Troubled Asset Relief Program (TARP) in Washington, D.C., to pursue unresolved questions surrounding bonuses paid to American International Group Inc. executives last winter.

These executives were in the AIG unit responsible for investments that led to staggering losses and a multi-billion dollar federal bailout to avert the company’s collapse, according to New Jersey Attorney General Anne Milgram.

Milgram said a state investigation launched in March into the bonuses paid to executives in AIG's Financial Products Unit has reinforced concerns about the propriety of AIG’s actions regarding bonus payments and retention bonuses. The bonuses were paid after AIG received $180 billion in taxpayer funds to keep AIG afloat.

Milgram says the state investigation has confirmed that taxpayer money was used to enable bonuses to executives in AIG's Financial Products Unit who were involved in AIG's derivatives business, but AIG has not been clear on how many executives have returned bonuses or whether $165 million in bonuses were returned in full or only in part. It is also unclear how much in additional bonuses will be paid next year.

The eleven states decided to ask the Inspector General’s Office to expand the existing investigation rather than start a new probe that could result in duplicated efforts.

The United States has invested at least $180 billion in AIG and now owns 80 percent of the company. In this context, Milgram said state regulators decided to collaborate with the federal probe because the federal Inspector General indicated he would look into inconsistent statements about the size of bonus payments.

In a letter to Neil M. Barofsky, the Special Inspector General for the TARP program, Milgram asked for a meeting to "discuss ways state regulators can assist in assuring that its investors' interests are addressed while avoiding regulatory duplication that might drain federal taxpayer dollars. Such state-federal collaboration is especially important here, given that the American taxpayer owns most of AIG."

She said the states were concerned with the "candor" of some of AIG's responses about the proportion of its TARP payments allocated to its compensation program. In one instance, a member of Congress was told in March that AIG paid $120 million in company-wide bonuses, but in May AIG quoted a figure of $454 million.

"AIG claims the discrepancy is explained by Congress’s failure to pose the March compensation question with sufficient precision," Milgram wrote in her letter to the Inspector General. "Such half-truths, which investors may have relied upon, obviously raise serious questions about the completeness of AIG’s characterization of its financial condition."

Joining Milgram in the letter to Inspector General Barofsky were attorneys general from: Arizona, Delaware, Illinois, Kentucky, Maine, Michigan, Mississippi, New Mexico, Ohio, and Texas.

In March, Milgram announced an investigation into potential state law violations by AIG in connection with bonuses paid to employees working in AIG’s Financial Products subsidiary.

The investigation has centered on whether compensation was paid to those working in the AIG subsidiary largely responsible for the financial crisis at the company and resulted in the loss of billions of dollars in shareholder equity, necessitating the huge influx of taxpayer money.

Milgram said the states wanted to ensure the investing public that money received by AIG was used to improve the financial welfare of the company, "not pad the pockets of the same individuals who led to the financial crisis in the first place."

"We want to collaborate with the TARP Inspector General to ensure as much of this money is returned to the federal government as possible," she said.

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