Did AIG Spend Bailout Cash on Image Campaign?

Congress asking if insurance firm spent federal aid on PR, attacking critics.

March 16, 2009, 12:56 PM

April 15, 2009— -- Just as the furor over the AIG 's $165 million retention payments is dying down, Congress is now looking into whether AIG spent some of its $180 billion in bailout money on hiring public relations firms to bolster their image and to attack their critics.

Rep. Ed Towns (D-N.Y.), the chairman of the House Oversight and Government Reform Committee, wrote to AIG CEO Edward Liddy about allegations that the embattled insurance company had used federal aid to wage a public relations campaign.

Towns reports that AIG hired two public relations firms, Burson-Marsteller and Hill & Knowlton. He requests copies of all the bills that the firms have sent AIG, lists of payments made to the firms, as well as copies of memoranda and materials prepared by the firms for AIG.

The committee's interest in a possible image campaign waged by AIG was sparked earlier this month when former AIG CEO Maurice "Hank" Greenberg, a vocal critic of the government's bailout of AIG, came before Towns' committee. In the buildup to the hearing, Greenberg and AIG, the company he led for 35 years, had been engaged in a war of words.

"On the eve of the hearing, the Committee was surprised to hear allegations that AIG was contacting the news media and others to attack Mr. Greenberg's credibility, and circulating an anonymous paper entitled "The Greenberg Legacy," writes Towns.

The dossier outlines Greenberg's alleged role in creating the insurance company's disastrous financial products unit, which later ran the company into the ground with suspect investments that cost the insurance giant hundreds of billions of dollars.

Greenberg, for his part, has refused to accept any responsibility for the present situation, and in his testimony to Congress, blasted both the government bailout -- "that plan has failed" -- and his successors. "AIG's business model did not fail -- its management did."

AIG Says Greenberg Has Made False and Damaging Statements

AIG said Tuesday that Greenberg and his lawyers have "made false and misleading statements about AIG, including his role in creating AIG financial products [unit] and its credit default swap business, as well as the circumstances surrounding his forced departure from AIG during an accounting fraud investigation."

"We look forward to providing congressman Towns with background on why it has been necessary to correct these and other misstatements, which are both misleading to the American public and damaging to AIG and its ability to repay taxpayers. This issue is not about AIG's public relations expenditures, which are down sharply since last year. It is about correcting Mr. Greenberg's false and damaging statements," said AIG spokeswoman Christina Pretto.

But Towns wants to know if AIG paid for its attack dossier with federal money.

"I would be extremely disappointed to learn that any of the billions of taxpayer dollars invested to support AIG may have been diverted to finance a public relations campaign against critics of the AIG bailout," Towns wrote in today's letter. "In my view, these allegations warrant further inquiry to ensure that federal funds are not being misused."

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