October 7, 2008 -- Less than a week after the federal government committed $85 billion to bail out AIG, executives of the giant AIG insurance company headed for a week-long retreat at a luxury resort and spa, the St. Regis Resort in Monarch Beach, California, Congressional investigators revealed today.
"Rooms at this resort can cost over $1,000 a night," Congressman Henry Waxman (D-CA) said this morning as his committee continued its investigation of Wall Street and its CEOs.
AIG documents obtained by Waxman's investigators show the company paid more than $440,000 for the retreat, including nearly $200,000 for rooms, $150,000 for meals and $23,000 in spa charges.
"They're getting their pedicures and their manicures and the American people are paying for that," said Cong. Elijah Cummings (D-MD).
"This unbridled greed," said Cong. Mark Souder (R-IN), "it's an insensitivity to how people are spending our dollars."
Appearing before the committee, Martin Sullivan, the AIG CEO until June, said the company was overwhelmed by a "financial global tsunami," and that "no simple or single cause" was to blame.
"I am heartbroken at what has happened," Sullivan said.
Robert Willumstad, the CEO from June to September, 2008, maintained AIG was a victim of a "crisis in confidence" and an "unprecedented global catastrophe."
"Through the first week of September we were confident AIG could weather the crisis," Willumstad testified. He said the federal government offered its $85 million bail out on the afternoon it prepared for bankruptcy. Willumstad said the Federal Reserve demanded he resign, and will turn down his AIG retirement package of several million dollars.
But Congressional investigators raised question of "mismanagement" and whether AIG executives sought to "cook the books" and hide negative information from outside auditors.
On Dec. 5, 2007, Waxman said, CEO Sullivan told investors, "We are confident in our marks and the reasonableness of our valuation methods."
Documents obtained by the committee show that one week earlier, auditors Pricewaterhouse Cooper had "raise their concerns with Mr. Sullivan…informing him that PWC believed that AIG could have a material weakness relating to the risk management of these areas."
In March, 2008, the Office of Thrift Supervision wrote AIG, "We are concerned that the corporate oversight of AIG Financial Products…lacks critical elements of independence, transparency, and granularity."
Asked about the letter by the committee, the SEC's former chief accountant, Lynn Turner, said the letter reflects "a serious problem from the top down of management, that can bring an organization down."
Former AIG CEO Sullivan said accounting rules required AIG to mark down the value of its holdings, even though it had no plans to sell them, the "mark to market" provision.
AIG had to sell at "fire sale prices," he told skeptical members of Congress. "Suddenly a company with a trillion dollars in assets" was in trouble, said Sullivan.
Waxman questioned both former CEOs about a former AIG auditor who claimed he had been blocked from reviewing the books of a London-based division that has since been blamed for a large share of the company's downfall.
Former CEO Willumstad, chairman of the AIG board at the time, said "I honestly don't remember" the concerns raised by the former auditor.
"I find that very disturbing," said Congressman Waxman.
Waxman also said there is evidence the two men changed the bonus schedule once the company began to post losses, so that executives under the "Senior Partners Plan" would continue to make multi-million dollar salaries.
"Mr. Sullivan and the other top executives should have had their bonuses slashed due to poor performance," said Waxman.
Sullivan said it was "substantially reduced" by the board in 2007 due to poor performance.
Sullivan was given a $15 million "golden parachute" payment after being replaced as CEO in June.