November 18, 2008 -- New York's Attorney General Andrew Cuomo today demanded that beleaguered insurance giant AIG come clean and disclose its plans for bonuses to corporate executives and pay raises, reminding the firm that there are significant "legal ramifications" to AIG's decision.
It is the latest salvo by Cuomo in his crusade to get financial institutions to cease paying excessive compensation and bonuses to executives even as their banks are being bailed out by taxpayers.
"AIG has already received more than $150 billion in rescue financing and therefore should be completely transparent with taxpayers as to what the company's compensation plans are," the strongly worded letter stated.
The letter --the latest in a series to AIG from Cuomo -- was sent because AIG had not provided the Attorney General with bonus and compensation information the office had requested. "They were hemming and hawing-- ' we don't know our plans yet, we're still trying to figure that out, we don't want to loose our top people (by not bonusing them),' " a source involved in the investigation said. "It was ridiculous."
"We have received it and we will respond," a spokesman for AIG said of the letter.
It comes one day after Citigroup announced plans to layoff 50,000 employees, and Cuomo called on the $44 billion financial giant to announce quickly that the firm would not bonus its top executives this year. And it follows a decision by Goldman Sachs to cancel hundreds of millions in planned bonuses to its seven top executives, leaving those moguls to scrape by on base pay of $600,000.
"Citigroup should follow Goldman Sachs's lead and announce quickly that top executives will not be receiving bonuses this year," Cuomo said in a statement. The firm had said it would announce its bonus and compensation plans in January. It has not yet responded to the Attorney General's prescriptive remarks, his office said. "It's a triple whammy," a top Cuomo aide said. "The investors are getting killed, the taxpayer is paying the bills and now the employees are getting hurt. Why should executives be rewarded?"
The AIG salvo is the latest in the prescriptive anti-bonus crusade by the Attorney General, in which he is using the clout of the office as much as its legal mandate, in order to attempt to affect change in the ethics of the market place.
"AIG's demise has seriously harmed investors all over the country," Cuomo's letter stated. "On top of that, taxpayers have now sunk billions into the company to keep it afloat. It thus seems hard to imagine that AIG could pay significant bonuses or give raises to its executives after the company has quite literally been bailed out by the American taxpayer. We believe top executives should shoulder their fair share of these difficult economic times."
The AIG letter follows an Oct. 29 letter sent by Cuomo to nine other large financial institutions. That letter requested pay and bonus data and gave the firms a week in which to comply by providing a ''detailed accounting regarding your expected payments to top management in the upcoming bonus season.''
It was sent to Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo.
All had received some form of government rescue financing. All but Bank of America began to comply quickly, and provided reams of bonus and compensation data to the Attorney General, sources said. At the end of last week, Bank of America was served a subpoena and, as of today, it too was providing the demanded documents to the Attorney General.
"Goldman Sachs, a firm which has received far less in federal funds than AIG, has made a significant decision in announcing earlier this week that some of its top executives will not get bonuses this year," Cuomo's letter to AIG stated. "UBS and Barclays, neither of whom have been bailed out by taxpayers like AIG, have now followed a similar path. Please inform my Office as soon as possible what AIG plans to do with respect to executive bonuses and pay raises this year. As you know, I believe AIG's decision has significant legal ramifications."
The saga of AIG's extravagance has unfolded slowly, even as the firm began to spend the bailout money it was allotted.
The first letter to AIG was sent in mid October when, despite the bailout, the firm continued to treat its senior executives to posh retreats, maintained a sky box with a half million dollar view at Madison Square Garden, according to an exclusive report by ABCNews.com's The Blotter, and racked up hundreds of thousands of dollars in expenses that Cuomo said were "unwarranted and extravagant."
Following that letter in mid-October, the firm cancelled 160 corporate retreats, seminars and other events with prices as high as $750,000 per venue: one partridge hunt alone cost about $90,000.
AIG and the Attorney General issued a joint statement memorializing the agreement which also included the cancellation of a $10,000,000 compensation package to the firm's chief financial officer.
Subsequently, the Attorney General sent AIG a second letter on Oct. 22 acknowledging that the firm agreed that it would make no bonus or deferred compensation disbursements from a fund of $600 million set aside for the executives of a financial subsidiary whose actions had contributed to the firm's collapse.
"I find it hard to conceive of a situation where you could justify a performance bonus for management that virtually bankrupted the company," Cuomo said in a conference call with reporters at the time.
AIG at that time also agreed to cancel a compensation package worth $19 million to the firm's former CEO.