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March 17th, 2009
10:16 PM ET

AIG using quirk in Connecticut law to defend bonuses

Joe Johns and Justine Redman
CNN

Officials in Connecticut reacted swiftly and angrily Tuesday to reports by CNN that American International Group is using a quirk in Connecticut law to defend giving $165 million in bonuses to top managers in its Financial Products division.

Unlike other sectors of AIG based elsewhere, AIG Financial Products is headquartered in Wilton, Connecticut.

CNN reported first Monday night on "AC 360" that AIG would be subject to "double damages" under Connecticut law in the event it is sued for not fulfilling its contract to pay $165 million dollars in retention bonuses to workers in its Financial Products division.

The result, simply put, is that AIG could be liable for $330 million dollars if it doesn't pay the lesser amount now. A source with knowledge of AIG's activities said that after getting independent legal advice, AIG reluctantly decided to pay the bonuses instead of running the risk of having to pay massive damages.

The law in question, the Connecticut Wage Act "requires for the recovery of double damages and attorneys fees when wages are improperly withheld and the employer's refusal to pay wages lacks a good faith basis" according to a "white paper" by the company that was acquired by CNN.

Connecticut Attorney General Richard Blumenthal issued a blistering statement Tuesday saying he intends to investigate, and some Connecticut state lawmakers said they intend to change the law.

"I have significant doubts about the validity of AIG's claims that they are required by Connecticut law to pay these outrageous bonuses," state Attorney General Blumenthal said.

"AIG is shamelessly shielding itself behind the Connecticut Wage Act - a joke of a justification for squandering scarce taxpayer resources," he added.

"My office will carefully investigate the merits of AIG's claims under the Connecticut Wage Act, and will take every step necessary to fight this gross misuse of taxpayer money. Corporate collapse demands accountability - not windfall payments."

AIG has received $170 billion in federal bailout money because of the fear its failure would send shockwaves through the economy.

And while authorities in Washington are still trying to figure out a way to stop AIG's plan to make the bonus payments, Republican state lawmakers in Connecticut were already drafting legislative language to keep AIG from using Connecticut law as an excuse to award such money in the future.

State Sen. John McKinney said, "We are outraged that AIG is using Connecticut Wage laws as leverage to use taxpayer money to pay hundreds of millions in bonuses.

"The proposed legislation would not cut off past bonus payments, but would seek to make clear that anyone who gets bonuses from a company getting government bailout money would not be eligible to sue for double damages under the Connecticut Wage Act," McKinney said.


Filed under: 360° Radar • Bailout Turmoil • Joe Johns
soundoff (83 Responses)
  1. joe-porterville,ca

    james i agree with you as far as the handshake and mans word goes but the deal was struk with congress not the american people so why cant they pay for it. AIG employees getting their bonus or not is not our problem its AIGs its their contract and if they cant meet their obligations then too bad

    March 19, 2009 at 8:39 pm |
  2. Tom

    When you use a system that allows a 3rd baseman to get 25 million a year, and a guy who sells Coke-Cola 70 million a year, you are just asking for an AIG. There are no ethics or morals in capitalism..

    Capitalism is the astounding belief that if we allow the most evil of men to do the most evil of things, it will somehow benefit the rest of us.

    We the voters need to democracy to even adjust the flaws of capitalism. Bring back the 1950's tax tables.

    March 19, 2009 at 6:54 pm |
  3. Paul Marion

    How come they don't mention the x mas bonuses? These guys already had a nice fat x mas stocking stuffer.

    Here's some old news to remind you what I've been complaining about since day 1.
    This is during the 1st bailout.

    Less than a week after the federal government offered an $85 billion bailout to insurance giant AIG, the company held a week-long retreat for its executives at the luxury St. Regis Resort in Monarch Beach, Calif., running up a tab of $440,000.

    The executives spent $200,000 for rooms, $150,000 for meals and $23,000 for the spa.

    "Less than a week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation," Waxman said. "We will ask whether any of this makes sense. "

    We dare to ask the company's executives about their multimillion-dollar pay packages - some of which they continue to receive - as well as who bears responsibility for the company's high-risk investment portfolio, which led to its near collapse.

    "They were getting their manicures, their pedicures, massages, their facials while the American people were paying their bills,"
    the executive retreat at the Monarch Resort.

    Documents show that as the company's risky investments began to implode, the company altered its generous executive pay plan to pay out regardless of such losses.
    AIG lost over $5 billion in the last quarter of 2007 due its risky financial products division, Yet in March 2008, when the company's compensation committee met to award bonuses, Chief Executive Martin Sullivan urged the committee to ignore those losses, which should have slashed bonuses.

    But the board agreed to ignore the losses from the financial products division and gave Sullivan a cash bonus of over $5 million. The board also approved a new compensation contract for Sullivan that gave him a golden parachute of $15 million.

    Joseph Cassano, the executive in charge of the company's troubled financial products division, received more than $280 million over the last eight years. Even after he was terminated in February as his investments turned sour, the company allowed him to keep up to $34 million in unvested bonuses and put him on a $1 million-a-month retainer. He continues to receive $1 million a month.
    To the executives' defense that the troubles in the business had to do with larger economic forces and not their own bad decisions.
    When a former AIG auditor, Joseph St. Denis, expressed concerns, Cassano told him "I have deliberately excluded you from the valuation ... because I was concerned that you would pollute the process".

    St. Denis resigned in protest.

    PricewaterhouseCoopers, AIG's auditor, told the company in March 2008 that the "root cause" of AIG's problems was that people assessing risk did not have enough access to the financial products division, where the risky investments originated. Sullivan had deliberately misled investors.

    On Dec. 5, 2007, Sullivan expressed confidence to investors. But a week before, PricewaterhouseCoopers warned Sullivan that the company "could have a material weakness relating to these area," committee members said.

    March 19, 2009 at 11:15 am |
  4. Paul Marion

    Quit looking for loopholes & flaunt some ethics.
    The beaurocrats don’t want to Fix (regulate anything) They are merely pillaging everything that’s not bolted down.
    Both parties are on the take.
    This whole mess started by removing regulations (during the Clinton administration) Then bush & his cronies ignored them (while their “rich” buddies raked in $) Now, the same people who took out the regulations are back.
    If anybody in Washington had one shred of decency (morals, ethics) They would regulate their “rich” buddies, who are lining their pockets through lobbyists kickbacks.
    The Glass – Stegal Act was put in place in 1933 & was removed in 1999. No regulations: allow commercial banks to become “wallstreet” investment banks.
    In 1995 the CRA loose loans laws were enacted. Neither party wants to address the “real ” issues. Their greed is nothing short of treason.
    ps.

    If you want retail investors to get back into your corrupt markets, I suggest firing the SEC. Enforce the reg – sho proposals. Nobody knows how many outstanding shares are in stocks anymore. There’s too much naked shorting & fail to delivers.
    Aig,freddy,fanny & the auto mfg’s have the most lobbyist $ lining Washington’s pockets. No wonder they are getting Billions. All of the money keeps circulating at the top.
    Our founding fathers didn’t have muli-billion $ corps lining their pockets. We also need campaign reform. Take corp $ out of our politics. Make them vote like the rest of us.
    America has been taken over by a 2 party dictatorship, comprised of the top 2-4% of the richest people in America.

    March 19, 2009 at 10:31 am |
  5. James

    I am struggling just like everybody else in this country. It's bad enough a man's word or a hand shake isn't any good anymore. Now legally binding contracts can be cast aside, or else the government can swoop in and just tax you to death, what's next? I don't think anybody at AIG deserves a bonus, but if it was part of the deal then stick to it.

    March 19, 2009 at 9:15 am |
  6. joe-porterville,ca

    if we can impeach the president is there a way we the people can vote out members of congress in an speacial election?

    March 19, 2009 at 5:24 am |
  7. joe-porterville,ca

    cnn great job! for busting this thing wide open. maybe now congress can get to work on getting the bailout money back. hey i know what they can do with it once they get it back, how about using it to buy some of the forclosed home and give it back to the people. oh wait everyone at wallstreet hasnt got their bonus yet

    March 19, 2009 at 4:47 am |
  8. Ray

    Chris Dodd needs to resign for lying to the American people. He authored the languaage that allowed the bonus payments.

    March 19, 2009 at 2:31 am |
  9. Ray

    Isn't it true that AIG insures the Congressional Retirement Trust Fund?
    So it stands to reason that no matter what it costs, Congresss will continue to bail them out!!!!!!!!!!!!!

    March 19, 2009 at 2:27 am |
  10. Melissa

    Bonus' aren't wages.

    March 18, 2009 at 11:24 am |
  11. Eileen R

    I agree with other bloggers that bonuses are or normally tied to profits. My husbands salary, who works for a major corporation should have been given a bonus. Though his division was in fact profitable, the board members of this company declared that bonuses would not be distributed for the "good of the company". It was the "right" thing to do, in spite of contractual agreements. All executives did not have any problems with this. After all AIG's employees are already well paid and agree that bonuses should not be distributed. AIG employess are paid well above the average worker. So I doubt they even these bonuses.

    What concerns me most, is that the investment insurances are being paid by AIG 100 cents on the dollar in spite of the fact that those investments are now severley reduced in value. Again, it is AIG position that these insurance policies be paid at the insurance at the original insurance value. This action is no different than AIG's reckless behavior to pay bonuses to those who participated in making AIG a failed company,

    Thank you for your attention.

    March 18, 2009 at 10:41 am |
  12. leslie

    For the first time in my life (age 54), I owe the IRS money, to the tune of approximately $4,000.00, due to having to access my IRA account in '08 in order to keep a roof over my head, as I was laid off a job I had for 20 years in '07. It seems almost ridiculous to write check to the IRS (the "Government") for over $4,000.00 when I'm unemployed and their handing out my tax money to folks like AIG.

    March 18, 2009 at 10:31 am |
  13. Chan P

    I agree with Sharon. Wages are pay for work performed. Bonuses are pay over and above wages given for successful company performance. The way AIG has performed, the execs have earned negative bonuses. They need to pay up!

    March 18, 2009 at 10:24 am |
  14. xtina, chicago IL

    If the Congress "didn't know" how AIG was to hand out the bail out money, and didn't account for it, then the bonuses should come out of Congressional salaries.

    March 18, 2009 at 10:21 am |
  15. Sharon S

    Well I did not know bonuses were wages? I thought bonuses were simply a bonus you received if the company did well?

    So how are these bonuses considered a normal wage? I can understand normal wages being withheld could fall under this letigation but bonuses?
    Bonuses are not a guaranteed wage by any means?
    If so than all other companies could be sued for NOT paying out bonuses this year!

    March 18, 2009 at 9:35 am |
  16. edwin

    This blog seems to be helpful

    March 18, 2009 at 9:25 am |
  17. Michael "C" Lorton, Virginia

    It all boils down to---what is morally wrong--is sometimes legally right-–and there is no honor among theives-and to top it all---it is the taxpayers who have to pay the bill---morally wrong or legally right--everyone is covering their asses after the fact-–great job Congress--what else do you have in store for the taxpayer?

    March 18, 2009 at 8:31 am |
  18. Neo

    Wow they have trouble internally and externally it seems. This is karma for someone at AIG.

    March 18, 2009 at 7:06 am |
  19. joe-porterville,ca

    im begging to think paying taxes just to bail out these big company is not worth it maybe we should all skip our taxes and let them bail themselves out by using their own assets and money or work without pay untile this mess is fixed

    March 18, 2009 at 6:22 am |
  20. C D Allen

    What America needs is a new version of the French Revolution! We need to march on Wall Street and hang these crooks out their windows! Every executive, Every trader, Every hedge fund manager ... Hang them all and cease all of their assets!!! Only then will America get on the road to recovery!!!

    March 18, 2009 at 5:47 am |
  21. Nicole

    There can be 'NO DEFENSE' when it comes to what AIG is doing, by giving bonuses to the employees who have obviously done a piss poor job at "???successfully???" running this company.
    I can understand why it is important to not let the company completely collapse.... however I can not understand how that amount of money was handed over by the goverment without strict limitations as to how the money was to be used. Furthermore.... there should have also been a call for those in the company (The Execs) who were responsible for the failures to resign. A bonus is something that is given for a job well done....Obviously this is & was not the case!
    I am a young married black woman with 2 kids., with a debilatating illness... I can't even get a loan much less a grant from my goverment to purchase a house, start my own business, send my kids (or myself) to college or help with my medical bills. And yet, my goverment has given billions, even trillions of dollars to the very countries we are at war with, to foreigners that receive grants as soon as they arrive in this country and to the very rich who have so far been irresponsible with the money they already had.
    This goverment still has the people of New Orleans living in FEMA trailers & still displaced after so many yrs. And 'they' say we are the wealthiest country in the world. WHAT ARROGANCE!!!

    March 18, 2009 at 5:46 am |
  22. joe

    AIG should use their own assets or give money out of their own pockets if they are so worried the same goes for congress

    March 18, 2009 at 5:22 am |
  23. Sylva

    I'm guessing that the intention of the Connecticut Wage Act was to pretect "normal" employees against getting cheated by an employer who just doesn't want to pay out wages to ordinary people working for them. The use of this law to get a huge bonus for people already earning too much, just seems wrong, and is probably not what this law was intended for.

    March 18, 2009 at 4:59 am |
  24. Cindy Jordan

    As far as I'm concerned due to the failure of Timothy Gietner, Congress rushing yet another billion dollar package through without reading the fine print – and Dodd accepting respibility and telling the truth we SHOULD pay the bonuses. As it was in the contract. It is very unfortunate for those of us who can't afford to make such mistakes.

    If those of us in the real working corporate world made rush decisions without reading contracts and mistakes and told lies and had been on the job 55 days we would be fired!! The President has no control of the house, there is nothing but incompitence on all levels and I have lost all hope!

    March 18, 2009 at 4:28 am |
  25. J.V.Hodgson

    No doubt state legislators funded by AIG encouraged the passage of such a law in Connecticut. Can we connect the dots!?
    National regulatory laws are an essentail element to the recovery plans and future of the financial system as a whole.
    There is not enough on this aspect ( regulatory reform) from Geithner or Bernanke, or the Obama administration.
    Shying away from regulatory reform only means we will go to a similar problem again. Then watch the price and consequences double at least more than likely quadruple or geometrically increase!!
    Regards,
    Hodgson.

    March 18, 2009 at 4:14 am |
  26. ARC

    I feel like there’s an opportunity to make insurance companies non-profit businesses. They were set up to serve a primary interest is their customers but instead they have chosen their short term profits over their duty. In non-profit system: employees are paid and profit, the company runs at zero and shareholders are out. They took money from the government and are insoluble, they continue to operate as corrupt and short sided business. In the end they have no interest for the common good of society or their customers they are meant to serve.

    March 18, 2009 at 2:44 am |
  27. susana olmo

    If they tax the bunusses,they will just increase the bonus to cover for the tax it will not work just limit or eliminate bonuses until aig and all companies that receive bail out money can turn business around and show some profit I am outrage at what large companies are allowed to do and get away with it and small businesses like me all we get its more regulations and no help from anybody we are on our own despite of that are the ones that provide 80percent of jobs in this country

    March 18, 2009 at 2:37 am |
  28. KIm

    Brace for impact ! This company is going down and enough is enough ! Send the bonus money back and don't crash !

    March 18, 2009 at 2:37 am |
  29. Cynthia

    I think this President is just using the bonuses at AIG to direct anger there insyead of who we should really be angry at, Congress! Barney Frank, Pelosi, Dodds and all the rest of the gang in on the whole Fannie Mae and Freddie Mac fraud of the American Tax dollar. Let's see now... seems Obama received over $100,000 from AIG also! Hmmm.... he should give that back too!

    March 18, 2009 at 2:36 am |
  30. Matt Quarneri

    AIG must be allowed to fail. And the "toxic derivative waste" on corpoarte balance sheets must also be marked to market.
    It will be painful but it is imperative for the bad judgment and phony accounting shenanigans of the past to be cleared out to enable our economy to recover. Otherwise our entire government and domestic economy will be dragged down with them.
    Yes, AIG has multi-billion dollar contracts with JPMorgan, Goldman Sachs and other blue chip names and yes, if AIG fails then the balance sheets of those companies will be dramatically impacted.
    But so be it. It must happen. Yes it's scary that our biggest financial institutions have balance sheets that are in reality a fraction of their stated value but facts are facts and they need to see the light of day. More multi-billion dollar write-downs are still coming; eventually. Particularly at JPMorgan.
    Cracks are appearing as China and Japan start to loose confidence in US Treasurys. The minute the US Government gets a credit downgrade the game is over. We're well on that course with continued multi-Trillion dollar defecit spending.

    March 18, 2009 at 2:30 am |
  31. Matt Quarneri

    AIG must be allowed to fail. And the "toxic derivative waste" on corpoarte balance sheets must also be marked to market.
    It will be painful but it is imperative for the bad judgment and phony accounting shenanigans of the past to be cleared out to enable our economy to recover. Otherwise our entire government and domestic economy will be dragged down with them.
    Yes, AIG has multi-billion dollar contacts with JPMorgan, Goldman Sachs and other blue chip names and yes, if AIG fails then the balance sheets of those companies will be dramatically impacted.
    But so be it. It must happen. Yes it's scary that our biggest financial institutions have balance sheets that are in reality a fraction of their stated value but facts are facts and they need to see the light of day. More multi-billion dollar write-downs are still coming; eventually. Particularly at JPMorgan.
    Cracks are appearing as China and Japan start to loose confidence in US Treasurys. The minute the US Government gets a credit downgrade the game is over. We're well on that course with continued multi-Trillion dollar defecit spending.

    March 18, 2009 at 2:29 am |
  32. sandra watkins

    The corrupt defending the corrupt?

    Anyone or any entity that defends AIG's greed monger recipients is just as corrupt as the company leadership. The fact that there were contracts in place that guarantee bonuses to people for failed job performance just shows how much our country is under a corporate dictatorship. It needs to stop. What these corporate executives have done in my book contributes to the destruction of our country and is TREASONOUS.

    That these low lifes can take money from the very taxpayers who saved their collective ass and laugh their way to the bank is an outrage beyond comprehension. Are there no consciences left in this country? I am so disgusted that these greed mongers call themselves human beings I can't think straight.

    Tax the hell out of them like they do those of us in the middle or lower classes and give them a dose of reality. They should all be fired for incompetence which is what would happen to the rest of us and their personal assets used to guarantee the bailout loans.

    But lets not forget our legislators who sat on their collective behinds and allowed all this corruption to happen. Could it be a lot of them got campaign donations from AIG before reality hit the fan?

    What a shame our children have this corruption as an example to learn from. Our forefathersd who drafted the Constitution have got to be spinning in their graves.

    March 18, 2009 at 2:24 am |
  33. andrew johnson

    Obama has only been in office about 60 days and your wondering where the money for the past few years has gone , incinuating that maybe Obama has anything to do with that. Not opening your eyes to the fact that he inherited this problem and is dealing with it , in my opinion, very well.

    March 18, 2009 at 2:23 am |
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