Joe Johns and Justine Redman
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.
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