Did AIG explicitly lie about its bonuses?

An AIG spokesperson assured CBS News last December that "the retention program does not include anyone in the firm's financial products business."

Published March 19, 2009 6:08PM (EDT)

(updated below - Update II)

(links really fixed)

One of the bizarre aspects of Secretary Geithner's claims not to have known about AIG bonuses until recently is that these bonuses have been the subject of intense controversy for months. Numerous members of Congress, such as Rep. Elijah Cummings, have been pressuring AIG since at least November, in the form of numerous letters, for details on AIG's retention bonus plan (more on that in a minute).

But this December 11, 2008 article -- from CBS News -- contains what seems to be a rather significant statement from AIG about its bonus plan:

Insurance giant AIG was given $152 billion in bailout money by the federal government since nearly collapsing in September. Now the company is planning to take millions of that money and hand it over to employees in a program that sounds a lot like bonuses. . . .

But so far, no one's stopping AIG from paying millions to some employees in its new retention program. The company has told 168 employees they'll receive between $92,500 and $4 million per individual if they stay with the company for one year. . . .

Nicholas Ashooh, AIG's senior vice president of communication, acknowledges that the perception of his company has taken a hit.

"Oh, it's terrible, it's terrible," he told CBS News.

Ashooh said the retention program does not include anyone in the firm's financial products business, the tiny arm of the company that torpedoed AIG with its high-risk, bad loans.

That AIG was scheduled to make millions of dollars in bonus payments has been public knowledge for many months -- since well before Geithner pressured Chris Dodd to insert an exception into executive compensation limits for already-existing employment contracts.  But what is so notable here is AIG's express denial that "the retention program does not include anyone in the firm's financial products business," given what we now know is the truth:

[AIG's CEO Edward] Liddy gave skeptical committee members what amounted to a tutorial in the practice of paying retention bonuses -- he did not call them that -- to executives.

He said the money was offered to executives in AIG's financial products section, where risky investments finally became the entire company's undoing.

And:

Retention pay was thrust into the executive-compensation debate with the disclosure by AIG that it paid $165 million to employees of its financial products division.

The unit made disastrous bets on securities known as credit-default swaps that ultimately led to billions in losses and necessitated a government bailout costing $170 billion to keep a failure of the company from bringing down the global financial system.

Assuming the CBS News story reported the comments of AIG's spokesperson accurately, this seems to be a rather flagrant case of AIG outright lying about what its retention bonus plan entailed.

 

UPDATE:  To convey (a) how well-known the AIG retention bonuses were in Washington for months and (b) how evasive, recalcitrant and misleading was AIG in disclosing even the most basic information about these bonuses, I've uploaded a series of letters from last November and December between Rep. Cummings and Liddy, in which the former tries relentlessly to extract basic information about AIG's retention plan and, when unsuccessful, finally demands that a Committee hearing be scheduled to force Liddy to testify under oath about these imminent payments (links fixed):

(1) A November 11, 2008 letter (.pdf) from Cummings to Liddy, demanding information on various AIG events;

(2) A December 1, 2008, letter (.pdf) from Cummings to Liddy, demanding that AIG "fully disclose to the public the extent of the payments being made to senior executives under your 'retention program'" -- including, specifically:  "Which employees in which divisions are receiving the retention payments, and how much is each executive receiving"?

(3) A December 5, 2008, letter (.pdf) from Liddy to Cummings, noting that "the retention awards range from $92,500 to $4,000,000," but failing to identify the specific employees or even their divisions scheduled to receive the payments (that was sent a week before an AIG spokesperson publicly denied that the retention payments were being made to executives in the FP division);

(4) A December 9, 2008, letter (.pdf) from Cummings to Liddy, specifying the information that had been requested but not furnished, and again specifically asking AIG to "specify the units within AIG for which the individuals scheduled to receive the payments work";

Cummings' letter also notes:  



Cummings was told by AIG that it was Treasury officials and the Fed (at the time Geithner was at the New York Fed) that helped shape AIG's retention bonus program.

(5) A December 16, 2008, letter (.pdf) from Cummings to the Chair and Ranking Member of the Committee on Oversight and Government Reform, requesting a full hearing to explore, under oath, AIG's retentions bonus program, on the ground that AIG's responses to Cummings' inquires have been wildly inconsistent and plainly evasive.  Critically, Cummings also noted (click to enlarge image):



Elijah Cummings was quite obviously very suspicious about what was going on at AIG for months, and he did everything possible to expose it.  He also noted that AIG appeared to be in cahoots with Treasury and Federal Reserve officials over these retention bonuses and sought to determine if those officials really did approve these bonuses or if AIG mislead them about what they were.  It's extremely difficult to understand how top financial officials could have been unaware of this issue when it was the subject of a rather intense political storm for months before it erupted in last week public.

It's hard to know which is worse:  that Geithner was aware of all these issues and now claims he wasn't, or if, while at the New York Fed working on AIG's bailout, he somehow remained blissfully unaware of all of this.  Given the relative amounts involved, the bonus payments themselves may not be significant in the scheme of things, but the window this scandal provides into the insider dealing, arrogance and corruption driving the trillions of dollars in public money flying around (and disappearing) certainly is significant.

 

UPDATE II:  Geithner now admits what has been obvious for awhile:

Treasury Secretary Timothy Geithner told CNN Thursday his department asked Sen. Chris Dodd to include a loophole in the stimulus bill that allowed bailed-out insurance giant American International Group to keep its bonuses.

In an interview with CNN's Ali Velshi, Geithner said the Treasury Department was particularly concerned the government would face lawsuits if bonus contracts were breached.

Maybe Robert Gibbs should start referring to that "loophole" as the "Geithner/Summers compensation requirements" rather than the "Dodd compensation requirements."  And it's worth underscoring again that Republicans are the last people with standing to object to any of this.


By Glenn Greenwald

Follow Glenn Greenwald on Twitter: @ggreenwald.

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