Yesterday, New York Attorney General Andrew Cuomo announced new developments in his investigation of the actions taken by American International Group, Inc. (AIG) which led to its $122.8 billion rescue by the federal government. According to the letter sent by Cuomo to current AIG CEO Edward Liddy, AIG has agreed to (1) freeze all payments under former CEO Martin Sullivan’s $19 million employment package, and (2) make no distribution of funds out of the $600 million deferred compensation and bonus pools of its subsidiary, AIG Financial Products Corp. (AIGFP). According to Cuomo, Joseph Cassano, the former head of AIGFP, alone had a share of approximately $69 million of these funds, and Cassano and five other top executives of the subsidiary had a total share of approximately $93 million of these funds. Cuomo maintained that AIGFP “was largely responsible for AIG’s collapse,” and “until the taxpayers are repaid with interest the more than $120 billion that has been used in the rescue financing of AIG, no funds should be paid out of these pools to any executives.” Cuomo also stated that executive pay package structures should “no longer create improper incentives for executives to overleverage their companies and manipulate the books for their own short-term financial benefit.”
Yesterday’s announcement follows on the heels of last week’s discussion between Cuomo and AIG, following Cuomo’s demands that AIG halt all “unwarranted and outrageous expenditures.” During the course of those discussions, Liddy agreed to take several measures with respect to expenditures and executive compensation issues at AIG, including: (1) providing an accounting of all compensation paid to its senior executives and assisting in recovering any illegal expenditures; (2) establishing a special governance committee to institute new expense management controls; (3) halting payments to the company’s CFO under his multi-million dollar employment agreement; and (4) immediately cancelling all junkets or perks that aren’t strictly justified by legitimate business needs.