One day after New York State Attorney General Cuomo assailed AIG for making "unwarranted and outrageous expenditures" that he said violated New York law, AIG has agreed to cooperate with the New York State Attorney Generals' Office, and states they will institute more stringent policies, a denial of a severance agreement, and monitor frivolous expenses, including canceling upcoming events. However, this "deal" still allows for justified extravagant retention and severance arrangements, and events "justified" for business, just like a luxury suite at Madison Square Garden.
Last week AIG announced after the press learned of the $440K retreat to St. Regis in California, and then learning of the Half Moon Bay "Convention", that it would stop "all non-essential conferences, meetings and activities that do not clearly maximize value and service given the current conditions."
After that, it was learned about a golfing outing to Las Vegas at the Mandalay Bay (either $500K or $50K depending on who you are talking to) that AIG called a "sales and training event". ABC News learned of a team of AIG executives accompanied by they wives, flew on private jets to Las Vegas for an insurance convention on October 3rd. This is probably the same event.
Then learned was a hunting trip to England to the tune of $86K plus $17K in airfare which AIG called "an annual event for customers of the AIG property casualty insurance companies".
On Wednesday of this week, NY State AG Cuomo, sent a letter to AIG's board of directors, demanding the company stop "extravagant" expenditures and recover millions of dollars in unreasonable payments, or face legal action stating such expenditures and payments violated a New York state debtor-creditor law.
In a statement released by the attorney general's office, Edward M. Liddy, AIG's chairman and chief executive, said, "We know that the attorney general shares our commitment to rebuild AIG's business and paying back the U.S. taxpayer, and we will address the attorney general's concerns expeditiously."
AIG has agreed to immediately cancel all junkets or perks not justified by "legitimate business needs" and will be canceling more than 160 conferences and events, some exceeding more than $750,000 per event, according to NY State AG Cuomo.
"The taxpayers of this country don't need to fund luxury expenses for business executive," said Cuomo. "After my meeting with Mr. Liddy, he understands the need for reform, and understands the new culture that must be brought to AIG."
Among the events that AIG has agreed to cancel are a $750K "best operator" event in Las Vegas and a $500K risk management conference scheduled for October at the Ritz Carlton in Half Moon Bay. The company will also cancel a $350K sales conference in November at Sea Island, GA, and a $190K meeting scheduled for Scottsdale, AZ in January, 2008.
The company also will institute new expense management controls, Cuomo added, to prevent any other unwarranted expenditures, creating a governance committee to set new expense management control and will issue a new guidebook on its expense policy. These controls are suppose to be designed at the Board level to prevent any future unwarranted expenditures, such as salaries, bonuses, stock options, severance payments, gratuities, benefits, junkets and perks. The new controls include direct supervision by AIG Chief Administrative Officer Richard Booth.
"We're reviewing everything and making an effort to identify activities that aren't critical and reviewing executive compensation," said AIG spokesman Ashooh, declining any further comment.
NO PARACHUTE FOR YOU!
Additionally AIG has decided to not honor a $10 million severance agreement with outgoing Chief Financial Officer Steven Bensinger.
In the meeting today between Cuomo and AIG's new Chairman and Chief Executive Officer Edward Liddy today, Liddy agreed to provide an accounting of all compensation paid to AIG's senior executives and assist in recovering any illegal expenditures, Cuomo said. The payments include those made to ex-CEO Martin Sullivan and Joseph Cassano, former head of the financial products unit for the New York-based insurer. [Hmm.. I wonder which set of "books" they are going to show....]
"The contracts will be illegal if we find that it is unjust compensation paid to an employee, severance package, bonus, stock options of a undercapitalized company," Cuomo said.
"You had senior management who were rewarded with multimillion bonuses for good performances. How can you pay someone for good performance when their performance was anything but?" Cuomo said in a conference call with reporters. "If unjust compensation was paid and the company was undercapitalized, we believe we have reasonable grounds to capture funds."
Cuomo said he had not yet determined the employment contracts were illegal or, to the extent they were, how much he will seek in terms of recovery. AIG agreed not to make payments pursuant to Bensinger's employment agreement in light of Cuomo's review.
"These actions are not intended to jeopardize the hard-earned compensation of the vast majority of AIG's employees, including retention and severance arrangements, who are essential to rebuilding AIG and the economy of New York."
David Herzog, who was AIG's comptroller for three years, was promoted to replace Bensinger, AIG announced today.
WHO'S GOT THE KEY?
ABC News reported Thursday evening that AIG was still paying hundreds of thousands of dollars for a luxury suite at Madison Square Garden, the home of the New York Knicks and Rangers. An AIG spokesman told ABC News that the contract for the suite was signed in February and that it had been used by its brokers and clients.
"We have a number of sponsorships and commitments that are all being reviewed right now," said AIG spokesperson Peter Tulupman.
While Tulupman would not confirm how much AIG is paying for the MSG suite, a year-long contract for a "Club Suite" ranges from $225,000 to $500,000. Although AIG is stuck with paying for the suite, Tulupman said it will no longer be used by the company.
CURRENT GRAND TOTAL OF TAXPAYERS LOAN TO AIG
On Thursday, the Federal Reserve reported that its loans to AIG totaled $82.9 billion as of Wednesday of this week, up from $70.3 billion a week earlier. In September, the Feds authorized a bridge loan of up to $85 billion. This month, the central bank agreed to extend an additional $37.8 billion to the company.
"We're very grateful for the guidance of Attorney General Cuomo," said Edward Liddy. "We know that the Attorney General shares our commitment to rebuilding AIG's business and paying back the U.S. taxpayer, and we will address the Attorney General's concerns expeditiously."
AND THE NEXT CONTESTANT IS...
Cuomo told reporters that he did not promise AIG his office would not go to court but no formal court action had been taken.
When Cuomo was asked if his office was investigating other firms' executive compensation, Cuomo said "Yes" but added, "I can't say at this time" which companies.
"The signal to corporate America is, it's a different day," Cuomo said, adding that the changes put in place by AIG should serve as a model for other companies. "When you're receiving taxpayer funds, the rules of the game change," he said.
"It sends a message to all of Wall Street," Cuomo said. "The party is over."
BUT WHAT ABOUT THE REGULAR JOE?
The executives will go about their merrily way on "justified" million dollar(s) salaries, bonuses and expenses with their lives intact, maybe minus a new Jag every year. But what about all the average American people, who now have basically no retirement accounts (401ks) thanks to people like these companies. Their lives, their futures, their life savings put in investment, and their retirements are changed or gone forever.
Personally, I think half of AIG's loan should be called in, in one year or AIG taken over fully by the Feds.