Andrew Cuomo, the New York Attorney-General, on Wednesday said he was investigating "unwarrented and outrageous expenditures" by AIG. Cuomo accused the company of making "extraordinary" expenditures on compensation, junkets and executive perks, both in the months before its near collapse and after the government extended the loan to stave off bankruptcy.
Cuomo sent a letter [PDF] to AIG's board of directors, demanding the company immediately stop any further such expenditures and recover all past "unreasonable" ones, or face legal action. "The board should immediately cease and desist these improper and extravagant expenditures, which exploit the taxpayers," said the letter. "Immediate cooperation is expected, or we will commence legal action."
Cuomo said such expenditures and payments violated a New York state law. Cuomo said in his letter that expenditures violated the state's debtor-creditor law and demanded an accounting of AIG's executive compensation and benefits since January 2007. He said the government's financial rescue of AIG made the expenditures "even more irresponsible."
"The party is over," Cuomo said at a press conference on Wednesday. "No more hunting trips. No more luxury resorts. AIG's belief is that they have had the party and the taxpayer has the hangover. That is not going to happen."
"Moreover, even after the taxpayer-funded bail-out of AIG, the company paid hundreds of thousands of dollars for luxurious retreats for its executives, including an overseas hunting party and a golf outing," he wrote.
In the letter, Cuomo cited several examples of expenditures, including a cash bonus of more than $5 million and a golden parachute worth $15 million awarded to its chief executives in March. Martin Sullivan was AIG's chief executive at the time. Cuomo noted in the letter that an unnamed top-ranking executive [who is actually Joseph Cassano], "who was largely responsible for AIG's collapse" and was fired in February, 2008, was allowed to keep $34 million in bonuses. Cuomo said the executive also apparently continued to receive a $1 million a month from the company until recently.
Additionally, Cuomo will "review, rescind, and recover all past unreasonable expenditures" since January 2007. Robert Willumstand, who replaced Sullivan as AIG CEO until the government takeover ended his three-month tenure, said today it would be "pretty tough" to recover compensation from former employees. "They got paid based on an agreement between the company," Willumstad said on CNBC. "It's pretty hard to go back and ask them to give back money they presumably earned at the time."
The hunting trip to the English countryside, an annual event for customers and executives, cost $86,000 the Associated Press reported. "This was an annual event for customers of the AIG property casualty insurance companies in UK and Europe, and planned months before the Federal Reserve Bank of New York's loan to AIG," company spokesman Peter Tulupman said Tuesday. This trip involved a trip to Plumber Manor in Dorset to shoot birds last week, with several executives using a private plane to travel from Germany. The New York Times reported that the use of the plane cost about $17,000, according to a person familiar with Cuomo's investigation.
Cuomo's letter "will be brought to the immediate attention" of AIG directors, said Nicholas Ashooh, spokesman for the insurer on Tuesday. "The events referred to should have been canceled, it's regrettable they weren't, but we've issued a policy canceling all such events and reviewing all expenses going forward," Ashooh said in a phone interview.
AIG said in a statement on Wednesday that it would "fully cooperate" with the attorney-general's office, adding that the company issued a clear directive ending all activities not essential to the conduct of its business on October 10. "AIG's priority is to continue focusing on actions necessary to repay the Federal Reserve loan and emerge as a vital, ongoing business."
A Cuomo case against former AIG chief executive Maurice "Hank" Greenberg, over an alleged multibillion fraud at the company, is pending in New York state court. Greenberg, invoking his Fifth Amendment right against self-incrimination, refused to answer Cuomo's questions on Oct. 11, Fortune reported today. Greenberg did warn this week however, that AIG could struggle to come up with sufficient money, and that it runs the risk of eventual liquidation.
Two questions remain on my mind however, does this include sponsorship and advertising that you see at sporting events?
And didn't AIG state last week that it would stop "all non-essential conferences, meetings and activities that do not clearly maximize value and service given the current conditions."