Recover Executive Perks, or Else, NY’s AG Tells Insurance Giant AIG
Posted Oct 15, 2008 2:22 PM CDT
By Martha Neil
In an effort that could serve as a blueprint to others seeking to hold executives of failed corporations financially responsible, the attorney general of New York has sent a letter to insurance giant AIG.
In it, Attorney General Andrew Cuomo says the company must recover millions of dollars in "unreasonable" and "outrageous" payments made to and for the benefit of company executives earlier this year or face potential consequences under state law, reports the Wall Street Journal (sub. req.).
The state law at issue allows creditors of undercapitalized companies to object to expenditures "made in the absence of fair consideration," the newspaper explains. New York can be considered a creditor of American International Group Inc., because the company pays taxes to the state, according to an unidentified official in Cuomo's office.
As discussed in an earlier ABAJournal.com post, federal officials agreed to pay $85 million to bail the insurance giant out of its financial difficulties. The deal initially involved a Federal Reserve agreement to loan the company $85 million, but was later structured as a purchase of the majority of the company.
However, federal lawmakers were outraged to learn in congressional testimony that company executives spent $440,000 on a corporate retreat at a luxe California hotel within a week of when the Fed agreed to the $85 million loan. Among the items included on the hotel tab, according to Fox News: "$139,000 was spent on hotel rooms, while even more money—$147,301—was spent on banquets. Another $23,380 was spent on undisclosed spa treatments and another $6,939 was spent on golf. A full $9,980 was spent on room service and food and cocktails at the hotel lounge."
AIG said the event had been planned for a year, and was standard industry practice, but promised to re-evaluate such activities in the future.
Washington Post: "AIG Threatened With Lawsuit Over Luxury Retreats"
Associated Press: "Bailed-out AIG defends English hunting trip"
CNN: "AIG bailout upsets Republican lawmakers"
Updated at 3:45 p.m. to include link to Washington Post article and at 5:30 p.m. to include link to Associated Press article.