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Banks Committee Begins With Little Fanfare
AIG Executive Answers Few Questions

by Christine Stuart | Mar 26, 2009 3:25pm
(1) Comment | Commenting has expired
Posted to: Corporate Watch, State Capitol

Christine Stuart photo

Stephen Blake, head of human resources for the beleaguered American International Group’s financial products division, testified Thursday at a Banks Committee public hearing on the retention bonuses the insurance giant paid to its executives after it received federal bailout funds.

Blake agreed to testify after AIG’s attorneys and the co-chairmen of the Banks Committee spent several days negotiating the 14 subpoenas they had issued to the company’s executives, none of whom agreed to testify Thursday citing numerous death threats they had received.

Blake and AIG’s attorney Ross Garber of Shipman and Goodwin repeatedly told the committee he was unable to answer several questions regarding the company’s finances or the specifics about financial instruments, such as credit default swaps. Instead Garber and Blake continued to offer up Patrick W. Shea, AIG’s outside legal counsel who drafted the opinion on why Connecticut law forced it to make these retention payments to employees.

Christine Stuart photo

Garber told the committee that Shea cut his family vacation in California short in order to take a red-eye and be present at the hearing. He said Shea would be able to answer many of the committee’s questions.

Blake who joined the financial products division in September 2008 wasn’t able to offer much more than AIG CEO Edward Liddy did when he testified to Congress last week.

During a brief recess, Sen. Bob Duff, D-Norwalk, co-chairman of the Banks Committee said “I think it was good information.” He said Blake’s testimony was a good first step, but not the last step in understanding this issue.

“We’ll have to evaluate whether his testimony might have been better coming from someone else,” Attorney General Richard Blumenthal said of Blake’s testimony. “The criticism that the investigation was a waste of time is completely unfounded.”

“This committee has very credible legislative proposals to do what the federal government has failed to do,” Blumenthal said referring to regulating hedge funds, derivatives, and credit default swaps.

Blumenthal said the investigation is “appropriate” and “necessary”.

But Republicans on the committee felt otherwise. While many of them asked questions, none of the four Republican committee members felt the hearing was appropriate because the subpoenas were issued without the approval of the entire committee.

By the end of the day Thursday, the co-chairman agreed to allow Shea to testify.

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posted by: christine | March 27, 2009  4:16pm

Below is the statement of the Banks Committee Chairmen:

STATEMENT FROM BANKS COMMITTEE CHAIRS ON

KEY FINDINGS FROM AIG INVESTIGATIVE HEARING

Hartford - State Senator Bob Duff (D-Norwalk) and Representative Ryan Barry (D-Manchester), co-chairs of the General Assembly’s Banks Committee, today issued the following statement regarding several key findings from yesterday’s investigative hearing and the committee’s next steps:

“Yesterday, the Banks Committee received extensive testimony from Mr. Stephen Blake, vice president of human resources for AIG, and Attorney Patrick Shea, with the firm of Paul Hastings Janofsky & Walker. Through their testimony, and through review of the documents provided to the committee, we have identified several key findings that were not previously apparent.

“First, the committee learned that the total projected payout of bonuses for 2008 and 2009 is closer to $451 million, as opposed to the previously understood $232 million, and that there may be additional payouts in 2010. Though that number could be reduced by resignations, it is a significant difference. In fact, documentation provided indicates that executives put on a personal life vest in the first quarter of 2008 when they knew the ship was starting to sink.

“Second, the committee learned that payouts also go to involuntarily terminated employees, or employees who resign with reason, despite the fact that they fall outside the Connecticut Wage Act because those payments appear to be similar to severance payments.

“Third, Attorney Shea suggested that the payouts would be due even without Connecticut law on payment of wages. He suggested that double payments plus legal fees could be awarded, although the law allows for an employer’s refusal on a ‘good-faith’ basis.

“Fourth, Attorney Shea suggested that TARP money can be used for these payments due to a loophole that does not honor executive pay caps in respect to bonus payments.

“Fifth, the materials provided suggest that past retention plans did not have a guaranteed payout; however, the plan that is currently in effect does.

“Sixth, there was acknowledgement that the funds from AIG revenue and the funds from TARP may be comingled in the company’s financial structure.

“In response to these findings, the committee intends to further investigate in terms of the definition of ‘wages’ in order to determine if payments to former employees can be termed severance and thereby exempt from the Connecticut Wage Act. Further, we intend to review the impact of performance on the part of the employee to the payment of bonuses.

“It is our hope that this review will bring about proposals for future changes in our law, some of which may be pending, acknowledging that any change would not have a retroactive affect but would protect taxpayer interests in the future.

“We will also ask the attorney general to conduct a legal review of the ‘good faith’ and ‘material breach,’ ‘intentional breach of contract,’ ‘wanton and malicious breach of contract,’ ‘reckless disregard for employees rights’ and ‘impossibility/illegality of payment’ portions of our law in terms of insolvent companies.

“And finally, we intend to review the conduct of the creators of this employee retention plan as to their motivation and knowledge in creating it.

“We greatly appreciate the testimony from Mr. Blake and Attorney Shea and thank them again for their participation in yesterday’s hearing. Additionally, we appreciate the continued cooperation from AIG as the committee moves forward with its review.”