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Conn. Officials Ask AIG Employees to Testify

by Christine Stuart | Mar 20, 2009 8:53pm
(6) Comments | Commenting has expired
Posted to: Corporate Watch

Christine Stuart photo

Attorney General Richard Blumenthal and the co-chairmen of the legislature’s Banks Committee issued subpoenas Friday afternoon to a dozen American International Group executives, including CEO Edward Liddy, asking them to come testify at the state Capitol next week.

Blumenthal, along with Rep. Ryan Barry, D-Manchester, and Sen. Bob Duff, D-Norwalk, said the insurance company whose financial products division is headquartered in Wilton, Conn. is potentially misusing the state’s laws in order to justify paying out $165 million in taxpayer funded bonuses.

Blumenthal said his office is prepared to enforce the legislative subpoenas if the dozen AIG executives, who all reside in Connecticut, refuse to come and testify Thursday, March 26.

Earlier in the day Friday Blumenthal said AIG had complied with his initial subpoena for all the documents related to the bonuses, including a list of bonuses and the names and addresses of those who received them. It’s unlikely the names and addresses of those receiving bonuses will be made available to Connecticut because of the state’s Freedom of Information laws, which would force officials to make those names public, Blumenthal said. A list has been provided to the state of New York and Congress.

The documents made available Friday will enable the Banks Committee to asked more forceful and probing questions than those asked of Liddy by Congress, Blumenthal said.

By the end of the day Friday after Blumenthal had a chance to review some of the documents his office received, he sent out a statement saying, “We have confirmed that AIG—deluded and distracted by a broken corporate culture—has wildly misused federal bailout money. AIG’s own documents reveal that it turned an emergency bailout into a meritless handout, paying windfalls to employees as reward for financial failure.”

Blumenthal said he has been in touch with AIG’s attorney’s and they’ve indicated they want to be cooperative with the legislative subpoena.

However, if they are not, “we are prepared to enforce the subpoenas,” Blumenthal said.

“Our intention is to get to the bottom of this story and ask very direct questions about why these bonuses were given, when they were ordered, and why they’re using a vague Connecticut law to justify their actions,” Duff said. 

He said the Banks Committee has been holding hearings for more than two years on things like subprime mortgages and consumer credit issues.

“Surges in foreclosures have not just been caused by people getting in over their heads, or caused by unscrupulous lenders,” Ryan said. “At the very top of the financial services food chain billions of dollars are being manipulated in ways that seriously disrupted the market.”

AIG added a veneer of respectability to these loans, Ryan said. “They made lousy investments look like good investments and helped create this warped market that ended in disaster,” he said. “AIG was grabbing the commissions of today and ignoring the defaults coming tomorrow.”

“AIG employees have a moral and legal obligation to appear at this legislative hearing and disclose details about corporate compensation to employees, as well as investment decisions by AIG Financial Products Corporation involving credit derivatives and dealings that have led to market destruction,” Blumenthal said. 

The subpoena asks the following AIG employees to come testify next week:

AIG CEO Edward Liddy
James Haas of Fairfield
Jonathan Liebergall of New Canaan
Douglas Polling of Fairfield
Christopher Phole of New Canaan
Steven Pike of Stamford
Robert Powell of Westport
Joseph Rooney of Fairfield
Gregory Ruffa of Darien
Leonid Shekhtnam of Redding
Christian Toft of Weston
Steven Wagar of Norwalk

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(6) Comments

posted by: Charles | March 20, 2009  10:33pm

The bonuses are a red herring, one tenth of one percent of the money the government has shoveled AIG’s way.

AIG is an international bookie. They made profitable bets without money to pay or laying them off, as good bookies do. They should have gone under.

The only international suffering would have been an increase in homes for sale in the Hamptons and Switzerland and a drop in condo prices in Bermuda.

Enron execs were carted off to prison for lesser crimes.

posted by: Charles | March 21, 2009  10:14am

I should have added that we need to distinguish AIG Financial Products, which was a hedge fund, from the group of insurance companies called AIG. They had nothing to do with this mess.

posted by: For what it is worth | March 22, 2009  8:12pm

Charles you didn’t need to add your second post.  AIG Financial Products is not a hedge fund.  A hedge fund has limited number of investors (usually who are more savvy and have money to lose) and are allowed under SEC guidelines to partake in risky investments and guidelines of fund management ...capital to investment ratios and such. In other words not held to same guidelines as an over the counter mutual fund offered for general consumption.

AIG Financial Products is wholly owned subsidiary of AIG.  AIG Financial Products engages in over the counter trade in derivatives such as currency exchange, swaps, energy, and metals.

AIG Financial Products sold the now infamous credit swaps that were formulated by AIG.  That is it..they packaged the product and sold—not create it.  A credit swap was a bet (as you pointed out in your bookie analogy) that the borrower would not default on the loan (that is in simple terms). 

Credit swaps hit AIG in two ways: 1. the value of securities -swaps was going down resulting in ‘unrealized losses’ (accounting for the chickens will be coming home to roost) and 2. collateral calls as early as August 2007 Goldman Sachs was looking for AIG to pony up 1.5 billion to decrease Goldman’s exposure in all the swaps it bought from AIG.  AIG could only offer 450 million.  So the cycle started…as AIG began to miss collateral calls the value of the swaps went down…thus requiring more collateral calls…etc.

posted by: Charles | March 22, 2009  11:00pm

Thanks for clarifying that, you seem to have a better handle on it than most. Geithner has called AIG a hedge fund.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHx9vZa0IJAo&refer=home

I think you’re more on top of this than he is.

I like the question posed by Joe Nocera in his NY Times piece:

“But there is a much bigger issue that has barely been touched upon by Congress: the way tens of billions of dollars of taxpayers’ money has been funneled to A.I.G.‘s counterparties—at 100 cents on the dollar. How can it possibly make sense that Goldman Sachs, Bank of America, Citigroup and every other company that bought credit-default swaps from A.I.G. should be made whole by the government? Why isn’t it forcing them to take a haircut?”

posted by: For what it is worth | March 23, 2009  6:46pm

It is no surprise that Secretary Geithner does not know what AIG is and/or what it’s subsidiary AIG Financial Products does.

The glossed over or forgotten little piece of all this is the Secretary Geithner was in the room when Secretary Paulson and Fed Chief Bernanke devised the plan to save Bears Stern.  He was in the meetings during the late summer and early fall 2007.

Secretary Geithner was the president of the Federal Reserve Bank of New York.  And, this was the bank (under Bernanke’s direction) that made the initial loan to Bear Sterns.

Secretary Geithner’s background is in International Banking and international monetary policies ....he is not a ‘nuts and bolts’ Wall Street guy so it is easy how he would confuse an insurance company for a hedge fund (or a part of an insurance company that brokers derivatives)

posted by: Charles | March 24, 2009  6:22am

>>It is no surprise that Secretary Geithner does not know what AIG is

On that we can agree. smile

The faux outrage over the bonuses are a distraction from the real scandal - more than half the counterparties were European banks.

Why is Joe Six Pack bailing out Deutsche Bank, Barclays, and Societe? At 100 cents on the dollar??