WASHINGTON — Responding to growing public outrage, President Barack Obama reversed course Monday and ordered his administration to “pursue every legal avenue” to challenge $165 million in bonuses paid to employees of insurance giant American International Group.
Adding pressure, New York Attorney General Andrew Cuomo said he would subpoena AIG for a list of employees who received the bonuses and for an accounting of whether they were involved in the derivatives activity that brought the company to its knees last fall.
The cost of AIG’s rescue has risen to as much as $180 billion, with the government taking an 80 percent stake in the insurer. Federal officials, still working on the final details of the last $30 billion of that total, are considering several options to attach conditions requiring the bonuses to be repaid.
“This is a corporation that finds itself in financial distress due to recklessness and greed,” Obama said. “Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?”
It was questionable whether the administration could force AIG to repay the money and what that would mean to a company 80 percent owned by taxpayers. But it would be difficult, if not illegal, for the government to force the employees to pay back bonus money the company was contractually obligated to pay, one employment law expert said.
Obama’s sharp comments were a reversal from this weekend when administration officials said they had carefully reviewed AIG’s contracts and determined they could not block the bonuses. They had expected that the bonuses would be paid by Sunday to employees in the company’s Financial Products division. Cuomo said AIG officials told him the payments were made Friday.
News of the bonuses sparked anger from the public and from lawmakers.
“Businesses receiving government support should not be offering bonuses at the expense of the American taxpayer,” said Rep. Diana DeGette, D-Colo. “. . . We cannot ensure market stability without strong oversight of these companies who seek government support, while at the same time dole out huge financial bonuses from the pockets of the American taxpayer.”
AIG chief executive Edward M. Liddy wrote Friday in a letter to Treasury Secretary Timothy Geithner that the bonuses were required under contract to be paid.
Liddy, who was brought in to run the company after the federal government took the majority stake in September, said he found paying the bonuses “distasteful and difficult.” The bonus plan was adopted by AIG last year to retain 400 key employees of the Financial Products division if they worked through certain dates.
Last year, those payments ranged from $1,000 to about $6.5 million, with seven employees receiving bonuses of more than $3 million, according to AIG. Liddy said AIG was looking for ways to repay taxpayers for the bonuses.
