AIG chief asked for return of bonuses

UPDATED:

The head of embattled insurance giant American International Group told Congress Wednesday that he had personally asked AIG employees to voluntarily give back part of about $165 million in bonuses, payouts that were made even as the company was getting more than $170 billion in taxpayer bailout aid.

But with lawmakers and President Obama expressing outrage over the bonuses, Edward M. Liddy insisted that he had no legal grounds for canceling the payments and that denying the retention bonuses to keep key personnel on board could put the entire company at risk.

“The judgment was made we would lose all the progress we had made if we didn’t make these bonuses,” he said during a long afternoon of testimony Wednesday before a House Financial Services subcommittee, adding that having to honor the bonus contracts was personally “distasteful.”

The AIG chief’s testimony did little to calm smoldering anger on Capitol Hill or curb a fresh round of partisan finger-pointing. Democrats and Republicans sparred over who was at fault in permitting the bonuses to be paid and in allowing one of the country’s biggest financial firms to engage in risky investments that have so far required a federal bailout of more than $170 billion in taxpayer loans and investments.

“I think the biggest bonus for these people right now is that they’re not in jail,” said Rep. Bill Posey, Florida Republican.

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Mr. Obama told reporters at the White House that he was furious over the AIG payouts but said the episode should be used to push new financial oversight reforms and to tighten conditions on future taxpayer bailouts.

“I think people are right to be angry. I’m angry,” Mr. Obama said. “What I want us to do, though, is channel our anger in a constructive way.”

House and Senate Democratic leaders have promised quick legislative action to grab back at least some of the $165 million in bonuses, including new targeted taxes to reclaim virtually all of the bonus money.

The House Judiciary Committee Wednesday hustled through a bill that would give Attorney General Eric H. Holder Jr. the authority to seek repayment of past bonus agreements from companies such as AIG that have received more than $10 billion in federal aid.

Both the House Ways and Means and Senate Finance committees are preparing bills that would tax virtually all of the AIG bonus money, with confiscatory tax rates of 90 percent or higher. House Democrats set a vote for Thursday.

But legal experts Wednesday raised concerns about the rush to legislate, questioning whether the effort to seize legally awarded pay passed constitutional muster. Some challenged the assertion by lawmakers that the government’s huge ownership stake in companies like AIG because of the bailout gave the government the right to modify or abrogate compensation agreements unilaterally.

“A contract is a contract,” said Jesse M. Fried, a law professor at the University of California at Berkeley, adding that past payments made as part of a valid legal agreement would be protected.

Mr. Liddy, the retired chairman of Allstate Corp. who was recruited by regulators in September to take over AIG, said he agreed to pay the bonuses primarily because of the risk of losing critical employees, with the legal consequences as a secondary concern.

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