What Did Andrew Cuomo Know About The AIG Bonuses?
A spokesman for New York Attorney General Andrew Cuomo denied last night that as early as last October Cuomo knew about and tacitly approved the $165 million in highly controversial bonuses awarded by AIG to executives in the company's Financial Products Division (AIGFP).
Responding to a version of this story posted at 9:28 pm on April 5, Richard Bamberger, a Cuomo spokesman, wrote to HuffPost in a 12:18 am, April 6 email:
No. The AG's Office was aware a retention program existed, and this was known to public as well as it was repeatedly in AIG's public filings. But in October, our Office certainly did not know that AIG was planning to make any payments out of such a plan. In fact, given our interactions with them in October, our assumption would have been that such payments would be cancelled if they were later called for.
For three days prior to the original, 9:28 PM April 5 version of this story on the Huffington Post, staffers in Cuomo's office refused to answer five specific questions put to them in writing by HuffPost. Less than two hours after the original April 5 story was posted, Bamberger complained to HuffPost management that the story was unfair to Cuomo by suggesting that Cuomo could have taken early steps to prevent the distribution of AIG's $165 million in bonuses. In his 12:18 am April 6 email, Bamberger for the first time provided brief answers to the five original Huffington Post questions. These answers have been integrated into the current updated version of the story.
Before receipt of Bamberger's 12:18 am April 6 emailed replies, repeated attempts by the Huffington Post to get direct answers to its questions produced -- on April 1 and 2 -- pointedly evasive and incomplete answers from Cuomo press secretary Alex Detrick. After April 2, Detrick no longer replied to HuffPost email or phone queries.
On March 15, immediately after news of the $165 million AIG bonuses became public, Cuomo demanded the names of AIG bonus recipients. The N.Y. Attorney General backed up his demands with a subpoena, five press releases and a publicized letter to Barney Frank, chairman of the US House Financial Services Committee.
"If they do not comply with the subpoena, I will take them to court," Cuomo warned on March 19th.
Cuomo's PR coup resonated among state attorneys general across the country, many of whom sought to jump on the outrage bandwagon. New Jersey's Anne Milgram told reporters that she was leading a coalition of 19 state attorneys general demanding a similar list of AIG's bonus recipients as well as the contracts on which the bonuses were based. Not to be outdone, Connecticut Attorney General Richard Blumenthal independently announced that he too had subpoenaed AIG for the bonus list and for the underlying contracts.
The core of the concerns over Cuomo's role lies in a key sentence in an October 16, 2008, joint statement issued after a meeting that day between Cuomo and Edward M. Liddy, the new Chairman and Chief Executive of AIG. While there had been news and blog accounts referring, in passing, to Cuomo's possible knowledge of the AIG bonuses (for more on this, see below), the emphasis of the news coverage in March was on the decision by some AIG executives to return their bonuses, with downplayed or cursory attention to what Cuomo knew and when.
At the October 16 meeting, Liddy agreed to help Cuomo recover "illegal expenditures" including "all forms of compensation" paid to former CEO Martin Sullivan and to the former head of the Financial Products unit, Joseph Cassano; to not make any payments "pursuant to the multi-million dollar employment agreement of Steven Bensinger, the company's Chief Financial Officer, who will be leaving AIG;" and to cancel costly corporate events in Las Vegas, Scottsdale, and Half Moon Bay, Jamaica.
The crucial, and now controversial, sentence in the joint October 16 statement is contained in a short paragraph in the carefully worded text:
Attorney General Cuomo added, 'These actions are not intended to jeopardize the hard-earned compensation of the vast majority of AIG's employees, including retention and severance arrangements, who are essential to rebuilding AIG and the economy of New York'.
Initially, Cuomo's office refused on April 3 to expand upon, or to provide an interpretation of, that statement. On April 6, after the original publication of this story, Bamberger did - for the first time - reply to all previously posed HuffPost questions.
-Asked by the Huffington Post: Do "'retention and severance arrangements' include the $165 million in bonuses that have recently become so controversial?" Bamberger wrote: "No."
-Asked what "exactly did Cuomo mean" by the ["retention and severance arrangements"] remark, Bamberger answered, "This meant that there were many individuals outside of AIGFP who had nothing to do with the meltdown at FP. The statement was meant to prevent a mass exodus of such people at a time when AIG was in deep trouble and its failure could have been catastrophic to the financial system. It was in no way a comment on, let alone approval of, any other bonus programs at FP."
-Asked whether Cuomo was aware of a key AIG retention plan that had taken effect in December, 2007, when Cuomo made the statement on October 16 that he "did not intend to jeopardize" retention and severance arrangements, Bamberger, in the same April 6 12:18 email quoted in full above, said Cuomo was aware of the plan, but "did not know that AIG was planning to make any payments out of such a plan. In fact, given our interactions with them in October, our assumption would have been that such payments would be cancelled if they were later called for."
-Asked if Cuomo knew of the retention plan--"why didn't he take steps to make sure that it would not be implemented, since it was a formal, legally binding agreement that had to be paid out unless some action was taken?"--Bamberger replied in the same April 6 email, ""We were not aware they were planning to make such payments." In addition, he said, "There was no written agreement [between Cuomo and Liddy concerning future bonuses]. But it was certainly our understanding, based on numerous conversations at the time in October, that any future payments or bonuses or benefits would be cleared with us."
Bamberger is essentially arguing that Cuomo did all that he could to prevent the AIG bonuses from being distributed, and that suggestions that Cuomo knew on October 16, 2008 that the bonuses would be distributed are inaccurate.
The plan, which is at the crux of this controversy -- titled "AIG Financial Products Corp. 2008 Employee Retention Plan, Effective December 1, 2007" -- was designed specifically for executives in the financial products division.
The employee retention plan was part of the public record, and was available in AIG's filings throughout 2008 to the Securities and Exchange Commission, something Cuomo's staff would have necessarily been aware of.
One of the AIG officials most concerned with the employee retention plan was William Dooley, head of AIG's financial services division (AIGFP). Dooley oversees the division that engaged in the transactions - credit default swaps -- widely viewed as the cause of the collapse of AIG.
In an October 22, 2008 email obtained by the Huffington Post -- the authenticity of which was affirmed by AIG Senior VP for Communications Nicholas J. Ashooh -- Dooley sought to reassure his staff: many staffers were depending on bonuses for their entire yearly income, having agreed to work without salary. Dooley wrote:
As promised, I want to keep you apprised of any new developments. Earlier today, New York Attorney General Andrew Cuomo confirmed with AIG that the Deferred Compensation Plan and Special Incentive Plan accounts will have negative balances as the end of the current compensation year. The Attorney General has made clear that he was only referring to the DCP and SIP. I want to make clear to you that, as I indicated in my October 3 and October 9 letters to you, AIGFP will live up to its commitment of honoring your retention guarantees under the terms of the Employee Retention Plan ('ERP'). Accordingly, the non-deferred portions of the Guaranteed Retention awards under ERP will be paid by AIGFP and, under the terms of the ERP, those payments are guaranteed by AIG.
News of the $165 million in bonus payments to executives in the financial products division of AIG was first broken on March 15 by Bloomberg.com, creating a firestorm in public opinion and in Congress.
Cuomo quickly jumped into the fray, announcing that he would use his subpoena powers to force AIG to name the executives receiving the bonuses. Cuomo declared on a conference call to reporters:
"If the taxpayer didn't bail out AIG, those contracts wouldn't be worth the paper they're printed on.... Just because there's a contract doesn't mean there's no way around the contract."
As the furor mounted, Cuomo demanded that AIGFP executives return their bonuses. A total of $50 million was given back, winning further plaudits for Cuomo.
For Cuomo, the returns on his show of resolve against AIG bonuses were extraordinary. On March 23, the New York Daily News reported that the Attorney General's favorable/unfavorable job ratings had shot up to 67-26, "his highest ever." Even better, the percentage of Democratic primary voters who say they will back him over Governor David Paterson for the 2010 gubernatorial race increased to a crushing 67-17 edge, a double back-flip from poll results last December, when Paterson led 49-26.
Cuomo has become top dog for anyone betting the New York political futures market.
His status was briefly endangered, however, by new disclosures in late March.
On March 24, a Washington Post story--"AIG Employees to Repay $50 Million in Bonuses Executives at Troubled Unit Vow to Give Up Payments, Staving Off Cuomo Threat to Release Names" --disclosed the following, starting in the 13th graph:
Several AIG executives said that Cuomo was aware of the retention payments last fall. 'They showed it to Cuomo,' said one executive, who was not authorized to speak on the record. 'Cuomo was aware this thing was signed up.' Cuomo's office did not respond to a request to comment yesterday on when he became aware of the payments.
The next day, March 25, Wall Street Journal columnist Holman W. Jenkins, Jr. picked up on the Washington Post article. Noting the sudden determination of Cuomo and others to assault AIG executives for bonuses that had been on the public record for months, Jenkins wrote:
Americans clearly cannot trust their elected officials to defend their rights and interests, or care whether justice is served, when the slightest political risk might attach to doing so. Which brings us back to Mr. Cuomo, whose office has been implicitly threatening to publish names of AIG employees who don't relinquish pay they were contractually entitled to. Mr. Cuomo is a thug, but at least he reminds us: It can happen here.
On March 26, Steve Conover, who maintains an economics blog called the Skeptical Optimist described the collective indignation over the bonuses expressed by Cuomo, House Financial Services Committee chair Barney Frank, and Senator Charles Grassley (who suggested suicide as an alternative for AIG officials), and concluded:
Turns out that politicians' brains, courage, integrity, and leadership ability are in even shorter supply than I had suspected. Frankly, this whole situation is highly embarrassing for me; I've been trying and trying for many years to correct one of my personal flaws, but I just keep overestimating our politicians -- time after time after time. Not sure why, but looking at those three faces reminded me of something Ralph Waldo Emerson said: 'The louder he talked of his honor, the faster we counted our spoons.'
Cuomo returned to the bread and butter issues of Attorneys General nationwide, no longer making the network news, but instead getting non-controversial headlines in upstate New York.
So far in April, for example, Cuomo has issued only two press releases.
One proudly declares, "HOME IMPROVEMENT CONTRACTOR SENTENCED TO PRISON FOR SCAMMING WESTERN NEW YORK SENIOR OUT OF MORE THAN $80,000;" the other shouts: "ATTORNEY GENERAL CUOMO ANNOUNCES SETTLEMENT WITH SEED COMPANY THAT DECEIVED FARMERS ABOUT QUALITY OF SEEDS SOLD."
The Cuomo strategy may well work to obliterate traces of his role in the AIG bonus debacle. Public interest in the story has sharply declined, as reflected by the drop in the number of news stories about bonuses paid to AIG executives, from 840 on Sunday, March 22 to 322 on Sunday April 5.