US officials knew of AIG bonuses before controversy: report

AFP (American Free Press)
May 13, 2009

US federal officials were aware of controversial bonuses paid by taxpayer-bailed out insurance giant AIG months before they sparked a firestorm, The Washington Post reported on Wednesday.

Documents, the Post said, showed that senior officials at the Federal Reserve Bank of New York obtained details about the bonuses "more than five months" before the controversy.

The New York Fed became aware of the matter by September 29, it said.

The officials were also "deeply engaged" with American International Group, as well as outside lawyers, auditors and public relations firms about possible public outrage at the program.

But Treasury Secretary Timothy Geithner, who headed the New York Fed when it became aware of the bonus details, was not among the officials cited in the documents, the newspaper said.

Fed officials in New York, it said, sent details in early February about the bonuses to the Federal Reserve in Washington "to prepare chairman Ben Bernanke in case he was asked about the payments at a congressional hearing".

But by March, when President Barack Obama's administration was involved on the matter, the New York Fed "had determined that AIG was legally bound to pay the bonuses to its Financial Products division," widely blamed for AIG's collapse, the Post said.

Senior New York Fed officials met with AIG executives to discuss the Financial Products division's compensation plans, according to the documents, which included correspondence and phone calls.

Once the world's largest insurer, AIG is now nearly 80 per cent owned by the government under a government bailout of about $US180 billion ($235.36 billion), making it the largest single recipient of federal bailout money.

The Post said that senior Treasury officials continue to meet several times a week since the height of the storm in March to review individual bonuses of AIG executives, even lower-ranking ones. Geithner, it added, attended some of the early meetings.

The primary contacts on the matter at the New York Fed were Jim Hennessy, counsel and vice president, and Sarah Dahlgren, a senior vice president and head of its bank supervision group, the Post said.

Anastasia Kelly, AIG's executive vice president and general counsel, led the company's efforts, while Ernst & Young acted as an outside auditor on top of other New York law firms, including Sullivan & Cromwell.


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