AIG executives' promises to return bonuses have gone largely unfulfilled
By Brady Dennis
Washington Post Staff Writer
Wednesday, December 23, 2009
When word spread earlier this year that American International Group had paid more than $165 million in retention bonuses at the division that had precipitated the company's downfall, outrage erupted, with employees getting death threats and President Obama urging that every legal avenue be pursued to block the payments.
New York Attorney General Andrew M. Cuomo threatened to publicize the recipients' names, prompting executives at AIG Financial Products to hastily agree to return about $45 million in bonuses by the end of the year.
But as the final days of 2009 tick away, a majority of that money remains unpaid. Only about $19 million has been given back, according to a report by the special inspector general for the government's bailout program.
Some of the employees who had offered to return their bonuses have instead left the company, taking their cash with them.
Others remain at Financial Products but are also holding on to their money until they see what Kenneth R. Feinberg, the Obama administration's "compensation czar," decides about whether they should get future bonus payments they have also been promised. Feinberg, AIG and government officials have been involved in ongoing negotiations over the status of past and future bonuses at the insurance giant.
Dozens of employees have hired lawyers, bracing for a fight if AIG or government officials try to block the payments.
Cuomo has said little publicly in recent months about the AIG bonuses. On Tuesday, his office had no comment when asked about the payments.
When the controversy erupted in March, Cuomo agreed to keep the employees' identities secret as long as a significant share of the money was returned to the company. Some of them said his demand amounted to blackmail. But AIG officials said at the time that at least 18 of firm's top 25 executives had agreed to return at least some of their bonus money. "We are deeply gratified that a vast majority of FP's senior leadership have expressed a willingness to forsake their recent retention payments," the company said.
But now, the government, AIG and the employees are on a collision course. Everyone is keenly aware that another round of retention payments at Financial Products is due soon, threatening to draw public attention to the issue once again. AIG is scheduled to pay out an additional $198 million to employees in March.
"They have a contractual right to be paid this money. They put in their time, and they have performed all their obligations successfully." said Andrew Goodstadt, a New York lawyer who represents more than a dozen Financial Products employees. "They're willing to assert their contractual rights in a court of law. They have extremely strong claims."
Goodstadt said his clients include computer systems specialists, mathematicians and other employees who did not have a hand in the risky credit derivatives that brought the firm down. Rather, he said, many employees who remain at Financial Products have worked to unwind the troubled trades on its books and protect the massive taxpayer investment in AIG, whose total rescue package peaked at more than $180 billion in capital and loans.
They stuck around, he said, in large part because of the company's promise of the retention payments. In addition, Goodstadt emphasized that the company told employees in March that their offers to return bonus payments were voluntary and nonbinding.
One former Financial Products executive said some of his colleagues had stayed with the company only because they expected to receive bonus payments this coming March. After that, he said, they will have "no reason at all" to stay. "There's no more carrot," he said.
A resolution to the bonus controversy has been bedeviled by a growing lack of trust between AIG employees and the government.
Financial Products employees say they were on the brink of an agreement earlier this year that would reduce the total amount of money due in 2010 and spread those payments out over time to avoid the scrutiny that would come with a large, lump-sum payment. But they claim Feinberg scrapped that plan after he was appointed in June and urged AIG to find a way to significantly scale back the upcoming bonus payments.
People familiar with recent discussions between Feinberg and executives at AIG, including face-to-face talks with chief executive Robert H. Benmosche, said Feinberg has insisted that Financial Products employees return the money they said they would before he signs off on any deal involving 2010 compensation.
"Feinberg is adamant those pledges be honored," said one of the people. "It's non-negotiable."
They also said he has continued to urge that the amount of money due in March 2010 be reduced.
"I don't know how they resolve it now. There's no trust there," said one Financial Products executive, who, like others, spoke on the condition of anonymity because of the sensitivity of the payments. "In order to negotiate, there has to be good faith and trust, and the government has shown those two things don't exist with them."
AIG declined to provide official comment, but company officials have previously argued that it is essential to keep employees at Financial Products. While the most disastrous and risky deals have been purged from the books, AIG officials say a mass exodus of employees from the division could still wreak havoc and end up harming the government's nearly 80 percent stake in the company.
AIG said in an October statement that it was working through various compensation issues with Feinberg, "including future payments to employees of AIG Financial Products." The company noted that Financial Products employees "have until the end of the year to fulfill their commitments to return a portion of their March 2009 payment. We expect FP employees will honor their commitments."
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Wednesday, December 23, 2009
Monday, December 07, 2009
The Biggest CEO Outrages of 2009 by Helen Coster, Forbes.com
The biggest CEO outrages of 2009
by Helen Coster, Forbes.com
Friday, December 4, 2009
provided by
Almost a year ago, Bernard Madoff raised the bar for corporate malfeasance to an all-time high when he was arrested on charges of orchestrating a US$50 billion Ponzi scheme. Unsurprisingly, nobody managed to top Madoff's crimes in 2009, but 10 executives showed enough greed, hubris and chutzpah to altogether give him a run for his (stolen) money. Here are the biggest CEO outrages of the year (in honor of the holiday spirit, we're choosing them now and letting off anyone caught red-handed in December 2009).
In November a federal court sentenced Robert Moran, a UBS private banking client who is also the chief executive of Moran Yacht & Ship, to a two-month prison sentence for tax fraud. Moran's case came out of a larger government investigation into wealthy Americans who have used UBS to hide their money offshore and avoid U.S. taxes. Moran had pleaded guilty in April to filing a false tax return, and had admitted to concealing more than US$3 million in a secret UBS account. He finishes at No. 10 on our list.
Go to Forbes.com to view the slideshow
(Opens new window)
While Moran was busy rigging his yachts, David Rubin (No. 9) was busy rigging auctions, according to the Department of Justice. In October, prosecutors indicted Rubin, the chief executive of CDR Financial Products, a municipal bond brokerage, on conspiracy and fraud charges. According to the indictment, Rubin's firm rigged auctions that help determine which banks get the lucrative business of assisting governments in raising money. The prosecutors contend that participating banks kicked a portion of their profits back to Rubin, who denies the allegations. Like everyone on this list who has been indicted but not yet found guilty, he of course must be presumed innocent until proven guilty. But also like all the rest, he has gotten himself into a heap of ugly trouble in any event.
R. Allen Stanford (No. 8), the cricket-loving Texan who was, according to Forbes, a billionaire until this year, scored high in chutzpah in 2009. He and his co-defendants allegedly sold $7 billion worth of certificates of deposit through his Stanford International Bank and misappropriated most of the money, diverting more than US$1.6 billion in undisclosed loans to him personally. According to his indictment, he got by with a little help from his friends—in particular the chief executive of the Financial Services Regulatory Commission of the island nation Antigua and Barbuda, Leroy King. The Securities and Exchange Commission claims that in return for $100,000 from Stanford, King kept Stanford abreast of SEC inquiries into his dealings. Stanford has pleaded not guilty. If convicted, he faces up to 250 years in jail.
Pity the mostly Asian investors who let Danny Pang (No. 7), the founder and former chief executive of Private Equity Management Group, manage their money. In April the SEC accused him of running a Ponzi scheme that defrauded his investors of hundreds of millions of dollars. Pang died in September at age 42, before he could stand trial. A coroner's report expected by January is expected to say whether he committed suicide.
In October the SEC charged Raj Rajaratnam, founder of the hedge fund Galleon Group, along with executives from Intel, International Business Machines and McKinsey, with insider trading. The government relied on wiretaps to show how Rajaratnam (No. 3) allegedly used private information to help boost the returns at his US$3.7 billion hedge fund. He allegedly made more than US$33 million in illicit profits; he strenuously denies the charges and is out on bail awaiting trial.
Two businessmen displayed especially vivid imagination in their extremely dubious activities. In Minnesota, Thomas Petters (No. 5) went on trial in October for allegedly orchestrating a US$3.5 billion fraud. Federal prosecutors accused him of promising rich returns to investors who lent him money to buy flat-screen TVs and other excess goods from troubled retailers for resale to companies like Sam's Club. The only problem: Petters had allegedly cooked up fake purchase orders and invoices to hide the fact that those surplus goods never existed. Prosecutors claim that he used new investor money to pay off old debts—the old pyramid scheme technique—and used the profits to fund his extravagant lifestyle. As we go to press the case is before the jury.
Thousands of miles away, B. Ramalinga Raju (No. 4) was living in his own fantasy world. The founder of the Indian outsourcing company Satyam Computer Services, he confessed in January to overstating Satyam's profits over several years and creating a fictitious cash balance of more than US$1 billion. He invented more than 10,000 fictitious employees to help him steal money from the company, and he used his mother's name to buy land with the proceeds. He confessed, but has yet to face charges in court.
The uproar over Wall Street bonuses this year earned two prominent executives places on our list. Edward M. Liddy (No. 6), who began running America International Group last September, faced a nationwide firestorm when it emerged that executives in his firm's financial products division, who bore considerable responsibility for the insurance giant's near collapse, were being rewarded for their disastrous results with US$165 million in retention bonuses. The retention packages had been put in place before Liddy joined the firm last year and were tied to 2007 pay levels, so they weren't affected by the firm's more recent losses. Liddy insisted that though the bonuses were "distasteful," AIG was legally obligated to honor its employment contracts. Many across the nation disagreed—and took it personally, since the company had received almost US$200 billion in federal bailout funds courtesy of the American taxpayer.
John Thain, then the chief executive of Merrill Lynch, pushed through US$3.62 billion in bonuses for his executives last December, rather than waiting until January as usual, just as the company was being taken over by Bank of America. Then in January, Bank of America revealed that Merrill had lost US$15.3 billion in the fourth quarter of 2008. That bonus push just made Thain's ill-starred captaincy of Merrill, which had begun with his million-dollar renovation of his office a year before, look even worse than before. Less than a week later Kenneth Lewis, the CEO of Bank of America, forced Thain out of his job.
And last but not least: the divine Lloyd Blankfein (No. 1), chairman and chief executive officer of Goldman Sachs. Despite bearing scant resemblance to, say, Mother Theresa, the Pope or the Dalai Lama, Blankfein told the Sunday Times of London in November that he was just a banker doing "God's work." He later said he meant it as a joke, but he certainly pays himself as if he were accomplishing something greater than human: In 2007 he made US$73 million, according to Forbes, and only $25 million in 2008, as the economy tanked, but look for a recovery in his compensation this year as Goldman Sachs has recovered far ahead of the economy as a whole. In honor of the modesty of his pronouncement, we lift him to the celestial height of No. 1 on our list of CEO outrages of 2009.
In Pictures: The Most Outrageous CEOs Of 2009
by Helen Coster, Forbes.com
Friday, December 4, 2009
provided by
Almost a year ago, Bernard Madoff raised the bar for corporate malfeasance to an all-time high when he was arrested on charges of orchestrating a US$50 billion Ponzi scheme. Unsurprisingly, nobody managed to top Madoff's crimes in 2009, but 10 executives showed enough greed, hubris and chutzpah to altogether give him a run for his (stolen) money. Here are the biggest CEO outrages of the year (in honor of the holiday spirit, we're choosing them now and letting off anyone caught red-handed in December 2009).
In November a federal court sentenced Robert Moran, a UBS private banking client who is also the chief executive of Moran Yacht & Ship, to a two-month prison sentence for tax fraud. Moran's case came out of a larger government investigation into wealthy Americans who have used UBS to hide their money offshore and avoid U.S. taxes. Moran had pleaded guilty in April to filing a false tax return, and had admitted to concealing more than US$3 million in a secret UBS account. He finishes at No. 10 on our list.
Go to Forbes.com to view the slideshow
(Opens new window)
While Moran was busy rigging his yachts, David Rubin (No. 9) was busy rigging auctions, according to the Department of Justice. In October, prosecutors indicted Rubin, the chief executive of CDR Financial Products, a municipal bond brokerage, on conspiracy and fraud charges. According to the indictment, Rubin's firm rigged auctions that help determine which banks get the lucrative business of assisting governments in raising money. The prosecutors contend that participating banks kicked a portion of their profits back to Rubin, who denies the allegations. Like everyone on this list who has been indicted but not yet found guilty, he of course must be presumed innocent until proven guilty. But also like all the rest, he has gotten himself into a heap of ugly trouble in any event.
R. Allen Stanford (No. 8), the cricket-loving Texan who was, according to Forbes, a billionaire until this year, scored high in chutzpah in 2009. He and his co-defendants allegedly sold $7 billion worth of certificates of deposit through his Stanford International Bank and misappropriated most of the money, diverting more than US$1.6 billion in undisclosed loans to him personally. According to his indictment, he got by with a little help from his friends—in particular the chief executive of the Financial Services Regulatory Commission of the island nation Antigua and Barbuda, Leroy King. The Securities and Exchange Commission claims that in return for $100,000 from Stanford, King kept Stanford abreast of SEC inquiries into his dealings. Stanford has pleaded not guilty. If convicted, he faces up to 250 years in jail.
Pity the mostly Asian investors who let Danny Pang (No. 7), the founder and former chief executive of Private Equity Management Group, manage their money. In April the SEC accused him of running a Ponzi scheme that defrauded his investors of hundreds of millions of dollars. Pang died in September at age 42, before he could stand trial. A coroner's report expected by January is expected to say whether he committed suicide.
In October the SEC charged Raj Rajaratnam, founder of the hedge fund Galleon Group, along with executives from Intel, International Business Machines and McKinsey, with insider trading. The government relied on wiretaps to show how Rajaratnam (No. 3) allegedly used private information to help boost the returns at his US$3.7 billion hedge fund. He allegedly made more than US$33 million in illicit profits; he strenuously denies the charges and is out on bail awaiting trial.
Two businessmen displayed especially vivid imagination in their extremely dubious activities. In Minnesota, Thomas Petters (No. 5) went on trial in October for allegedly orchestrating a US$3.5 billion fraud. Federal prosecutors accused him of promising rich returns to investors who lent him money to buy flat-screen TVs and other excess goods from troubled retailers for resale to companies like Sam's Club. The only problem: Petters had allegedly cooked up fake purchase orders and invoices to hide the fact that those surplus goods never existed. Prosecutors claim that he used new investor money to pay off old debts—the old pyramid scheme technique—and used the profits to fund his extravagant lifestyle. As we go to press the case is before the jury.
Thousands of miles away, B. Ramalinga Raju (No. 4) was living in his own fantasy world. The founder of the Indian outsourcing company Satyam Computer Services, he confessed in January to overstating Satyam's profits over several years and creating a fictitious cash balance of more than US$1 billion. He invented more than 10,000 fictitious employees to help him steal money from the company, and he used his mother's name to buy land with the proceeds. He confessed, but has yet to face charges in court.
The uproar over Wall Street bonuses this year earned two prominent executives places on our list. Edward M. Liddy (No. 6), who began running America International Group last September, faced a nationwide firestorm when it emerged that executives in his firm's financial products division, who bore considerable responsibility for the insurance giant's near collapse, were being rewarded for their disastrous results with US$165 million in retention bonuses. The retention packages had been put in place before Liddy joined the firm last year and were tied to 2007 pay levels, so they weren't affected by the firm's more recent losses. Liddy insisted that though the bonuses were "distasteful," AIG was legally obligated to honor its employment contracts. Many across the nation disagreed—and took it personally, since the company had received almost US$200 billion in federal bailout funds courtesy of the American taxpayer.
John Thain, then the chief executive of Merrill Lynch, pushed through US$3.62 billion in bonuses for his executives last December, rather than waiting until January as usual, just as the company was being taken over by Bank of America. Then in January, Bank of America revealed that Merrill had lost US$15.3 billion in the fourth quarter of 2008. That bonus push just made Thain's ill-starred captaincy of Merrill, which had begun with his million-dollar renovation of his office a year before, look even worse than before. Less than a week later Kenneth Lewis, the CEO of Bank of America, forced Thain out of his job.
And last but not least: the divine Lloyd Blankfein (No. 1), chairman and chief executive officer of Goldman Sachs. Despite bearing scant resemblance to, say, Mother Theresa, the Pope or the Dalai Lama, Blankfein told the Sunday Times of London in November that he was just a banker doing "God's work." He later said he meant it as a joke, but he certainly pays himself as if he were accomplishing something greater than human: In 2007 he made US$73 million, according to Forbes, and only $25 million in 2008, as the economy tanked, but look for a recovery in his compensation this year as Goldman Sachs has recovered far ahead of the economy as a whole. In honor of the modesty of his pronouncement, we lift him to the celestial height of No. 1 on our list of CEO outrages of 2009.
In Pictures: The Most Outrageous CEOs Of 2009
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