New York attorney general castigates AIG over “unwarranted and outrageous” expenses

New York's crusading Attorney General Andrew Cuomo is at it again. After successfully taking on the country's major banks on the contentious issue of auction rate securities, the latest target in his sight is cash-strapped American insurance company AIG, which has been ordered to "cease and desist" improper use of taxpayers' money, after senior executives flew by private jet to a partridge hunting party at a 17th century English manor house. (See: New York attorney general charges UBS with securities fraud and Citigroup becomes the latest Wall Street entity to be charged with securities fraud)

Accusing the company of breaking the law by bankrolling "unwarranted and outrageous" junkets in the wake of a $123 billion bail-out by the US government to save the firm from bankruptcy, Cuomo expressly declared, "The party is over. No more hunting trips. No more luxury resorts. They are not going to have the party and leave the hangover for taxpayers."

AIG has been castigated by officials since the New York-based insurer hosted a $440,000 conference at a California resort last month (See: AIG execs splurge $440,000 at resort with bailout money)  after agreeing to the federal bailout to avoid bankruptcy. 

A wek befor the extravaganza the US treasury had provided AIG an $85-billion loan to prevent its collapse (See: $85-billion bailout for AIG). The company may access an additional $37.8 billion from the Federal Reserve Bank of New York to replenish liquidity (See: Fed pumps another $37.8 billion in AIG) 

In a letter to AIG's board of directors, Cuomo said such expenditures could be deemed fraudulent conveyances under New York law. "The board should immediately cease and desist these improper and extravagant expenditures, which exploit the taxpayers," said the letter. "Immediate cooperation is expected, or we will commence legal action."

He demanded that the AIG board stop "unwarranted and outrageous expenditures" and recover any past ones that were "unreasonable", citing a $5 million bonus and $15 million "golden parachute" that AIG awarded Martin Sullivan, its then CEO, in March. He demanded an accounting of AIG's executive compensation and benefits since January 2007 and said the government's financial rescue of AIG made the expenditures "even more irresponsible."

Such profligacy at a time of America's worst financial crisis in several decades has expectedly drawn strong condemnation from all quarters, including the country's legislators. In a letter released to the media, House Financial Services Committee chairman Barney Frank told Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke the executives responsible for the gathering should "personally reimburse the government," and requested increased oversight of the company.

Cuomo's letter "will be brought to the immediate attention" of AIG directors, said Nicholas Ashooh, a spokesman for the insurer. "The events referred to should have been canceled, it's regrettable they weren't, but we've issued a policy canceling all such events and reviewing all expenses going forward," he said.

AIG issued a statement saying the company would "fully cooperate" with Cuomo's office. "AIG's priority is to continue focusing on actions necessary to repay the Federal Reserve loan and emerge as a vital, ongoing business."