Can AIG Get The Bonus Money Back?
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Think about it this way: the contract terms that AIG apparently executed in early 2008 with some of its executives, guaranteeing them $165 million in bonuses even in such dire corporate circumstances, are just another group of "toxic assets" we ought to attribute to the greedy idiots with the terrible judgment who brought the insurance giant to its knees.
And, like those other toxic assets poisoning our economy and mortgage markets, the government and the rest of us can't just pretend they don't exist. The men and women who were bound by them — the AIG executives, I mean — have certain legal rights that are designed to protect them. Hundreds of years of contract law tell us that contractual obligations have to mean something or else commerce and trade fails (even worse than it's failing now).
If the company does not pay those managers, they may sue for breach of contract and put further financial pressure on a company that doesn't appear to need any additional burdens. Sure, the bonus babies would be subject to ridicule and scorn. But they have the weight of the law on their side. The starting point in the debate over this round of payoffs is that the government, and by extension AIG itself, are going to have to come up with creative legal arguments to save that money from being dispersed.
In a normal situation, a creditor (like the United States) might be able to run into court and argue that its debtor, AIG, is about to siphon off preferential money in advance of a bankruptcy.
But of course the United States cannot argue that AIG is heading into bankruptcy at the same time our government agents are working so hard to convince everyone that the giant company has been sufficiently buttressed (by tax dollars). New York State Attorney General Andrew Cuomo mentioned the "fraudulent conveyance" theory on a conference call he held Monday afternoon to announce that state investigators were subpoenaing AIG to get information on the contracts. If, as Cuomo suspects, the money already has been transferred to the bonus recipients than the state would have to go directly after them.
Sometimes contractual obligations can be voided if their terms are deemed "unconscionable" or against "public policy." But "unconscionable" contracts usually involve some great unfairness to one of the parties to the contract. The United States is not a party to these contracts.
Could the White House and Congress put financial pressure on A.I.G. to turn around and declare the terms "unconscionable"? I suppose. But there are political and financial ramifications to that scenario as well.
Practical ones, too. Despite being on the federal dole, AIG seems perfectly eager to wrestle with Cuomo and company on the issue of the privacy rights of those to whom the bonuses are paid. AIG is not acting, in other words, like a partner willing to try to recoup this money.
Are the bonuses tied to performance? If so, under what legal theory do AIG and the individuals claim they have succeeded in performing in a way that merits the bumps? And if the bonuses are not tied to performance, which sounds crazy but not inconsistent with what we know of the way AIG conducted its business, what then? Can the government simply give A.I.G. $165 million less than it was going to? I suppose. But that would still mean the workers get their dough.
I wish I had more answers than questions now. As with most other things in the law, and in the intersection between law and politics, it's all in the details and we don't yet have nearly enough details.
The men and woman who were counting on that big money might still get it even though their company is in the toilet. But it's not likely to come as easily as they thought when they signed on the dotted line a year or so ago. The world is very different now than it was then.
More AIG Related Coverage:
Poll: Frustration Growing Over Bailouts
Are We Taxpayers – Or Suckers?
Will AIG Flap Lead To Obama Backlash?
Obama Rips AIG Bonuses
N.Y. AG Wants Answers On AIG Bonuses
White House Seeks "Mechanisms" To Recoup AIG Bonuses
Andrew Cohen is CBS News Chief Legal Analyst and Legal Editor. You can read more of his posts in Hotsheet here.
© 2009 CBS Interactive Inc. All Rights Reserved. Think about it this way: the contract terms that AIG apparently executed in early 2008 with some of its executives, guaranteeing them $165 million in bonuses even in such dire corporate circumstances, are just another group of "toxic assets" we ought to attribute to the greedy idiots with the terrible judgment who brought the insurance giant to its knees.
And, like those other toxic assets poisoning our economy and mortgage markets, the government and the rest of us can't just pretend they don't exist. The men and women who were bound by them — the AIG executives, I mean — have certain legal rights that are designed to protect them. Hundreds of years of contract law tell us that contractual obligations have to mean something or else commerce and trade fails (even worse than it's failing now).
If the company does not pay those managers, they may sue for breach of contract and put further financial pressure on a company that doesn't appear to need any additional burdens. Sure, the bonus babies would be subject to ridicule and scorn. But they have the weight of the law on their side. The starting point in the debate over this round of payoffs is that the government, and by extension AIG itself, are going to have to come up with creative legal arguments to save that money from being dispersed.
In a normal situation, a creditor (like the United States) might be able to run into court and argue that its debtor, AIG, is about to siphon off preferential money in advance of a bankruptcy.
But of course the United States cannot argue that AIG is heading into bankruptcy at the same time our government agents are working so hard to convince everyone that the giant company has been sufficiently buttressed (by tax dollars). New York State Attorney General Andrew Cuomo mentioned the "fraudulent conveyance" theory on a conference call he held Monday afternoon to announce that state investigators were subpoenaing AIG to get information on the contracts. If, as Cuomo suspects, the money already has been transferred to the bonus recipients than the state would have to go directly after them.
Sometimes contractual obligations can be voided if their terms are deemed "unconscionable" or against "public policy." But "unconscionable" contracts usually involve some great unfairness to one of the parties to the contract. The United States is not a party to these contracts.
Could the White House and Congress put financial pressure on A.I.G. to turn around and declare the terms "unconscionable"? I suppose. But there are political and financial ramifications to that scenario as well.
Practical ones, too. Despite being on the federal dole, AIG seems perfectly eager to wrestle with Cuomo and company on the issue of the privacy rights of those to whom the bonuses are paid. AIG is not acting, in other words, like a partner willing to try to recoup this money.
Are the bonuses tied to performance? If so, under what legal theory do AIG and the individuals claim they have succeeded in performing in a way that merits the bumps? And if the bonuses are not tied to performance, which sounds crazy but not inconsistent with what we know of the way AIG conducted its business, what then? Can the government simply give A.I.G. $165 million less than it was going to? I suppose. But that would still mean the workers get their dough.
I wish I had more answers than questions now. As with most other things in the law, and in the intersection between law and politics, it's all in the details and we don't yet have nearly enough details.
The men and woman who were counting on that big money might still get it even though their company is in the toilet. But it's not likely to come as easily as they thought when they signed on the dotted line a year or so ago. The world is very different now than it was then.
More AIG Related Coverage:
Poll: Frustration Growing Over Bailouts
Are We Taxpayers – Or Suckers?
Will AIG Flap Lead To Obama Backlash?
Obama Rips AIG Bonuses
N.Y. AG Wants Answers On AIG Bonuses
White House Seeks "Mechanisms" To Recoup AIG Bonuses
(CBS)
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Corporate greed in this country.
When the President said it is going to take sacrifice and
a lot of work from the American people did he somehow
only mean blue collar workers??
I am so sick of the ceo's who ruin their workers lives and
are never made responsible. Those workers should have
never accepted that bonus...and need to take a step back
This needs to be nipped in the bud give them a vacation
in jail along with getting the money back. Don't drag this our like the Qwest Nacchio delays ..he got away with millions while we the workers took huge losses and some suicides resulted as workers lost everything in their 401K's. Nacchio was found guily and still is not in jail ...We do need change and justice for these millionaires needs to be swifter. This act is criminal.
And if instead, those managers could be convicted of a new crime called economic treason (egregiously reckless or intentional acts resulting in significant damage/disruption to the U.S. economy) and punishable by being stood up against a wall and shot, then perhaps they wouldn't be so eager to sue and would be more inclined to just stay home and shut the f**k up, being thankful to escape with their lives...
AIG didn't feel the same way when my mother retired from that company.
When she asked about how she would get her retirement pay the told her "We really don't want to go into that" and simply refused to pay her the measly $12,000 she was owed.
I sued them to get them to pay. It cost me $12,000 to sue them.
Wonderful folks there at AIG. You can bet you last dollar that they will fight to the death to squander our money on themselves.
We are a nation of laws and we do desire a global economy. We have to be smarter and wiser about how we offer and provide help to corporate firms.
Why doesn't the government allow AIG to go into bankruptcy with government guarentees that it's essential business obligations will be covered. Bankruptcy would allow AIG to cancel all employment contracts and clear out the deadwood in the organization much faster.
BREAK UP the MONOPOLISTIC COMPANY.
AT&T was FORCED to be broken up when it was perceived to be TOO BIG and dangerous for the Economy.
Microsoft faced SEVERAL YEARS of litigation when it was believed they were approaching that point.
Numerous other companies were DENIED consolidation or mergers for that reason.
But for some mysterious reason after SEVERAL DECADES of breaking monopolies and "trust busting" this nation SUDDENLY came down with amnesia as to those laws and the very VALID REASONS they were put in place.
AIG should be BROKEN UP, divested of it's MONOPOLISTIC control over our and many other nations of this world's economies, it's various "insurance" divisions and the other forms of "vertical integration" it has succeeded in ramming past our legal system.
"Too big to fail" IS TOO BIG TO EXIST in it's present form and BREAKING IT UP is a VERY DOABLE OPTION.
Let the "derivative SCAM unit" sit out there ON IT"S OWN and tell it to CREATE IT'S OWN REVENUE if it hopes to exist at all.
Better yet, INDICT the lot of them and bring in some REAL financial intellect to sort out the MESS they've created by convolution on paper what NEVER should have seen the light of day outside the Prison cells such SCHEMES are usually "COOKED UP" in.