Watch CBSN Live

Can AIG Get The Bonus Money Back?

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.
View CBS News In
CBS News App Open
Chrome Safari Continue