The New York Times
A day after Richard S. Fuld Jr. was compelled to explain the millions of dollars he made at Lehman Brothers, two former executives of the American International Group took their turns in government witness chairs on Tuesday, answering critical questions from lawmakers about business and pay practices and outsize spending that continued even after the company received an $85 billion lifeline from the government.
One particular point of contention during the hearing before the House Oversight and Government Reform Committee was a weeklong retreat that a life insurance subsidiary, AIG General, held for its top sales agents at the St. Regis Resort in Monarch Beach, Calif., only a week after the government extended its $85 billion loan last month.
The $442,000 in expenses for the week included $150,000 for food and $23,000 in spa charges, according to documents obtained by the committee.
Joe Norton, A.I.G.’s director of public relations, said in an interview that the event had been scheduled last year, though he did not know whether executives had considered canceling the retreat after the bailout.
In addition to questions about spending, the two A.I.G. executives who appeared before legislators, Martin J. Sullivan and Robert B. Willumstad, faced sometimes heated inquiries into risky bets by the company on complicated financial products that insured mortgage-backed securities.
A.I.G., for decades the largest insurance company in the world, must now sell wide swaths of its businesses to repay the government loan, made because of the potential catastrophe that the company’s bankruptcy would have unleashed.
Mr. Sullivan was criticized for his reassurances to investors about A.I.G.’s health in December despite warnings from company auditors that its exposure to those contracts was growing.
And many legislators berated the two men for large pay packages dispensed to top executives despite evidence that the company’s financial health had begun deteriorating in 2007. Mr. Sullivan was questioned by several lawmakers over why he had requested that accounting losses from A.I.G.’s exposure to these swaps be excluded from calculating one particular compensation plan.
The two former executives also took criticism from their outspoken predecessor, Maurice R. Greenberg, who sought to deflect responsibility in a statement to the committee. Yet Mr. Greenberg, who also questioned the need for the government’s de facto takeover of the company as part of its rescue package, declined to appear, citing illness.
The nearly five-hour hearing was the second this week held by the House committee after the pointed questioning on Monday of Mr. Fuld about the collapse of Lehman, the investment bank he led. Committee members, led by Henry A. Waxman of California, are seeking more information from troubled financial companies after the passage of the Bush administration’s $700 billion bailout plan last week and the chaos gripping the markets.
”A.I.G. had to be bailed out by taxpayers because of your investments in credit-default swaps,” Carolyn Maloney, Democrat of New York, said. ”I don’t believe any of your management deserves a bonus.”
Mr. Sullivan, who was ousted as A.I.G.’s chief executive in June, and Mr. Willumstad, who was the company’s chairman before succeeding Mr. Sullivan, blamed wider market tremors for the company’s stumbles. They also attributed A.I.G.’s $25 billion in write-downs to mark-to-market accounting rules, which forced the company to take paper losses that led to debilitating credit downgrades.
Yet both Democratic and Republican lawmakers dismissed those arguments, citing testimony from a former chief accountant for the Securities and Exchange Commission.
”A.I.G. is blaming its downfall on accounting rules which require it to disclose losses to its investors,” the witness, Lynn E. Turner, said. ”That’s like blaming the thermometer, folks, for a fever.”
Instead, lawmakers focused on efforts by company management to shield inquiries into the London subsidiary that had underwritten the derivatives contracts that became devalued during the global credit crisis.
Both PricewaterhouseCoopers, the company’s auditor, and an independent accountant complained of a lack of access to the London unit and its leader, Joseph Cassano. The accountant, Joseph St. Denis, said in a statement to the committee that he had been deliberately blocked from questioning Mr. Cassano because he might ”pollute the process.” Mr. St. Denis later resigned in protest.
Mr. Cassano has continued to draw $1 million a month in consulting fees from A.I.G., a fact that aroused ire from several lawmakers. He earned $280 million over the last eight years.
For his part, Mr. Greenberg sought in his written statement to cast A.I.G.’s troubles as arising after he left in 2005, under the shadow of an accounting inquiry.
”When I left A.I.G., the company operated in 130 countries and employed approximately 92,000 people,” Mr. Greenberg said in a statement. ”Today, the company we built up over almost four decades has been virtually destroyed.”
When asked about Mr. Greenberg’s contention that risk controls at A.I.G. had loosened after his departure, Mr. Sullivan argued that risk controls had actually tightened since then.