After a report concerning questionable executive compensation payouts an investigation on behalf of current long term investors in American International Group, Inc. (NYSE:AIG) over potential breaches of fiduciary duty related to the historical and potential compensation that was awarded certain senior officers and executives of American International Group, Inc. was announced.
Kenneth R. Feinberg, the Obama administrations special master for executive compensation, reviewed over the past five months compensations paid to the 25 highest earners of 419 banks between October 2008, when the first US Troubled Asset Relief Program funds were dispensed, and February 2009, when the stimulus bill took effect. Kenneth Feinberg said he immediately excluded most of the 419 companies from his examination because they said they didn't pay any executives more than $500,000, but he wound up citing 17 banks for making troublesome payments. 11 of the 17 banks making troublesome payments have already repaid the government for money they borrowed under TARP.
Mr. Feinberg determined that banks paid out $1.6 billion in unwarranted bonuses, retention awards, stock grants and 'golden parachute' retirement packages to their top earners at the height of the financial crisis.
American International Group, In, the holding company located in New York, which through its subsidiaries, is engaged primarily in a range of insurance and insurance-related activities in the United States and abroad, is among the 17 companies. Another of the other 16 companies was Citigroup, which was reportedly identified for having the most egregious compensation packages, according to government officials with knowledge of Mr. Feinbergs report. Citigroup reportedly handed out several hundred million dollars in pay in 2008 as it neared collapse. Nearly two-thirds of the payouts amount to Andrew J. Hall, owner of a nearly 1000 year old German Medieval Castle, who reportedly received a payout of more than $100 million in connection with spin-off of Citigroups Phibro energy trading unit for $370 million to Occidental Petroleum in 2009.
In most cases the banks told Feinberg that they were obligated by employment contracts to pay the bonuses and other compensation, but Kenneth R. Feinberg said to reporters that those 17 companies exercised 'poor judgment' for making the $1.6 billion in 'ill-advised payments' to their top paid employees shortly after accepting TARP funds from the federal government. 'They shouldn't have made these payments,'' Feinberg told reporters. 'They were ill-advised. They were troublesome.'
According to the investigation by a law firm the investigation on behalf of current long term investors in American International Group, Inc. (NYSE:AIG) stock focuses, among other things, on possible shareholder claims that certain of American International Groups senior officers were unjustly enriched through their receipt of unwarranted, excessive or unearned compensation in past years. Certain senior officers and executives at American International Group, Inc. were awarded salaries, bonuses, stock options and other forms of long-term, incentive or retirement compensation that were, so the investigation, excessive or unwarranted based on American International Groups performance.
Edward Michael Liddy was the chief executive officer of American International Group (AIG), where he succeeded Robert B. Willumstad in September, 2008. As CEO of AIG, Edward Michael Liddy received a salary of $1, though he may be 'eligible for a special bonus for extraordinary performance payable in 2010', and received $460,000 in other compensation. Edward Liddy faced a nationwide firestorm when it emerged that $165 million in retention bonuses were being paid to executives, while AIG received $182 billion in TARP funds.
The investigation by the law firm focuses on claims that the prior compensation awarded at American International Group, Inc. (Public, NYSE:AIG) is now clearly improper based upon its current operating condition.
American International Groups revenue plumbed from $103.632billion in 2007 to $6.896billion in 2008. AIG reported in 2009 Total Revenue of $96.004billion, but while AIG reported over the same period a Net Income in 2007 of $6.2billion, it suffered a huge loss of $99.289billion in 2008 and a Net Loss of $10.406billion in 2009. Shares of American International Group, Inc. (AIG) traded in 2007 at the stunning amount of $1451 per share, but plumbed to $32 per share in 2008, or a lost of almost 98%. AIG was able to regain some value in its52weekHigh of $55.90, but traded recently at $36.77 per share, close to its 2008 value. AIG was involved in several other lawsuits. For instance investors filed a lawsuit on May 21, 2008, in the United States District Court for the Southern District of New York, over alleged violations of the Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and that two Individual Defendants violated Section 20(a) of the Securities Exchange Act of 1934.
Recently American International Group, Inc. agreed to pay a for a record sum of $725million to resolve allegations that AIG several years ago engaged in insurance bid-rigging, committed accounting fraud, and other practices that officials said led investors nationwide to lose millions.
Finally and most importantly the investigation focuses also on possible claims that would allow American International Group, Inc. (NYSE:AIG) stockholders to influence or control future compensation decisions at American International Group, Inc.
Within the industry huge amounts have been allocated for payout and bonus. Goldman Sachs is reportedly paying out an average of $544,000 per worker, though many could earn several times that amount, JP Morgan Chase on average pays about $400,000, and Morgan Stanley pays about $262,000. Morgan Stanley reportedly put aside $8.3 billion for pay and benefits during the first half of 2010, 44% more than during the same period last year. Goldman Sachs put aside $3.8 billion for pay and benefits in the second quarter equivalent to 43% of total quarterly revenue in addition to $5.5 billion in the first three months.