No Out for AIG

State law has no authority to void AIG bonuses

By LeAnne Gendreau
|  Friday, Apr 10, 2009  |  Updated 8:40 AM EDT
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The state cannot use state law to void AIG bonuses.

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The state of Connecticut cannot use state law to void bonuses A.I.G. paid to employees, although taxpayer money was used to bailout the insurance giant.

Connecticut got pulled into the American International Group employee bonus/federal bailout scandal when A.I.G. officials cited state law and claimed it just had to pay out $164 million in bonuses – which now might be $218 million.

So, the state fought back and subpoenaed A.I.G. for contracts related to the bonuses distributed in March to employees of its Financial Products division, which is based in Wilton.

Then Department of Consumer Protection Commissioner Jerry Farrell Jr. looked into whether the payments could be voided under the Connecticut Unfair Trade Practices Act. It turns out, they cannot.  

“We conducted an exhaustive investigation and analysis of CUTPA case law, a thorough review of the Unfair Trade Practices Act itself, and careful scrutiny of the company’s documents to determine if Connecticut had any legal authority in this matter as an unfair trade practice, and we found that we do not have subject matter jurisdiction over the issue,” Farrell said.

Farrell said he agree with the people who believe an injustice was done in awarding the bonuses, but he said he could not twist Connecticut law to fix the situation.

“Certainly, it made sense to investigate whether CUTPA applied in this situation, but having concluded that it is not applicable, the solution lies with the United States Congress to fix what has occurred by amending federal law.”

The act was meant to help in cases where a business cheats its customers, such as by charging a fee for a service that was never provided, but does not otherwise violate any specific law, Farrell said. But the taxpayers would not apply in this situation, he said.

“While we might like to look at ‘the taxpayers’ who are ultimately funding the AIG bonuses, and be tempted to say that they too are consumers -- the group of people that CUTPA was meant to protect -- that would be stretching the law beyond its original intent and logical reading,” Farrell said.

Between the $165 million in bonuses A.I.G. distributed to Financial Products division employees in March, more than $50 million in bonuses paid to A.I.G. employees in December, the bonuses are closer to $218 Farrell said.

Other figures released indicate that as much as $450 million could be awarded by the time the whole mess is done.

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