Even with U.S. oversight, AIG keeps secrets

Introduction

After taxpayers rescued American International Group from the brink of collapse, the U.S. government moved to protect its investment by appointing directors and special trustees to oversee the company.

Now the government’s appointees, all hailing from Wall Street or the Federal Reserve, are allowing AIG to withhold key records generated during the company’s decline. The documents could decode the murky circumstances leading to the second largest bailout of the financial crisis.

The Huffington Post Investigative Fund has learned, in the course of inquiring into oversight of AIG, that the government’s six appointed directors and trustees are resisting calls for AIG to release its internal documents and e-mails from that time.

Those calls have come from several congressmen and former financial prosecutors. They argue the documents could show how executive decisions contributed to AIG’s downfall, which prompted a $182 billion government commitment.

The government, meanwhile, is keeping its own secrets: Despite repeated requests, the Treasury Department hasn’t divulged the criteria it used to select directors of AIG’s board. Nor has Treasury disclosed how much the directors will be paid.

But former New York Gov. Eliot Spitzer, who prosecuted Wall Street fraud during his earlier role as the state’s attorney general, speculated that the internal documents could only help the government determine whether AIG committed fraud in the run-up to its bailout. In any examination of corporate behavior, e-mail and internal documents are “the holy grail,” Spitzer told the Investigative Fund. Such records, Spitzer noted, have been pivotal in making cases against executives of corporations such as Enron.

Responsibility for releasing the documents, Spitzer said, falls on AIG’s directors and trustees. AIG has 13 directors, two of whom the Treasury Department appointed this month. Separately, the Federal Reserve Bank of New York appointed three trustees when it created the AIG Credit Facility Trust to oversee taxpayers’ investment in the company.

Congress also could take action. Earlier this year, Rep. Steve Israel (D-N.Y.) introduced legislation that would force AIG to release its e-mails, a move that would “get to the bottom of the AIG collapse,” he said.

Ties to Wall Street

The rise and fall of AIG can be traced to credit default swaps – insurance products the company sold to banks that had large stakes in mortgage investments. When those investments collapsed in the mortgage meltdown, AIG’s insurance policies kicked in. The company, which owed billions to Goldman Sachs and others, lost $110 billion between 2008 and 2009. Taxpayers likely won’t recover their bailout billions for some time.

That hasn’t stopped AIG from rewarding senior managers. An April 12 regulatory filing shows the company approved 2009 compensation packages worth about $30 million for its top five executives. In February, AIG received congressional scrutiny for deciding to pay employees some $100 million in bonuses.

Still, AIG has repeatedly failed to pay the government scheduled dividends on taxpayer-owned stock. As a result, the Treasury Department this month exercised its authority to appoint two directors to AIG’s board. The department, led by Treasury Secretary Timothy Geithner, chose Wall Street veterans Donald H. Layton and Ronald A. Rittenmeyer.

For several years while Geithner was chairman of the Federal Reserve Bank of New York, Layton was a member of the bank’s international markets advisory committee. The New York Fed is AIG’s main regulator.

Layton, a former chairman and chief executive of E* Trade Financial, spent 29 years at JPMorgan Chase & Co., where he most recently was vice chairman.

Treasury touted Layton’s executive experience when announcing his appointment in a press release on April 1.

Treasury’s announcement did not mention that Layton also worked for a financial industry lobbying powerhouse, the Securities Industry and Financial Markets Association, or SIFMA. The association is one of several trade groups rallying against key elements of President Obama’s effort to crack down on Wall Street. From 2006 to 2008, Layton was a SIFMA senior advisor, according to published reports.

Rittenmeyer, Treasury’s other pick for the board, was the chairman, president and chief executive of Electronic Data Systems, which was bought by Hewlett-Packard in 2008. He also was managing director of the Cypress Group, a private equity firm in New York. Rittenmeyer has served on the board of the national Chamber of Commerce, another industry lobbying group working to derail Wall Street reform.

Layton and Rittenmeyer will be paid for serving on the board, though Treasury and AIG spokeswomen would not disclose details of their compensation. AIG’s current directors receive a $150,000 retainer and $50,000 in deferred stock units annually, according to the recent regulatory filing.

It’s unclear exactly what led Treasury to select Layton and Rittenmeyer for the AIG board. The government used KornFerry, an executive search firm, to aid the process.

Treasury, in response to a request from the Investigative Fund, declined to disclose the search criteria.

“We are confident that these appointees will make significant contributions to AIG’s strategy to de-lever, de-risk and pay back taxpayers,” an assistant treasury secretary, Herbert Allison, said at the time of the appointments.

“No comment”

Layton and Rittenmeyer, as board members, theoretically could demand that AIG release its internal e-mail, accounting documents and financial models. The record of AIG’s actions in the lead up to its bailout presumably are contained in those secret records.

Both Layton and Rittenmeyer, through an AIG spokeswoman, declined to speak with the Investigative Fund or explain why they haven’t compelled AIG to release the documents.

If AIG’s board does not disclose the documents, some believe that the three government-appointed trustees could force it to do so. The trustees can’t interfere in the company’s day-to-day affairs but can oust AIG’s directors.

Rep. Alan Grayson (D-FL), a member of the House Financial Services Committee, has demanded that the trustees force the release of the documents. “It is beyond outrageous that this company, which taxpayers capitalized after Wall Street used it as a slush fund, hides nearly all relevant facts from its owners, the public,” Grayson wrote in a March letter to the trustees.

But the trustees are unwilling to meet such demands. “The trustees have no comment regarding the suggestion that AIG’s board release the e-mails of the company, nor will they comment on any views they might have on that issue,” Peter Bakstansky, the Trust’s adviser, said in an e-mail responding to Investigative Fund inquiries in January.

He confirmed Friday that the trustees have not changed their position.

The trustees each receive a $100,000 salary from AIG.

Although the New York Fed considers the trustees independent, most are either current or former Federal Reserve officials.

One trustee, Jill M. Considine, chairs a firm that administers hedge fund portfolios and is a former board member of the New York Fed. Another trustee, Chester B. Feldberg, was an employee of the New York Fed for 36 years. After leaving the Fed, he became chairman of Barclays Americas until 2008. Douglas L. Foshee, chief executive of the El Paso Corporation and former chief operating officer of Halliburton, is the current board chair of the Federal Reserve Bank of Dallas’ Houston branch.

Peter Langerman, president and chief executive officer of the Mutual Series fund group of Franklin Templeton Investments, became a trustee after Foshee resigned in February. The Treasury Department recommended Langerman, who has donated nearly $100,000 to Democratic candidates, including Barack Obama.