In his opening statement during a hearing examining AIG—the insurance giant that the government bailed out last month—House Oversight and Government Reform Committee Chairman Henry Waxman laid out three sets of questions he wanted answered:
From the California Democrat’s opening statement
1. Was AIG’s executive compensation fair?
In March, the board approved a new compensation contract for [ex-AIG CEO Martin] Sullivan that gave him a golden parachute worth $15 million. We will ask why that was in the interests of the shareholders....
The federal bailout occurred on September 16. Less than one week later, AIG held a week-long retreat for company executives at the exclusive St. Regis Resort in Monarch Beach, California. A photograph of the resort is on display.
Rooms at this resort can cost over $1,000 per night. Invoices provided to the Committee show that AIG paid the resort over $440,000, including nearly $200,000 for rooms, over $150,000 for meals, and $23,000 in spa charges.
Average Americans are suffering economically. They are losing their jobs, their homes, and their health insurance. Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation.
2. Do ex-CEOs really have "no responsibility" for the firm’s demise?
The second set of questions we will ask is whether Mr. Sullivan and Robert Willumstad are right when they say they bear no responsibility for the collapse of AIG.
Mr. Sullivan was CEO from March 2005 to June 2008. Mr. Willumstad was his successor. He joined the AIG board in January 2006 and served as chairman from November 2006 until he was named CEO in June 2008.
According to their testimony, AIG failed because it was "caught in a vicious cycle" and hit by "a global financial tsunami." Mr. Willumstad says: "I don’t believe AIG could have done anything differently."
The information we have received paints a different picture. We have obtained a confidential letter from the Office of Thrift Supervision to AIG’s general counsel.
In this March 10, 2008, letter, the Office of Thrift Supervision writes: "We are concerned that the corporate oversight of AIG Financial Products...lacks critical elements of independence, transparency, and granularity."
Internal company documents show that AIG’s auditor, Pricewaterhouse Cooper, reported similar problems. Minutes from a meeting of the board’s audit committee in March 2008 reveal that Pricewaterhouse Cooper told the committee that the "root cause" of AIG’s problems was that risk control groups did not have "appropriate access" to the financial products division.
3. Did AIG mislead investors?
Finally, we will ask whether AIG—and in particular Mr. Sullivan—misled investors and the public about the financial conditions of the company.
On December 5, 2007, Mr. Sullivan told investors: "we are confident in our marks and the reasonableness of our valuation methods.... [W]e have a high degree of certainty in what we have booked to date."
What Mr. Sullivan didn’t tell investors was that on November 29—one week earlier—Pricewaterhouse Cooper had "raised their concerns with Mr. Sullivan..., informing [him] that PWC believed that AIG could have a material weakness relating to the risk management of these areas."