Just when everyone thought there was nothing more to be said about the bailout issues of the subprime mortgage crisis (2007-2010), it’s back in the headlines. Some 23 former American International Group Inc (AIG) Financial Products (AIGFP) employees[i] have taken their old employer to court. At stake is more than $100 Million in deferred compensation the employees said was contractually owed and verbally promised. This past Tuesday, British court Judge Andrew Baker added support to their battle, ruling that AIG couldn’t use what the Judge described as “abusive arguments” to block the payments.
Bloomberg Business quoted AIG Financial Products Chief William Dooley as having said in a court filing, “the insurance giant would have ‘been under extreme pressure’ from the U.S., especially from an angry Federal Reserve Chairman Ben Bernanke, to stop the payouts and pursue bankruptcy instead.”
Back when governments, both U.S. and European, were bailing out banks and insurers, the Federal Reserve loaned $85 Billion to AIG, with a stipulation that no funds would be distributed out of AIGFP’s bonus pools as those funds should not be “used to reward executives ahead of taxpayers.”
Aside from an obvious but unaddressed argument that the executives involved were taxpayers themselves, the money owed had been set aside as deferred compensation to the former traders and managers to provide them “a sharing of the risks and rewards of the business.”
According to the InsuranceJournal.com, “Even as AIGFP realized losses totaling $40 billion in late 2008, ‘the language (of the deferred comp agreements) required for the restoration of payments.’”
AIG is expected to file an appeal with a higher court, arguing that while the company was still losing money, it didn’t have to pay the Financial Products employees their bonuses.[ii]
The courts, it seems, are not being swayed by AIG’s arguments, but are instead siding with the employees, recognizing that contracts are in place to be honored, even when a company would rather not. Earlier this year, a French court ordered AIG[iii] to pay bonuses of more than $2.3 Million to a former managing director at AIG Management France SA, and last year awarded roughly $7.6 Million to another managing director in France.
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