Probes of AIG Bonus Payments Begun by 19 U.S. States (Update1)

March 20 (Bloomberg) -- Nineteen states including New Jersey began an investigation of bonuses paid by American International Group Inc. as Connecticut subpoenaed the insurer and Congress took steps to recover the funds.

New Jersey Attorney General Anne Milgram said she sent a letter to AIG Chief Executive Officer Edward Liddy demanding a list of employees in the AIG Financial Products unit who received bonuses since September and whether they were paid with federal money. New York Attorney General Andrew Cuomo said yesterday the insurer sent him such a list to comply with a subpoena.

“At this moment, with emotions running high, it is important that we proceed diligently, with care, reflection, and sober judgment,” Cuomo said in a statement.

New York-based AIG sparked a national furor by paying $165 million in bonuses last week after receiving a $173 billion federal bailout. The U.S. House responded to public outrage yesterday by voting to impose a 90 percent tax on employee bonuses at AIG and other companies that get at least $5 billion in taxpayer bailout funds.

The measure, approved on a 328-93 vote, would cover companies receiving 75 percent of federal bailout funds, according to the House Ways and Means Committee.

Milgram said yesterday in a statement that she asked AIG to send her the information about bonus recipients and copies of their employment contracts within five days. She was joined in the request by Arizona, Delaware, Illinois, Kentucky, Louisiana, Maine, Michigan, Mississippi, Montana, Nebraska, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Washington and West Virginia.

Connecticut Subpoena

Separately, Connecticut subpoenaed AIG for information on the bonus recipients, amounts and contracts. Connecticut Attorney General Richard Blumenthal said in a statement that he will “take steps to enforce” the subpoena issued by the state’s Department of Consumer Protection if AIG doesn’t promptly provide the information.

Blumenthal said in a March 18 letter to Liddy that he wants a list within three days of all bonuses paid in 2008 by AIG Financial Products, the unit that sold credit-default swaps blamed for crippling the company. The unit is based in Wilton, Connecticut.

Blumenthal said AIG was “categorically wrong when it claimed that Connecticut state labor law compelled” the payments.

Top Recipient

AIG paid $1 million or more in retention payments to 73 people at the money-losing Financial Products unit, including a top recipient who got $6.4 million, Cuomo said this week. The top payment went to Douglas Poling, an executive vice president, said a person familiar with the bonuses.

Poling is among the employees who have agreed to return the funds, AIG spokesman Mark Herr said today. “He told me he was doing it because he felt it was the correct thing to do,” Herr said.

Seven people received more than $4 million each, and 22 got $2 million or more, Cuomo said. Eleven of those who got $1 million or more no longer work at the firm, Cuomo said in a letter Representative Barney Frank, a Massachusetts Democrat and chairman of the House Committee on Financial Services. Seven people received more than $4 million.

Bailed Out

AIG was bailed out four times by taxpayers at a total cost of $173 billion. The company has faced pressure to disclose more about its operations since the U.S. first agreed to take a stake of almost 80 percent in the firm to prevent its collapse last year. The company has named at least 20 banks that received money to avoid losses after buying credit-default swaps from the insurer. Those derivatives almost bankrupted AIG and helped trigger the global credit crisis.

Cuomo also said that he expected to receive information yesterday on $3.6 billion in bonuses paid to Merrill Lynch & Co. employees in December. Bank of America Corp., which bought Merrill Jan. 1, lost its court bid to prevent Cuomo from disclosing the recipients’ identities to the public.

To contact the reporter on this story: Karen Freifeld in New York at kfreifeld@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.