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Is the President Powerless to Stop AIG Bonus Payouts?

Yesterday The New York Times reported that AIG, which received more than $170 billion in taxpayer bailout money, planned to pay $165 million in bonuses to executives who worked in the AIG business unit responsible for the company's financial collapse. But while Obama has instructed the treasury secretary to "pursue every single legal avenue to block these bonuses," AIG insists that it is contractually obligated to make these payments. In addition, AIG claims that the bonuses are necessary to retain "the best and brightest talent to lead and staff the AIG business." 

So which superpower prevails -- the power of the President or the sanctity of contract? Lawrence Cunningham spots the issues for us at Concurring Opinions. Cunningham looks first to the terms of the contract itself. After all, AIG's interpretation of its contractual obligation may be erroneous. Cunningham notes that the contract may contain provisions that suggest the bonuses are gifts subject to revocation rather than binding obligations. And even if the contract specified conditions that executives must meet to qualify for a bonus, it is possible that those conditions were not satisfied. There's also the issue of fraud, and if employees acted fraudulently, that would excuse AIG's duty to pay the bonuses.

For now, the administration is not satisfied with AIG's invocation of contract law without any additional support. By 4pm today, AIG must turn over the contracts that purport to require payment of bonuses as well as the names of those slated to receive bonuses or face a subpoena for this information, says ABC News.

Posted by Carolyn Elefant on March 16, 2009 at 04:26 PM | Permalink | Comments (4)

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