"Retention Awards" Not Just an AIG FPG Problem

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It was announced yesterday that (American International Group (AIG) will now be known as American International Underwriters (AIU). Down came the old sign from AIG's Manhattan headquarters and a new sign will soon replace it. "Incredible as it may seem," said Chris McConnell, AIFA at Chris McConnell & Associates (CMA), an independent investment fraud and fiduciary audit and securities expert witness, "Congress and the business media would pull the wool over our eyes once again and have the US Taxpayer believe that $5 Billion is less than $165 Million."

It was announced yesterday that (American International Group (AIG) will now be known as American International Underwriters (AIU). Down came the old sign from AIG's Manhattan headquarters and a new sign will soon replace it. "Incredible as it may seem," said Chris McConnell, AIFA at Chris McConnell & Associates (CMA), an independent investment fraud and fiduciary audit and securities expert witness, "Congress and the business media would pull the wool over our eyes once again and have the US Taxpayer believe that $5 Billion is less than $165 Million."

Retention Awards--formerly known as bonuses--will be paid to employees at some TARP recipients with US Taxpayer funds.
It is not just an AIG problem, it applies to some but not all of the top firms on Wall Street. Brokers at these firms were paid more than $5 billion in "retention awards" without having done much of anything to deserve them--simply for staying on the job. In fact, they could have performed better, as the financial chaos of recent months has made clear.

Yesterday, Reuters reported that a handful of AIG executives were returning their "bonuses" and that a handful of senior executives working within AIG's controversial financial products unit have resigned. This, however, ignores the larger story. According to McConnell and other knowledgeable observers, the problem is systemic, rooted in "asset-based" compensation schemes.

The full story of AIG and the others is replete with ironies:

  •     The good AIG employees (those innocents employed in the insurance part--now AIU--of the business) got no bonuses but still are branded with the stigma created by recently recognized and rewarded colleagues at the AIG Financial Products Group-- the real culprits who, portraying themselves, as "the largest insurance company in the world, who may have slightly misrepresented a small detail: FPG was not an insurance company. And in the process turned their relatively small division into a financial casino.
  •     AIG (the insurance company) in 2003 (not a typo) made a good decision to get out of insuring the brokerage firm's customers for excess SIPC insurance in 2003 (NY Times, Saturday, August 9, 2003--not a typo) but soon their colleagues over at AIG FPG thought it was a good idea, to underwrite same brokers' credit default swaps.
  •     An AIG spokesman said it's "too risky" to insure brokerage firms excess SIPC insurance coverage--but in 30 years there was never one claim or loss paid out by any insurance company.
  •     $5 billion, a number that dwarves the amount originally paid to AIG FPG executives, was "awarded" to stockbrokers just last month at Smith Barney, Morgan Stanley and Merrill Lynch, as reported in Investment News. If broker leaves, he or she is required repay the money; although not many of them are likely to leave or if they do it's usually for a better "asset-based" deal.
  •     Both the AIG FPG employees and brokers at Merrill Lynch, Smith Barney and Morgan Stanley received their bonuses ($165 million and over $5 billion, respectively) in cash, not stock; with stocks at all time lows what did they know and when did they know it are questions the financial press and the general media should be asking.
  •     Brokerage firms are usually required to disclose to their customers any "extra" or special compensation paid to its brokers. It may prove interesting to see how $5 billion is "disclosed."
  •     ROT (Return on TARP) demonstrates that the brokers clearly enhanced their cash positions compared to the less handsomely ROT-bonused industry counterparts at AIG.
  •     Many observers are questioning when, if at all, the Secretary of the Treasury was aware of the underreported $5 billion in "awards" paid to brokers in firms that received an estimated $100 billion in TARP cash, not including US Treasury guarantees or special Federal Reserve facilities.

When will the media or our "outraged" elected officials tell the larger story? Stay tuned. The story is waiting to be told. In the meantime, April 15 is rapidly approaching and none too soon for the cash gushing out of the US Treasury. US taxpayers will be footing the bill and praying that there will be some sort of return on their investment. "Wall Street Gone Wild" may be the next big YouTube video.

Chris McConnell & Associates

CMA provides an unmatched suite of advanced AIFA training, actual hands-on major Wall St. broker dealer experience. CMA has provided fiduciary audit, training, and expert witness services to attorneys who represent plaintiffs and defense in fiduciary duty, suitability, supervision and compensation in FINRA, Trust, Estate & Probate, Divorce, QDROs, ERISA, 401k; and non-profits, foundations and endowment matters since 2003.

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