New York may look at Lehman exec payments: sources
Thursday October 23, 12:55 pm ET
By Joseph A. Giannone
NEW YORK (Reuters) - New York Attorney General Andrew Cuomo, who pushed American International Group Inc (NYSE:AIG - News) to freeze some payments to executives, might use similar legal arguments to question compensation at bankrupt Lehman Brothers, people familiar with the situation said.
In a letter dated October 15, Cuomo argued that payments to top executives and the perks by a debtor such as AIG could be considered "fraudulent conveyances" and a violation of state law.
Now some of the same legal questions raised in AIG's case might also be applied to Lehman Brothers Holdings Inc (Other OTC:LEHMQ.PK - News), the people said.
Speaking to reporters on Wednesday, Cuomo suggested his office would investigate similar payments at other companies, although he declined to identify companies or individuals.
"It is not just compensation but incentives, perverse incentive for executives to produce short-term profit rather than long-term growth," Cuomo said.
Cuomo's office declined further comment, citing its policy surrounding ongoing investigations. A Lehman spokeswoman also declined to comment.
AIG, once the world's largest insurer, last month was forced to seek a government bailout to stay afloat. Yet days after accepting $85 billion in government loans, it emerged that AIG had funded hundreds of thousands of dollars for luxury executive retreats, hunting trips and a golf outing.
Cuomo said on Wednesday that AIG agreed to freeze $19 million of bonuses to former Chief Executive Martin Sullivan and stopped disbursements from a $600 million pool for AIG's financial products division. The insurer also canceled any retreats and junkets, while committing to recovering these expenditures.
In a period when Americans are losing jobs and homes, executive perks and bonuses have become a hot election year topic. Compensation has been under greater scrutiny especially after missteps by banks and lenders contributed to the global financial crisis.
The prospects of an even deeper crisis prompted the U.S. Treasury and Federal Reserve to commit more than $1 trillion of taxpayer money to rescue banks and lenders, but lawmakers such as Massachusetts Democrat Barney Frank argue that executives should not be allowed to enrich themselves.
Now in recent weeks, Lehman Brothers and embattled CEO Dick Fuld have found themselves in the hot seat.
Last month, the venerable bank was forced to declare bankruptcy as customers and investors, worried Lehman was not strong enough to survive the credit crunch, fled the bank.
Lehman ultimately could not reduce its out-sized exposure to illiquid, devalued residential and commercial real estate fast enough and failed to raise more capital. In retrospect, Fuld and Lehman's senior management team have been blamed for not navigating the financial crisis properly.
Federal prosecutors in New York also are looking into whether Lehman misled investors by making upbeat comments about its prospects and denying its need for new capital during a conference call with investors in September -- five days before it filed for bankruptcy.
Earlier this month, U.S. lawmakers compelled Fuld to testify and took exception with what they calculated to be nearly $500 million in cash, stock and options paid to him since 2000.
A Lehman spokeswoman said Fuld did not receive any "golden parachute" or severance payments and that the firm will pay no bonuses to executives for 2008. Fuld and other executives also received most of their pay in the form of stock, which could not be sold for several years and which is now worthless.
Yet a key difference between Lehman and many other financial firms, as Fuld reminded lawmakers earlier this month, was that Lehman did not receive any taxpayer bailout.
(Editing by Derek Caney; Editing by Andre Grenon)
