Employee in $100 Million Case Says AIG Kept Making Bonus Pledges
(Bloomberg) -- A former marketing director at Banque AIG said that he was repeatedly assured he’d receive his bonuses, even as he helped clean up a company crumbling from its role in the global financial crisis.
“I asked and received the same answer frequently, that there would be a plan,” Charles Scheyd, who helped oversee Nordic marketing, told a London court.
Scheyd joined AIG Management France SA -- formerly known as Banque AIG -- in 2002. He left in 2011 after weathering one of the roughest patches in the company’s history. Scheyd was involved in winding down AIG Financial Products, the unit responsible for money-losing derivative bets backing subprime mortgages that nearly shuttered American International Group Inc.
Scheyd is one of 23 former staff fighting AIG for $100 million in bonuses that were set aside under a deferred compensation program and retention plans. The plans provided for “a sharing of the risks and rewards” of AIG’s financial products business, according to court filings. This meant that if AIGFP sustained a loss, compensation accounts would be hurt.
In 2007 and 2008, AIGFP struggled with liquidity. The Fed loaned $85 billion to AIG and Andrew Cuomo -- who was New York Attorney General at the time -- said in a letter to Edward Liddy, the incoming chief executive of AIG, that “no funds will be distributed” out of AIGFP’s bonus pools on the basis that “these pools should not be used to reward executives ahead of taxpayers.”
As a result of AIGFP’s massive losses, employee bonus accounts were reduced to negative balances. The 23 claimants say that “as a result of political and media pressure,” AIG didn’t pay the sums earned between 2002-2008, despite none of them being “responsible for those parts of AIG’s CDO, CDS or mortgage securities businesses which led to the bail-out,” according to a court filing. Lawyers for the former employees say AIG must restore the amounts deducted under the terms of the plans.
But AIG lawyers argued in court documents that “there is no obligation to adopt a restoration plan whilst AIGFP remains loss-making and balance sheet insolvent.”
Nevertheless, Scheyd said senior managers were aware of a need to come up with a proposal to save the bonuses, although it wasn’t clear what the terms would be.
“I expected to see a plan at some point,” he said Tuesday.
A spokeswoman for AIG in London declined to comment on the case. A spokeswoman for law firm Stephenson Harwood, which is representing the ex-executives, also declined to comment.
Ian Rosen, a former managing director of AIGFP’s infrastructure team, and Kelley Kirklin, an ex-head of fund derivatives at Banque AIG, also testified Tuesday.
Kirklin told the court that not receiving installments from the plans placed him under financial pressure and “in a position of remortgaging my house and ultimately downsizing.”
He eventually sold his family home in 2012 and purchased another house in Hampstead, a leafy north London neighborhood known as a favorite haunt of celebrities. He said it was half the cost of the house he sold. For the NW3 postcode, which includes parts of Hampstead and some other areas, the current average price is 1.4 million pounds ($1.9 million), up 455,000 pounds from five years ago.
Kirklin, who worked for Banque AIG on and off between 1990 and 2009, said he’d felt temporarily reassured about AIGFP when Joseph Cassano, then the chief executive officer of the unit -- said that derivatives tied to mortgages can withstand a housing slump. “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing a dollar in any of those transactions,” Cassano said in August 2007.
But after the 2008 bailout, Kirklin said there were some “coffee-machine conversations” between employees expressing their concerns about the plans and whether the bonuses would be restored. In March 2011, another claimant, Tobias Gruber, sent an email around asking who’d be interested in going after the funds. Kirklin replied to the message, “count me in.”
Andrew Hunter, AIG’s lawyer, asked Kirklin why the claimants waited until 2014 to file a lawsuit when they knew AIGFP continued to lose money.
“We were giving AIG the time to resolve the dispute responsibly,” Kirklin said.
The case is Tobias Gruber & Ors v. AIG Management France, SA & Anr, High Court of Justice, Queen’s Bench Division, case no. CL-2014-000921.
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