AIG Spent $440,000 on Spa, Resort After U.S. Takeover (Update1)
By Lorraine Woellert and Erik Holm
Oct. 7 (Bloomberg) -- American International Group Inc. spent $440,000 on a conference at a California resort less than a week after an $85 billion government takeover, lawmakers said.
The bill from the St. Regis resort in Monarch Beach included $23,380 for spa services, according to Representative Henry Waxman, chairman of the House Committee on Oversight and Government Reform. Waxman led questioning today of former AIG Chief Executive Officers Martin Sullivan and Robert Willumstad as Congress probes events that led to federal intervention.
``Average Americans are suffering economically,'' Waxman, a California Democrat, said in his opening statement. ``Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation.''
The St. Regis, located on a bluff overlooking the Pacific Ocean midway between Los Angeles and San Diego, is ``devoted to the pursuit of service and elegance,'' according to its Web site. A ``health and wellness'' package costs $600 a night, with a two-night minimum.
The St. Regis expense ``seems very inappropriate,'' Willumstad told the committee. ``I was totally unaware that there was any plan for any conference. Had I been aware of it I would have prevented it from happening.''
AIG, once the world's largest insurer, disputed Waxman's characterization of the conference. Spokesman Nicholas Ashooh said the event had been scheduled a year earlier by AIG's American General life insurance subsidiary as a way to reward independent agents who sell the company's products.
``This is very standard in the industry to reward the top 5 to 10 percent of top sellers,'' he said. ``In the insurance business, it's as basic as salary as a means to reward performance. It was not AIG executives running away to California.''
New York State Insurance Superintendent Eric Dinallo told the committee there may have been some good reasoning behind what he called ``profligate'' spending. AIG might have been taking steps to stem an exodus of employees, which would have been the ``absolute worst thing'' that could have happened to the company at the time, he said.
Invoices obtained by Waxman's committee showed that AIG spent $139,375.30 on rooms, $147,301.71 for ``banquets,'' and $1,488 at the resort's Vogue Salon, which offers manicures, pedicures and hairstyling. The group spent $6,939.09 on golf, $2,949 for gratuities, $5,016.32 at the StoneHill Tavern and $3,064.71 for in-room dining and the lobby lounge.
The group booked more than 60 rooms, including the resort's 3,100-square-foot Presidential Suite. The suite cost $1,600 a night for five nights, a discount from the standard rate of $3,200 a night, a hotel document released by the committee showed. The group also paid $1,075 in ``no-show fees.''
``Have you heard of anything more outrageous?'' said Representative Elijah Cummings, a Maryland Democrat, who was one of four Democrats on the committee who wrote today to Treasury Secretary Henry Paulson, urging him to curb excessive spending at AIG. ``They were getting their manicures, their facials, pedicures, massages while the American people were footing the bill.''
Receipts provided by Waxman were dated Sept. 22 through Sept. 30. AIG agreed to an $85 billion loan from the government on Sept. 16, ceding a 79.9 percent ownership interest to the U.S. government. Willumstad was replaced by former Allstate Corp. Chief Executive Officer Edward Liddy as a condition of the loan.
Lawmakers also said PricewaterhouseCoopers LLP, the insurer's auditor, had raised questions about the company's transparency and complained about a lack of access to AIG's financial products unit, according to documents from a March 2008 audit committee meeting. The business sold credit-default swaps, the contracts that plummeted in value as the securities they guaranteed declined, causing more than $25 billion in AIG writedowns.
That same month, AIG's top federal regulator warned the company in a letter that the company's oversight of subsidiaries ``lacks critical elements of independence, transparency and granularity'' and contained ``a material weakness.''
The congressional committee has convened a series of hearings to examine who should be held accountable for the ``financial excesses that led to the market breakdowns,'' according to the committee's Web site.
Lawmakers yesterday lashed out at Lehman Brothers Holdings Inc. CEO Richard Fuld, peppering him for two hours with queries about excessive Wall Street pay and his failure to acknowledge the firm's financial woes until it was too late.
To contact the reporters on this story: Lorraine Woellert in Washington at firstname.lastname@example.org
; Erik Holm in New York at email@example.com
Last Updated: October 7, 2008 16:39 EDT