Connecticut Official Says State Law Doesn’t Bar AIG Bonuses

The controversial bonuses given to executives at bailed-out insurer American International Group Inc. do not violate Connecticut’s unfair trade practices law, the state’s consumer protection commissioner says.

Commissioner Jerry Farrell Jr. is among numerous federal and state officials who have been looking into the $165 million in bonuses awarded last month and another $50 million doled out in December by AIG. The company has accepted $182 billion in federal aid.

The bonuses have sparked outrage across the country because of concerns about how taxpayer money is being spent.

New York-based AIG distributed the retention bonuses to employees worldwide through its financial products unit. Since the unit is based in Wilton, Conn., state officials wanted to look into the matter.

The financial products division was the one that issued derivatives called credit default swaps that are blamed for AIG’s meltdown last year. Employees in the division say they are unfairly being singled out.

An AIG spokeswoman said the company would have no comment on the consumer protection commissioner’s finding Thursday.

Gov. M. Jodi Rell asked Farrell two weeks ago to look into whether the bonuses violated state’s unfair trade practices law. The Consumer Protection Department reviewed hundreds of pages of documents AIG released under subpoenas, Farrell said.

“The law really envisions the classic consumer-versus-business situation of where a consumer is having a problem with the business,” Farrell said. “A classic example would be where a company is systematically charging its customers a fee for a service never performed.”

But Farrell said that in terms of the AIG bonuses, “the law just doesn’t reach that far.”

Rell said she was disappointed that Connecticut cannot use its trade practices laws to address the bonuses, but she hopes Congress will keep trying to recapture that money.

“Our taxpayers have every right to be affronted by the greed of these executives and every right to expect the bonus payments to be recovered,” she said in a statement.

Congress and attorneys general in Connecticut and other states are also investigating the bonuses, along with Connecticut lawmakers.

Two weeks ago, the head of human resources of AIG’s financial products division, Stephen L. Blake, testified before the state legislature’s banks committee. He defended the bonuses, saying they were necessary to keep valuable employees so the division could close its books.

Blake also said the bonus program was established last year before the insurance giant received any federal bailout money, and none of the people with major roles in the credit default swaps have received retention payments.

Congress has been struggling to find a consensus on the issue. Two measures approved by the House are tied up in the Senate.

The House voted last month to heavily tax the bonuses. Last week, representatives approved a weaker measure that would allow the bonuses if the Treasury Department and financial regulators determine they are not unreasonable or excessive.