One of the biggest reasons for AIG's near failure -- a collapse halted by a government bailout of $120 billion and growing -- was the ballooning losses of a tiny subsidiary called AIG Financial Products. The unit was run by one Joseph Cassano, who resigned in February after his unit, which dealt in credit default swaps, posted $11 billion in losses. (The New York Times says February is also when AIG auditors "identified problems in the firm's swaps accounting.")
But when Cassano left, AIG gave him a sweet deal. Not only was he allowed to keep up to $34 million in unvested bonuses, but the company hired him as a consultant at the staggering fee of $1 million per month.
Such compensation arrangements are common for departing executives, says Jesse Fried, a professor at the UC Berkeley Law School. Fried noted that such agreements usually don't actually require that the execs do any work, and frequently the executives don't.
The consulting agreement (PDF) itself, made public at Tuesday's Congressional hearing on AIG, shows that except perhaps for the large sums, Cassano's agreement was no different.
Cassano did do some work for the company, said AIG spokesman Nick Ashooh. Cassano was needed to help the company "wind down" its entanglement in swaps. And for the "first couple months" after the agreement was signed in March, Cassano "did work," Ashooh said. "He was active, engaged and came into the office for meetings." But after that, it "tapered off."
Ashooh couldn't provide an exact date for when Cassano stopped providing services, but said it was the early part of the summer. In other words, even after the U.S. government stepped in to save AIG last month, the man at the center of the company's problems, Cassano, remained on as a million-dollar-a-month do-nothing consultant.
The contract was for a nine-month period to end this coming December. But Cassano and AIG mutually terminated their agreement on Monday, the day before the hearing. The reason, Cassano's lawyer told the Wall Street Journal, was that Cassano's "services were no longer being used."