May 16, 2005
First Thing We Do, Let's Pay All the Lawyers
With American International Group caught up in a widening federal and state investigation of its accounting practices, the company took steps to protect its directors by entering into indemnification agreements on May 9 with them that contractually obligates AIG to advance all costs -- most importantly, attorney's fees -- in connection with the investigation and any related criminal, regulatory, shareholder derivative suit, and securities class action litigation. AIG filed a Form 8-K (here) today (May 16) that states:
Each of the following members of American International Group, Inc.'s ("AIG") board of directors entered into an agreement relating to the advancement of expenses by AIG: M. Bernard Aidinoff; Pei-yuan Chia; Marshall A. Cohen; William S. Cohen; Martin S. Feldstein; Ellen V. Futter; Stephen L. Hammerman; Carla A. Hills; Frank J. Hoenemeyer; Richard C. Holbrooke; George L. Miles, Jr.; Morris W. Offit; and Frank G. Zarb.
The indemnification agreement (here) essentially mimics Delaware General Corporation Act Sec. 145 in granting full rights to reimbursement to the directors, including of course the attorney's fees. Each director could require separate counsel to avoid any conflict of interest problems, which means the cost to AIG from this agreement may be significant on top of the costs of providing counsel to current and former officers and directors (assuming they have indemnification agreements, too). While indemnification agreements are standard fare in the corporate world, it is interesting that AIG apparently did not have such an agreement with its board until this time. Perhaps former CEO Maurice Greenberg, who largely hand-picked the board members, did not believe one was necessary for directors. The company looks like it is battening down the hatches in the face of the coming storm. Thanks to Stephanie Martz, Director of the White Collar Crime Project for the NACDL, for the information about the AIG filing.(ph)
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