Aug. 31 (Bloomberg) -- American International Group Inc. Chief Executive Officer Robert Benmosche told employees that New York Attorney General Andrew Cuomo was “unbelievably wrong” for drawing attention to staff who got retention bonuses.

Benmosche criticized Cuomo and lawmakers during a town-hall style meeting this month for life insurance workers in Houston. Cuomo subpoenaed AIG in March during a national furor about $165 million in retention bonuses sent after the firm’s bailout and said those who returned the cash wouldn’t have their names published. That month, some employees received death threats and protesters visited the Connecticut homes of two AIG executives.

“What he did is so unbelievably wrong,” Benmosche said during the Aug. 11 remarks, according to a record obtained by Bloomberg. “He doesn’t deserve to be in government, and he surely shouldn’t be the attorney general of the state of New York. What he did is criminal. You don’t create lynch mobs to go out to people’s homes and do the things he did.”

After being approached by Bloomberg today about the remarks, AIG said that Benmosche “regrets his comments regarding Mr. Cuomo and the tone of those comments.”

Benmosche has been blaming regulators for the company’s near collapse in remarks he’s made to employees since being appointed CEO this month. While comments in an earlier address focused on unnamed officials at the Federal Reserve and Treasury, Benmosche in Houston singled out Cuomo, the chief prosecutor of New York, where some of the world’s largest financial firms are based.

Closed Door Meeting

“The worst thing that will ever happen to him is when he and I meet in the room and I close the door,” Benmosche, 65, said of Cuomo. “I ain’t going to meet with him with anybody else in the room. I won’t tell you what I’ll say to him, but I will tell you, there won’t be a nice word.”

Cuomo said in March that staff of AIG’s financial products unit, blamed for the insurer’s near-collapse and subsequent U.S. bailouts, returned at least $50 million of the $165 million in awards. He said that “if a person returns the money, I don’t believe there’s a public interest in releasing their name.”

“Mr. Benmosche now recognizes that the New York Attorney General resisted public pressure to disclose the names of AIG employees during the controversy in March regarding compensation, and with emotions running high, he noted the importance of all parties to proceed with care and sober judgment,” AIG spokeswoman Christina Pretto said in a statement today. Cuomo’s office had no immediate comment.

‘Innocent Families’

“Since joining AIG earlier this month, Mr. Benmosche has held several employee meetings around the country in which employees have repeatedly voiced concerns about the threats and harassment they have experienced,” the statement said. “Mr. Benmosche vowed to do everything he can so that innocent families are not put at risk again.”

Benmosche’s predecessor Edward Liddy, who took over after AIG’s September rescue, was grilled during congressional hearings in March and May over his handling of the bonuses, which were designed to prevent valued workers from leaving.

“I would never, ever let them talk to me the way they talked to him,” Benmosche told employees. “I would have told them what to do with this job, and I would have said it on TV: ‘You can stick it where the sun don’t shine.’”

‘Nice, Sophisticated People’

Benmosche said that AIG Chairman Harvey Golub, the former CEO of American Express Co., would work with lawmakers while he focused on operations and decides which units will be kept.

Golub “is going to run interference for me in Washington, because I’ve got to tell you, I can’t be running the business here and dealing with all those crazies down in Washington,” Benmosche said, adding “actually, they’re not. They’re very nice, sophisticated people. Vote for them. Please. And give them your money.”

Also in the meeting, after suggesting that employees challenge their managers over a salary freeze, Benmosche said, “I create so much trouble, don’t I? That’s my job.”

Benmosche told staff in an Aug. 4 meeting that he plans on rebuilding businesses and won’t be pressured by regulators into selling assets at unfavorable prices.

“I’m appalled at how much pressure has been put on all of you to just sell it no matter what, because the Fed wants out, or the Treasury wants out,” Benmosche said. “If they want out in a hurry, they shouldn’t have come in in the first place.”

Benmosche, who was CEO of MetLife Inc. for eight years, transformed that company into the largest publicly traded U.S. life insurer from a mutual owned by customers.

AIG’s $182.5 billion federal bailout includes a $60 billion credit line, a Treasury Department investment of as much as $70 billion and $52.5 billion to buy mortgage linked assets owned or backed by the company.

State Probe

Cuomo’s predecessor as attorney general, Eliot Spitzer, sued AIG in 2005 for allegedly misleading investors about the company’s financial health. AIG agreed to a $1.64 billion settlement of state and federal probes into improper transactions to inflate reserves and hide underwriting losses. The company later restated earnings lower by $3.4 billion.

Cuomo, 51, may run for governor of New York, according to speculation by pollsters. Cuomo has a 4 to 1 lead over New York Governor David Paterson in a 2010 Democratic primary, according to a Quinnipiac University poll.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net;

Last Updated: August 31, 2009 16:15 EDT