March 20 (Bloomberg) -- American International Group Inc. turned over information on its executive bonuses to Connecticut as the state attorney general and lawmakers probe the insurer’s compensation policies before and after its U.S. bailout.

The insurer provided a list of bonus amounts and contract terms to Connecticut Attorney General Richard Blumenthal, who said the information supports his view that the basis for paying the bonuses is “completely unjustified,” according to a statement he issued today.

“These contracts rip the rug from under AIG’s excuses -- revealing no basis under Connecticut law for these mega taxpayer-funded bonuses,” Blumenthal said. “AIG’s own documents reveal that it turned an emergency bailout into a meritless handout, paying windfalls to employees as reward for financial failure.”

Earlier today, Blumenthal and state legislators subpoenaed AIG Chief Executive Officer Edward Liddy and other company officials to a hearing on bonus pay.

When Liddy appeared before Congress March 18 for a hearing on AIG bonuses, he reminded lawmakers that he took the CEO job after the U.S. government loaned the company $85 million in September and said he wouldn’t have approved the bonus contracts if he’d been in charge earlier.

Activities at the AIG Financial Products unit in Wilton, Connecticut, will be the topic of a March 26 hearing in Hartford before the state’s Banks Committee, according to a statement from lawmakers today.

The division’s actions have destabilized the mortgage and lending markets in Connecticut, and excessive compensation could have led to employees taking risky measures that caused further destabilization, the legislators said in the statement.

Bad Products

“They put their stamp of approval on bad securities products and sold them like gold,” Democratic state Representative Ryan Barry, co-chair of the General Assembly’s Banks Committee, said in the statement. “We want to examine the pay structure and fee incentives that led to this quick-sale, high-risk culture and see what regulatory gaps exist that can be tightened.”

New York-based AIG sparked a national furor by paying $165 million in bonuses last week after receiving a $173 billion federal bailout. The U.S. House of Representatives responded to public outrage yesterday by voting to impose a 90 percent tax on employee bonuses at AIG and other companies that get at least $5 billion in taxpayer bailout funds.

In addition to Liddy, subpoenas will be served on 11 other AIG executives who are believed to have received bonuses, Connecticut officials said, including Douglas Poling. Poling, an executive vice president, got a $6.4 million bonus, said a person familiar with the bonuses.

Andrew Cuomo

New York Attorney General Andrew Cuomo, who also has subpoenaed AIG, said $6.4 million was the biggest individual award of the more than $160 million in bonuses paid on March 13.

Cuomo said yesterday he had received a list of the AIG employees who received bonuses, as he requested by subpoena. Cuomo said he would conduct a risk assessment before making public any of the AIG employees’ names. He said he was aware of security concerns of AIG employees.

Cuomo has said AIG paid retention bonuses of $1 million or more to 73 people of the money-losing unit, including 11 who no longer work at the firm.

In addition to testimony, the Connecticut legislators requested documents about the retention bonus plan and any related contracts and agreements.

“Taxpayers feel misled and manipulated,” Blumenthal said in his statement. “We must fight, with every legal remedy available, to recapture every cent of these scarce taxpayer resources. AIG relied on contracts and Connecticut law as a flimsy and fatally flawed legal camouflage to reprehensibly enrich employees.”

To contact the reporter on this story: Karen Freifeld in New York at kfreifeld@bloomberg.net.

Last Updated: March 20, 2009 20:09 EDT