When the President directed Tim Geithner to pursue "all legal avenues" to recover the AIG bonuses, he must have been pretty frustrated by the fact that those avenues are Baltic and Mediterranean.
Not to say that Treasury or Congress can't patch this and tax that, but in terms of raw legal power, the power to rip the money out of those bastards' hands and put it back into the bank account we collectively own 80% of, that power, the President and the Congress simply do not have.
But Andrew Cuomo does. In New York, there is a statute governing precisely the situation at hand. A company going under gives assets to people who know the company's broke and didn't do anything to deserve the money. And the law says they have to give it back. It's called a fraudulent conveyance.
There are two fraudulent conveyance statutes in New York:
One is for "actual fraud." For that, you have to prove that the defendant actually participated in a fraud designed to get assets out of a failing company before it collapses. If you prove that, it doesn't matter if the defendant did anything of value to get the money -- it all goes back. However, it would be fairly difficult to prove that the people who got the money did it as part of an actual fraud, given that the contracts were written awhile ago, and the inherent difficulty in proving a defendant's fraudulent intent. But....
The second is for "constructive fraud." Here, you don't have to prove that the defendant was in on a fraud. You just have to show that the company knew it was on the verge of insolvency when it made the payment, and that the defendant didn't provide the company anything of comparable value in exchange for the money. Sounds familiar. The AIG execs would argue that they did provide value, but given the laugh factor you're brining into court with that, I think its a tough sell.
Now, just alleging that it's a fraudulent conveyance isn't enough. To get the money back now, you need an injunction, not just a lawsuit. You have to convince the court that it should break the general, but pretty vigorously enforced rule that whoever has the money keeps the money while the lawsuit goes on. To do that you have to prove three things:
First, that you'll be "irreparably harmed" if the defendants get to keep the money. Usually, this is what stands in the way of getting an injunction to freeze or refund money. The law figures, you can always get a judgment against them and get the money later. So, no "irreparable" harm. The usual dodge is that the defendants are going to hide the money or blow it all in Vegas or burn it or something. Naturally, this is not an easy thing to prove, and in the AIG case, the execs will say they're upstanding citizens with lots of dough besides what they just got. So you probably need something else. Something like the irreparable harm to the government and AIG in its restructuring effort of having federal dollars being held ransom in a litigation by the very people who catalyzed the recession. Not a common argument, but judges love to protect public policy from bad guys. I think under the circumstances, it's enough for any judge at 60 Centre Street to hang their robes on. And that's basically the battle -- the other two should be pretty easy:
Second, you have to show you're "likely to succeed on the merits" of the underlying lawsuit. Here, that means showing that it was likely that AIG knew it was going broke when it made the payments, and showing that it was likely that a bunch of derivative traders who screwed the entire world didn't do enough good for AIG to earn the bonuses. Check.
Third, you have to show that the "balance of the equities" is in your favor. Equity means fairness. So that's not a problem.
And that's really it. Judge issues order, AIG exec's banks send back money.
So you've probably seen Andrew Cuomo getting to the bottom of things the past couple of days, exposing the "retention" bonus for guys who had already left. He's the only one with jurisdiction. And he wants to be governor. Makes sense.