NU Online News Service, March 25, 9:49 a.m.EST

Connecticut State Attorney General Richard Blumenthal yesterdayannounced that Federal Reserve Chairman Ben Bernanke was wrong whenhe said Connecticut law prevented him from attempting to recoupAmerican International Group bonus monies.

Mr. Bernanke, in testimony before the House Financial ServicesCommittee, said he had asked that bonus payments to employees ofthe AIG Financial Products unit that brought the company to nearfinancial ruin be stopped.

However, he said, he was informed that the bonuses "weremandated by contracts agreed to before the government'sintervention."

When he asked "that suit be filed to prevent the payments," Mr.Bernanke said that "legal staff counseled against this action, onthe grounds that Connecticut law provides for substantial punitivedamages if the suit would fail. Legal action could thus have theperverse effect of doubling or tripling the financial benefits tothe AIG-FP employees."

"I respectfully disagree with Federal Reserve Chairman BenBernanke's statement today that Connecticut law prevented a FederalReserve lawsuit to block AIG bonuses," Mr. Blumenthal countered ina statement.

"The Federal Reserve never contacted me or my office concerningthe applicability of the Connecticut wage law to the AIG bonuses.If the Fed had called, we would have given the green light forlitigation blocking these unconscionable bonuses," he added.

"My office has reviewed AIG's claim and state law, concludingthat these bonuses were not wages under the Connecticut WageProtection statute," he said. "AIG used this joke of ajustification to squander $218 million of taxpayer money, rewardingmonumental failure."

Mr. Blumenthal revealed on Monday that his office was indiscussions with AIG to set the terms and timing of their employeesto appear as potential witnesses at a bonus inquiry hearing beforethe state's Banks Committee.

"We are mindful of security and safety concerns, seeking to beresponsive and responsible in addressing them. We cannot comment atthis point on who may testify," he said Monday, referring toreports that AIG employees had received threats because of thebonus payments.

The attorney general said if the company fails to cooperate, "wewill take appropriate and aggressive action to enforce these lawfulsubpoenas. The public has a right to know facts relevant to bonusesmade from taxpayer funds by a company that would not exist withouta [U.S.] taxpayer bailout."

This information is vital for lawmakers seeking to reformConnecticut banking, finance and other laws andregulations–assuring stronger scrutiny and oversight–to protectjobs and prevent irresponsible systemic risk.

"We will be reasonable, respecting the security and privacyconcerns of individuals who may be involved," he said.