OTS' letter said, "We are concerned that the corporate oversight of AIG Financial Products...lacks critical elements of independence, transparency and granularity," Rep. Waxman related.

An OTS official would not release the letter. He said it is OTS policy not to discuss its oversight of institutions it oversees while they are still in business. The OTS became the federal regulator of choice for AIG because AIG has a federally chartered thrift it operates out of offices in Connecticut.

Rep. Waxman said an investigation of AIG's records showed that AIG's auditor, PricewaterhouseCoopers, reported problems similar to those found by the OTS when it sought access to AIGFP's records.

He said that minutes from a meeting of the board's audit committee in March reveal that PricewaterhouseCoopers told the committee that the "root cause" of AIG's problems was that risk control groups did not have "appropriate access" to the records of the financial products division.

Rep. Waxman also said that as part of its examination of thousands of pages of AIG documents, it contacted former AIG auditor Joseph St. Denis, a former senior SEC enforcement official, hired by AIG to fix accounting problems that led New York authorities to sue the company for securities fraud--the basis of an expensive settlement.

Mr. St. Denis, according to Mr. Waxman, said he voiced concerns to Joseph Cassano, who headed AIGFP, about how the financial products unit was addressing its ongoing account problems.

Mr. Cassano's reply, Mr. Denis told the committee, Rep. Waxman said, was "I have deliberately excluded you from the valuation...because I was concerned that you would pollute the process."

Mr. St. Denis, who ultimately resigned, told the committee that "Mr. Cassano took actions that I believe were intended to prevent me from performing the job duties for which I was hired," said Mr. Waxman.

The congressman added, "Unlike Mr. Cassano and Martin Sullivan [AIG's CEO until August], Mr. St. Denis's actions cost him his bonus."

Rep. Waxman noted "questionable actions" by Mr. Sullivan and his replacement, Robert Willumstad.

"As losses were mounting and resources were getting scarce, AIG depleted its capital by $10 billion through stock buybacks and rising dividend payments," Rep. Waxman said.

With problems mounting in 2007 and AIG losing $5 billion in the final quarter of 2007 alone, AIG's board in March accepted management's recommendation that AIGFP's "unrealized market valuation losses be excluded from the calculation" of AIG executive bonuses that went to 70 top executives, including Mr. Sullivan and Mr. Cassano.

Mr. Sullivan was given a cash bonus of more than $5 million and a new compensation contract that provided him with a golden parachute worth $15 million, said Mr. Waxman.

In addition, he noted that Mr. Cassano made over $280 million over the last eight years. And after Mr. Cassano was terminated in February without cause, AIG allowed him to keep up to $34 million in unvested bonuses and put him on a $1 million retainer.

Mr. Waxman tore into the company for holding a week-long company executive retreat "wining and dining at one of the most exclusive resorts in the nation," St. Regis in Monarch Beach, Calif., less than one week after securing the government bailout at a time when "average Americans are suffering economically...losing their jobs, their homes and their health insurance."

Among those scheduled to testify at today's proceedings was Maurice "Hank" Greenberg, longtime chairman and CEO of AIG until forced out in 2005. Mr. Greenberg did not appear, pleading illness, but submitted a statement that the firm's involvement in derivatives only began to "explode" after he left the company in 2005.

He also said that taking the money from the taxpayers represented a bad deal for AIG and its shareholders, and that more value would have been realized by filing for bankruptcy.

"Mr. Greenberg blames Mr. Sullivan and Mr. Willumstad for the downfall of AIG," Rep. Waxman said. "Many others think it is Mr. Greenberg who sowed the seeds that led to AIG's failure."

Mr. Willumstad, who was replaced at the time of the government bailout by Edward Liddy, testified, "I don't believe AIG could have done anything differently."