AIG gave New York Democrats $100,000 days before sessions to save company

New York campaign-finance records show American International Group Inc. donated $100,000 to the state Democratic Committee just before Democratic Gov. David Paterson and his insurance superintendent launched marathon sessions to prop up the embattled insurer.

The contribution was made Aug. 29. Insurance Superintendent Eric Dinallo started negotiating with AIG and federal officials within about two weeks.

On Sept. 16, Paterson announced the "great news" that New York officials helped the giant insurer strike a historic loan deal with the Federal Reserve to keep AIG afloat.

A national consumer advocate called it a "classic example" of how insurance companies buy clout in states and in Washington.

"The governor had no knowledge of the donation which was used for events at the Democratic National Convention," June O'Neill, state Democratic Committee chairwoman, said in a statement Thursday.

In New York, the governor is the head of his party.

Spokesmen for Paterson, Dinallo and AIG had no immediate comment Thursday.

The state's effort is credited with giving AIG time to survive.

Now Washington lawmakers are blasting AIG for paying more than $160 million in bonuses to employees of a division primarily responsible for the meltdown that led to an $85 billion federal bailout of the company.

It was the biggest campaign donation AIG has made within New York state since electronic record keeping began in 1999, records show. The biggest checks were for $10,000 each in 1999, 2000, 2002 and 2003, all to the same state Democratic Committee. There were national party conventions in 2000 and 2004.

AIG has donated to New York Democrats and Republicans — when they held the Senate majority — but usually in much smaller amounts. Since January 2006, the largest single check had been for $2,500. Most were for about $350 or $500.

AIG and Paterson singled Dinallo out for keeping the effort to save AIG under way, in part by putting together a $20 billion state plan that was supplanted by the federal bailout. The $85 billion federal loan saved thousands of jobs nationwide, protected insurance policy holders, and salved — if temporarily — the nation's hemorrhaging financial markets while protecting New York City's financial sector.

Bob Hunter, director of insurance for the Consumer Federation of America, was one of the consumer advocates who criticized the deal in September, while it was widely praised on Wall Street and in government.

"It was terrible," he said Thursday. He said the New York deal sought to use money set aside to protect insurance policy holders to save AIG, which he said endangered individual policy holders.

"Money is so pernicious and sort of evil the way it interlaces into politics," he said. "This is just a classic example."

Hunter, the former Texas insurance commissioner who worked in the Ford and Carter administrations, said insurance companies are big campaign contributors to their states and in Congress.

"Insurance companies make large political donations and they have incredible clout as a result," he said.

Blair Horner of the New York Public Interest Research Group called for the legislature to conduct hearings into the way the state handled the AIG meltdown.

In Washington, Sen. Chris Dodd, D-Conn., acknowledged Wednesday that his staff agreed to dilute the executive pay provision that would have applied retroactively to recipients of federal aid. However, Dodd said he was not aware of any AIG bonuses at the time the change was made.

Over the years, Dodd has been the top recipient of campaign contributions from AIG employees. During 2007-2008, when he ran for president, he received nearly $104,000 from AIG employees and their families, according to the Center for Responsive Politics, a nonpartisan group that monitors money in politics.

Dodd told CNN on Wednesday that rather than lose the entire section on excessive executive compensation, he reluctantly agreed to modify the legislation.