AIG CEO Edward Liddy testified under oath recently, explaining why the retention bonuses were given, and that both the Federal Reserve and the Treasury Department approved them. The basic justification was that they were required by contracts signed with the employees in March 2008. Under the laws of Connecticut that applied, if AIG failed to pay, the employees could have sued and most likely collected three times the amount specified in the contracts as punishment for the initial non-payment. Aside from the contractual responsibility, Liddy needed the expertise to wind down AIG’s complex derivatives operation.