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Congress Is Outraged—Again; Citi’s New CEO?; Meredith Whitney Spews More Venom; and Madoff’s Accountant’s Life Just Got More Interesting

There are likely few people who’d want to be in Edward Liddy’s shoes—especially today. The AIG CEO is testifying before the Inquisition—er, Congress this morning. Liddy will be grilled about $165 million in bonuses his company doled out to executives.

“The bonuses are wholly unjustified,” House Financial Services Committee chairman Barney Frank (D-Mass) said this morning. Frank said the government should exercise its right as part owner of AIG and bring lawsuits that say, “These people performed so badly and the magnitude of losses were so great that we are justified in rescinding the bonuses.” Frank also said the committee will ask Liddy for the names of those receiving bonuses. If he declines, Frank says the firm will be subpoenaed to issue the names. Never mind that AIG got the okay from the Treasury and the Fed, according to The Post.

In a prepared statement, Liddy acknowledged that the retention bonuses are “distasteful.” Watch the webcast here. “We are acutely aware not only that we must be good stewards of the public funds we have received, but that the patience of America’s taxpayers is wearing thin,” he says. Click here to read Liddy’s testimony.

Meanwhile, Treasury Secretary Timothy Geithner says he will continue to work with Liddy to unwind AIG’s pesky credit default swaps and other securites. “As long as he is there, we will work with him on measures to wind down AIG in an orderly way to protect the American taxpayer,” Geithner said in a letter to Congressional leaders. The Post reports that break-up process could take years or decades while forensic accountants conduct audits of the firm’s credit-default swaps.

Another Wall Street executive in the hot seat is Citi CEO Vikram Pandit who the Post reports may be in risk of losing his job. Citi’s Board of Directors nominated four new directors on Monday, and some analysts wonder if one of those names will replace Pandit. “There’s no question in my mind that they have Pandit's replacement sitting on the board in [Jerry] Grundhofer,” Richard Bove, a bank analyst at Rochdale Securities, told The Post. Grundhofer was the CEO and current chairman of U.S. Bancorp.

As if it doesn’t have enough problems, Citi group can’t catch a break from Wall Street’s grim reaper, Meredith Whitney. On CNBC’s Squawk Box yesterday, the bank analyst said Citi’s positive results in January and February were misleading since it was untainted by write-downs. She didn’t stop there. Whitney said 2009 won’t be much better for banks than 2008.

If you’re looking for some good news on Wall Street, we can’t tell you where to look. But we can say, don’t look to hedge funds for much hope. Reflecting record investor withdrawals of over $150 billion in the fourth quarter of 2008, 778 funds liquidated during the period, more than doubling the previous quarterly record of 344, set just one quarter earlier in Q3 2008. The total number of liquidations in 2008 was 1,471, an increase of over 70 percent from the previous full year record of 848 liquidations set in 2005. That’s according to Chicago-based Hedge Fund Research, Inc.which collects the data.

“After years of steady growth, 2008 was a record year for hedge fund liquidations, reflecting in part the transitions occurring across many aspects of the overall financial industry, as well as the substantial performance dispersion between hedge funds,” says Kenneth J. Heinz, president of HFR.

Another arrest was made today regarding the Madoff scandal. The SEC charged David Friehling, the accountant who audited Bernard Madoff’s broker/dealer, with securities fraud. The SEC alleges Friehling and his firm enabled Madoff’s misconduct by falsely representing to investors that Bernie Madoff Investment Securities was financially stable. According to the complaint filed today, Friehling “merely pretended to conduct minimal audit procedures of certain accounts to make it seem like he was conducting and audit, and even then failed to document his purported findings and conclusions as required under [generally accepted auditing standards].”

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