Federal Reserve chairman Ben Bernanke sought a lawsuit to halt bonus payouts to American International Group’s financial products division, the House Financial Services Committee heard Tuesday.

“It was highly inappropriate to pay substantial bonuses to employees of the division that had been the primary source of AIG’s collapse,” Mr. Bernanke said in written testimony. “I then asked that suit be filed to prevent the payments,” he added, though the step wasn’t taken after legal advice.

Mr. Bernanke said the Fed’s legal staff counseled against the litigation because punitive damages could be awarded if the suit failed. The attempt provides new details on officials’ attempts to halt the US$165-million payout, news of which sparked a furor that spurred the House to pass an excise tax on bonuses at firms that receive more than US$5-billion of federal aid.

Fifteen of 20 leading bonus recipients have agreed to give them back in full, said New York’s top legal officer who is probing US$165-million in executive pay at the troubled company bailed out by the U.S. government.