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(Updated 4:30 p.m.) As federal officials struggle to find a way to block AIG from handing out $165 million in bonuses, Connecticut lawmakers said they are working on a way to re-write the current state law that the insurance giant seems to be relying on in order to justify its payment of executive bonuses.

House Minority Leader Lawrence Cafero, R-Norwalk, said Tuesday that he doesn’t want Connecticut to be used as a “scapegoat,” because its wage law says if the company does not pay out the bonuses it could be subject to double payment penalty. In AIG’s case that could be as much as $330 million.

He said lawmakers have written this bill which could be passed as early as March 25 to exempt companies that receive TARP or stimulus money from the double penalty provision.

Connecticut should not be used as the scapegoat or the excuse for AIG to pay these outrageous bonuses, Cafero said.

He said AIG is slated to receive an additional $30 billion in federal bailout money and is scheduled to give out $230 million in bonuses later this year. “We are looking to put an end to that,” Cafero said.

Cafero and Sen. Minority Leader John McKinney said they have spoken with the Democratic leaders in each of the caucuses and believe they have bipartisan support for this measure. “They were very supportive of the concept,” Cafero said.

Unfortunately the $165 million in bonuses may have already gone out, so lawmakers were uncertain if they would have the ability to stop payments which AIG may have already paid its employees in the financial products unit located in Wilton, Connecticut.

In a statement sent out Tuesday afternoon Attorney General Richard Blumenthal said he has “significant doubts,” about the validity of AIG’s claim under Connecticut law.

“AIG is shamelessly shielding itself behind the Connecticut Wage Act—a joke of a justification for squandering scarce taxpayer resources,” he said.

He said his office will “carefully investigate the merits of AIG’s claims under the Connecticut Wage Act, and will take every step necessary to fight this gross misuse of taxpayer money. Corporate collapse demands accountability—not windfall payments.”

Blumenthal added that he will support legislative proposals that “credibly and effectively forestall future abuses as well.”

Gov. M. Jodi Rell said she’s on board with legislation too.

“To cite Connecticut state law as a defense for this action is contemptible,” Rell said in a statement. “I strongly support legislation that would prohibit entities which receive federal or state bailout money from using those funds for excessive bonuses or payouts similar to AIG’s outrageous attempt at self-enrichment.”

“I have met with the Speaker and other Democratic leaders on this issue. We will be bringing legislation this week to recover taxpayer funds and, during the coming weeks, will institute further restrictions on the use of these funds by companies receiving Federal aid,” U.S. Rep. John B. Larson said in a statement Tuesday afternoon.