WASHINGTON – Senator Chuck Grassley is encouraging state attorneys general to consider looking at whether financial institutions located or operating within a state have violated or would violate state law by making certain executive compensation payments to executives and top management.
Grassley commended New York Attorney General Andrew Cuomo’s probe into compensation and perks to executives associated with AIG as well as other financial institutions.
“When the economic stabilization legislation passed, we were assured that excessive executive compensation and unnecessary perks would be eliminated,” Grassley said. “Yet, it looks like some of these executives have yet to understand the value of the taxpayer dollar. If states can also look into whether certain payments aren’t proper, along with the federal government, we may hold accountable what appear to be some unscrupulous people.”
Here is a copy of the text of one of Grassley’s letters to the attorneys general. An identical letter was sent to each attorney general of the 50 states.
November 19, 2008
State Attorney General
XXXXX
XXXXX
Dear Mr.[Ms.] XXXX:
On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (the “Act”), which authorized the Treasury Department (“Treasury”) to purchase $700 billion in “troubled assets” from a wide variety of financial institutions. Like many members of Congress, I demanded that the legislation impose restrictions on executive compensation. If financial institutions require an infusion of taxpayer dollars just to stay afloat, these institutions should not be rewarding executives who have made bad business decisions or engaged in irresponsible corporate behavior. In general, the Act, as enacted on October 3, 2008, restricts executive compensation paid to the top five executives of a financial institution that (1) sells an equity interest or debt position to Treasury in a “direct purchase” or (2) sells at least $300 million in troubled assets to Treasury in an “auction sale.” Specifically, these financial institutions are prohibited from (1) deducting certain compensation and (2) making “golden parachute” payments upon involuntary termination.
Recent reports indicate that financial institutions that have received taxpayer funds under the Act are using these funds to pay bonuses to executives inside and outside of the top five executives of the institution. Top executives are also walking away from their troubled institutions with tens of millions of dollars. Recently, I wrote a letter to Treasury stating that the Department has broad authority beyond the Act, and thus, should take appropriate action to further limit executive compensation (see the attached letter). I believe Treasury has the authority to restrict executive compensation in instances where, for example, a financial institution uses taxpayer dollars to pay bonuses and other perks. I also believe that Treasury has the authority to limit bonuses paid for performance that causes the institution to lose money and destroy shareholder value.
State law may restrict compensation, bonuses, and other perks paid to executives or top management. Recently, Andrew Cuomo, the Attorney General of New York, launched a probe of the American International Group (“AIG”) to determine whether “extraordinary expenditures in the form of executive compensation, junkets, and perks [paid] to executives” violated New York State’s fraudulent conveyance laws. Expanding his inquiry into whether other financial institutions violated State law, Mr. Cuomo sent a letter to Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, State Street, and Wells Fargo asking these institutions to provide a “detailed accounting regarding [the institution’s] expected payments to top management in the upcoming bonus season.” The inquiry appears to be intended to help Mr. Cuomo determine whether “such payments [were] illegal fraudulent conveyances.”
I commend Mr. Cuomo for his recent inquiry, and I encourage you, as your State’s Attorney General, to consider the appropriateness of inquiring into whether financial institutions located within your State have violated (or would violate) State law by making certain executive compensation payments to executives and top management. Financial institutions that are on the verge of collapse should be tightening their belts, like most families have to do, and should not be rewarding executives with taxpayer funds, or any funds for that matter.
Sincerely,
Charles E. Grassley
Ranking Member