Rashomon Blog Roundup #1: I (heart) Banks!

Am I the only one who wishes to never again hear the name Madoff? It is well and truly clear that the SEC's screwup was epic and few begrudge Harry Markopolos his I-told-you-so moment, but please, let's think about what comes next. For them that agrees with me, I offer a roundup of Madoff-free blog posts:

On the Harvard Corporate Governance Blog, Lucien Bebchuk offers analysis of the Tresury's new executive compensation rules.

From John Carney, via Clusterstock, a cow-based explanation of AIG's collapse.

DealLawyers offers John Jenkins' discussion of Pfizer's huge reverse break-up fee (Pfizer/Wyeth merger agreement is attached to a Wyeth 8-K filed 1/29/09)

The Business Law Prof. analyzes the many questions raised by a Wall Street Journal article about the Bank of America / Merrill Lynch merger.

Race to the Bottom offers a great dissection of the executive compensation bits of HR 7321, the Auto Industry Financing and Restructuring Act.

Reuters DealZone has a post about how TARP banks are using tapayer money to take out newspaper ads in hopes of making themselves more loveable. Its working on me.

Treasury Exec Comp Rules

The Treasury has posted new executive compensation rules for TARP institutions. In addition to pulling the emergency brake on the whole excessive-executive-compensation thing, the Treasury release gives us new terms to learn: "generally available capital access" and "exceptional assistance." To quote:

The guidelines distinguish between banks participating in any new generally available capital access program and banks needing "exceptional assistance."

Banks falling under the "exceptional assistance" standard have bank-specific negotiated agreements with Treasury. Examples include AIG, and the Bank of America and Citi transactions under the Targeted Investment Program.

Executives at exceptional assistance banks:
* can't make more than $500,000 total except for restricted stock (which doesn't vest until the government gets its money back)
* are subject to "say on pay"
* are subject to clawback for deceptive practices
* must get board approval for "luxury expenditures"

Executives at generally available capital access banks (GACAB?) get a slightly easier time:
* their $500,000 cap can be waived by shareholder vote

Who's going to bail out Lear Jet?

Bully Pulpit Shows Claws

I've been working on a post about the growing banker bonus clawback cacophony, but D&O Diary has saved me the trouble (in addition to doing a much more comprehensive job) of gathering all the clawback-related noise, legislation and commentary. Thanks, Kevin!

Next, the Bastille

NYT DealBook unwittingly continues my French Revolution metaphor. They report that a panel at Davos turned into a "lynch mob, Davos-style" over the issue of clawing back wall street bonuses. Nassim Nicholas Taleb nominates Rick Rubin to play the Sun King. For more on Nassim Nicholas Taleb, see Joe Nocera's excellent article on Risk in the New York Times Magazine.

The idea of governments clawing back the bonuses paid to executives at bailed-out institutions isn't new, but it appears to be moving from the theoretical to the actual.

Blog Update

The Harvard Corporate Governance Blog has a post from George Bason of Davis Polk about the Treasury's final implementing regulations for the Foreign Investment National Security Act of 2007 (FINSA). FINSA amended what is known as the Exon-Florio process. Exon-Florio, administered by the Treasury's Committee on Foreign Investment in the United States, gives the President power to examine and even stop acquisitions of certain US businesses by foreign entities.

The Corporate Counsel Blog has this post about how recommendations on executive compensation from the recent meeting of the G20 look a lot like provisions of the Emergency Economic Stabilization Act.

Finally, the Business Law Prof Blog has a post about a lawsuit brought by a hedge fund called Greenwich Financial Services seeking to modify an agreement between Countrywide and 11 state Attorneys General. The agreement modified a bunch of mortgages written by Countrywide. The problem, Greenwich argues, is that Countrywide no longer owns the mortgages it agreed to modify (Greenwich Financial Services v. Countrywide Home Loan Inc., Superior Ct. for NY County, 650474/2008). More from the New York Times here.

EESA Executive Comp Guidance

The Corporate Counsel blog has put together a one-stop post with all the new guidance implementing the executive compensation provisions of EESA (PL 110-343, 122 Stat. 3765).

The Hunting Party's Over

Yesterday, New York State Attorney General Andrew Cuomo sent a letter to AIG. Cuomo is annoyed that at the same time AIG was asking to be bailed out by the federal government it was sending its executives to England to hunt partridges on the company jet (and how they got on the company jet ...). Cuomo tells AIG to recover the money, or he will.

His purported weapon is section 274 of the NY Debtor and Creditor law. Briefly, s. 274 says that a conveyance is a fraud on creditors if it (1) is made without fair consideration and (2) left the transferor without sufficient capital. There are similar provisions in most state laws, the Uniform Fraudulent Transfers Act and the federal bankruptcy code. For a good treatment see FLETCHER-CYC s. 7412 and 7405 and NY Jur 2d Creditors Rights s. 363.

Presumably, Cuomo is brandishing 274 instead of the Martin Act (NY BCL s. 352c and 353) because the Martin Act requires proof of fraud. Under 274, the determination is made without regard to actual intent. Even with that lowered threshold, Business Law Prof calls it "a stretch."

Explicating EESA

Westlaw Business has recently published a number of articles illuminating aspects of the Emergency Economic Stabilzation Act of 2008 (PL 110-343, 122 Stat. 3765) - including:

Say on pay
Rules for asset managers and
Disclosure requirements for banks

For a more general treatment, the Harvard Law School Corporate Governance Blog has posted memos from Davis Polk and Gibson Dunn.

SON OF THE CLAWBACK!

Section 304 of Sarbanes-Oxley was supposed to create a mechanism allowing the SEC to recapture executive compensation distributed based on fishy accounting. As this article notes, 304 has never been used.

The Corporate Library recently reported that 300 companies had adopted private clawback mechanisms. For a thorough discussion, have a look at this post by Amy L. Goodman of Gibson Dunn on the Harvard Corporate Governance Blog.

If you seek precedents, Westlaw Business has canned searches to help find (a) recently adopted clawbacks and (b) 14a-8 challenges to shareholder clawback proposals.