January 14, 2009
Will Existing TARP Participants Be Subject to Additional Executive Compensation Limits?
– Laura Thatcher, Alston & Bird LLP
According to the January 12th Congressional Quarterly House Action Report, the House is expected to consider HR 384, the “TARP Reform and Accountability Act of 2009,” introduced by Congressman Barney Frank sometime during this week. Among other things, the proposed Act would expand the executive compensation provisions of the current TARP program by applying them equally to all TARP participants, regardless of the funding mechanism, and by imposing the additional executive compensation restrictions that were applied to the automotive industry in December.
As with other summaries of the bill, the CQ House Report states that the Act would “provide Treasury with discretionary authority to apply these executive compensation requirements to institutions that have already received TARP funds but have not yet paid them back to the government.”
I admit that, after reading the literal language of the bill, I am bit confused about where this notion of retroactivity comes from.
Specifically, Section 102 of the Act would add a new subsection (e) to Section 111 of EESA, including the following subsection addressing applicability of the new, more comprehensive executive compensation provisions:
“(4) Applicability to Prior Assistance. Notwithstanding any limitations included in subsection (a), (b), or (c) with regard to applicability, the Secretary may apply the requirements of and the standards established under this subsection to any assisted institution that received any assistance under this title on or after the date of the enactment of the TARP Reform and Accountability Act of 2009.”
To me, this pretty clearly seems to permit prospective application only. But I see five possible sources of ambiguity:
1. The title itself “Applicability to PRIOR Assistance” indicates perhaps that retroactivity was intended as a discretionary possibility. Otherwise, that title does not make sense.
2. One could read the words “any assisted institution that received any assistance under this title on or after the date of the enactment of the TARP Reform and Accountability Act of 2009” to include any institution that has not repaid the TARP funds in full before the enactment of the new law. In other words, this would mean that if an institution continues to hold TARP funds after the enactment date, it is considered to have “received assistance” under TARP on and after the enactment date. Loose drafting, at best.
3. If one were willing to move clauses around and invent commas where there are none, one could apply a strained (in my view) reading of the proposed subsection 111(e)(4) to say that the Secretary “may, on or after the date of the enactment of the TARP Reform and Accountability Act of 2009, apply the requirements of and the standards established under this subsection to any assisted institution that received any assistance under this title.” This reading would give the Secretary full ability to apply the new rules retroactively.
4. To the same effect, one totally uncommitted to Strunk & White might read “on or after the date of enactment” to modify “the requirements.” In that case, it would read: Treasury may apply the requirements of the new section [as in effect] on or after the date of enactment to any assisted institution that received any assistance under EESA. This reading would also give Treasury the authority to apply the restrictions to institutions that had already entered the program.
5. Maybe it is just a typo and will be corrected to say “on or before” rather than “on or after” the date of enactment.
The drafters of the bill appear to believe that it does give Treasury the authority to impose new terms retroactively. The summary posted on the website of the House Financial Services Committee, of which Congressman Frank is the chair, contains this statement: “Authority retroactive. Provides authority to Treasury to apply these expanded executive compensation provisions retroactively to existing recipient of direct assistance.”
It really comes down to two questions — whether Treasury will be given authority under the new Act to change the terms of engagement for prior TARP participants and, if so, whether it would choose do so.