Blawg is on Holiday: Maybe for now, maybe for longer ...

Circle of life - and blawgging? I hate to have the site succumb to a blog statistic, but this blawg will be temporarily suspended. I am not certain now when it will be resumed.

While I cannot write for other Authors who have contributed to the blawg, personally I enjoyed the outlet: it was nice to have a place I could post my thoughts and work on my writing. Professionally, I found value in investigating topics that interested me: collecting information and presenting it in a way that I thought was both interesting and informative. Too, I have met a number of really talented attorneys who have Authored here, and am happy to say they are now in my professional network. I earnestly hope they were able to benefit from their writing here, as well. We're young now, but I'm confident some of these people will be fabulous practitioners as they grow into their profession. I am happy to have met and worked with them, and am grateful for their contribution here.

And I am grateful for the folks who logged-in to watch updated posts and discussion. Hopefully you enjoyed the chatter while it was running.

But blawgs eat up time, and energy, and effort, and patience. As like so many of my legal peers who have recently entered the industry, I am looking for permanent placement. Recent events have persuaded me to focus all of my time and energy on securing this placement. While I find legal research and writing a vital part of practicing law, I feel my writing over the last year sufficiently illustrates my ability and interests. It is vital right now I shift that ability and secure proper employment. While I feel this is the most appropriate decision for me at the moment, it by no means suggests that I will not research and publish again in the future - be it blawgging or traditional paper publications. And so ...

I am closing comments on the blawg as of this post. All Authors' work, however, is accessible via the menu on the right-hand side of your screen. In most instances, contact information for those Authors is also available. Kind thanks for Everyone's time and support. Take care - Sls.

In Case You Missed It This Week

"Quinn Emanuel Becomes First Am Law 100 Firm to Have a Female Name Partner." Yeah - it's 2010. Law.com.


NYU grads can't find jobs, either, and are on a publicity campaign. ATL.


Litigation about to be filed: toddler kills herself thinking gun was a Wii controller. Am I the only one thinking three year-olds shouldn't be playing games that require guns? ABCNews.com.


A Mexican judge first orders a teenage graffiti artist to have his buttocks spray painted, and then the judge is fired. RollOnFriday.


Young female attorneys: you're messing with your husbands' heads to ask them to be a house-husband. (Although just for the record, I would like to publicly state the female attorney should not then default to care-giver.) Althouse.

In Case You Missed It This Week

"You’re a lawyer? Please don’t kill yourself, the cab gets really messy." ATL.


If you joined BigLaw for a posh 5th Avenue apartment, maybe you'd be interested in how Rush Limbaugh had his done up. Althouse.


I still find it ironic that despite the bulk of my legal friends (having graduated between one and four years ago) are on the hunt for new or more substantive legal work, legal profs are still talking about how to choose a law school. Co-Op.


"A theology student in Croatia has been jailed for 15 months after setting fire to a bush which devastated 500 acres of protected land and caused £30million worth of damage. He told the court he lost his temper after the bush kept pricking him on his way to the faculty." Ananova via RollOnFriday.

In Case You Missed It This Week

• "Utah can't afford twelfth grade but" can afford to prosecute and incarcerate the crime of reckless miscarriage. HuffPo.

• So what's going on at Coughlin Stoia? Law.com.

• What a surprise: CNN's Jeffrey Toobin is a man. ATL.

• Second surprise for the week: female attorneys, via NALP, requested data from firms about equity and non-equity partnership in the firm; most firms refused to submit the data and the NALP dropped the request. AmLawDaily.

• A hacker in Moscow was arrested for inappropriately displaying a stolen pornographic video on a billboard, causing traffic gridlock. Ananova via RollOnFriday.
  

In Case You Missed It This Week

• Binge eating being debated as a disorder, and therefore subject to employment discrimination suits. Law.com.

• Loads of firms - some of whom sustained legal heavy legal cuts in 2009 - are now publicizing either steady revenue and or profits for year-end 2009. Not cool? AmLawDaily.

• And some are already raising rates again. Really? WiredGC.

• Three Years of Law School vs. a Three Year Drug Binge. Am late to pick up this post but I just can't help myself from linking to it here ... Jim's Blog.

• BBC Reporter admits to killing on air. HuffPo.

• Hey clients - you sure you want alternative fee arrangements? NYLJ.

Executive Compensation: Updates

Brief on my own forty-two cents this go-'round, but heavy on the inbox house-cleaning ...

Backdating

Juniper Networks settled a shareholder derivative suit for $169 million. This is the third largest settlement for such suits (United Health at $900 million, Comverse at $225 million, followed by fourt-place Broadcom at $160 million). Speaking of Broadcom, while the SEC dropped its litigation against several Broadcom execs and general counsel, legal analysts have chastised the company for capitulating to shareholders due to "litigation fatigue."

Business Bankruptcy

Recently U.S. Bankruptcy Judge Kevin Carey approved one of several compensation proposals submitted by the Tribune Company (think Chicago Tribune and LATimes). Objections were filed to the plan, but the Judge found 11% of the company's 2009 cash flow as apportioned to 720 managers in bonuses "incentiv[izing]". A little tongue-in-check there, but it amounts to $45.6 million in manager bonuses.

Bank of America (BofA)

Let's start with the uncontroversial: formerly of Merrill Lynch, John Thain finally found work. As a fellow job seeker, *yay* John.

The Cuomo complaint is making the rounds: allegations that BofA and outside counsel Wachtell had in fact agreed to disclose 4Q08 Merrill losses, but the decision was reversed later by Mayopoulos alone; Wachtell "marginialized." Allegations also include Mayopoulos being fed inaccurate information by BofA executives regarding the losses (and therefore affecting his judgment as regards disclosure).

And so it's no suprirse then, that S.D.N.Y Judge Rakoff has not only refused to approve the newly proposed $150 million settlement, but gave SEC counsel a hard time over why NYAG Cuomo's complaint is different, and has recently asked for ALL discovery materials regarding BofA's former general counsel Mayopoulos' dismissal.

Oh, and if any of this behaviour suggests that a substantial bonus payment to various BofA employees would be a PR nightmare, you apparently would be wrong: $4.4 billion goes out to Ibanking employees for their 2009 performance (that's an average bonus of $400,000 per person). Though in fairness: those who are receiving larger bonuses will receive stocks vesting over a several year period.

Compensation Czar

So AIG paid-out contractually agreed to bonuses this year, and the whole of D.C. is trying to determine how to stop it.

Pay Practices

But AIG has heard enough of the populist outcry, and so re-jiggered its pay practices. Analysts and commentators still suggest the jiggering will not satisfy regulators.

Barclay's also tweaked their pay packages and structures. The President and Chief Executive waived their 2009 bonuses; other executives' compensation was deferred and other bonuses were paid in stock.

Mr. Blankfein at Goldman, however, took a $9 million all stock bonus for 2009. The bonus is considered conservative, as Blankfein took a $67.9 million bonus in 2007. No "magic formula" apparently.

Re-Regulation

The Administration's banking plan has Wall St. upset, mostly because cash cow proprietary trading is on the chopping block. Paul Volcker has been quite clear: either have access to federal backing or continue the proprietary trading.

It is little wonder lobbying efforts are up. Is "up" a dimunitive term here? FWIW: Former Treasury Secretary Henry Paulson doesn't like the plan.

The Administration's bank plan also contains disincentives for banks that grow too large to fail. On this theme: JPMorgan got a little bit bigger recently, and then one of its Athens' offices was bombed.

Recall rampant media discussion about the Webb-Boxer Taxpayer Fairness Act - the "Jobs Bill?" A banker tax may be included among the amended provisions. Proposed as a windfall bonus tax, the first $400,000 is exempt.

Separately, Senator Dodd's bank reform legislation has an impasse to overcome ...


Photo credit: Oliviadei.

DO NOT DEFAULT ON SALLIE MAE, Boys and Girls

If you didn't read this WSJ piece, please take a few minutes (and cruise those comments! if you ever wondered what angry people do all day, there you go). The main character in the story is a 41 year-0ld doctor practicing general medicine in Ohio. She took a variety of loans to finance her medical education; some of those loans were serviced and financed by SallieMae ("SM"). At some point she flaked on her debt. My favorite pieces (that should be made into t-shirts and distributed on college campuses everywhere):

• She took principal of "roughly" $250,000. The total debt has grown to $550,000.
• She defaulted on the debt, then rehabbed it, but during the course of which she was assessed separate SM fees for $53,870 and then $31,942.

Hat tip: Pilon at the WSJ.

For those interested in the outsourcing discussion

ATL ran a guest post discussing outsourcing and the ABA's 2008 stamp of approval (ABA Formal Opinion 08-451) ("Opinion"). I am conflicted on the issue but post it here for interest. From a business perspective, I appreciate both: the client's disapproval of enormous discovery (coding) fees, and separately, the arguably mechanical task of coding documents. On the other hand, and as an American licensed attorney who continues to see the employment market she participates in continue to constrict via acts by her alleged advocate (Dearest ABA, please stop sending me membership materials) - I'm a little cheerless.

But apart from my biased protectionist preferences, there are questions that are not so easily answered: is discovery (coding) the practice of law? Are Opinion provisions describing apropriate supervision adequate? Will quality control suffer? How will the courts handle quality control issues that are later litigated? And will clients be happy to get what they paid for? And for how long?

FWIW (and as ever, the comment string is as entertaining as the post).

Hat tip: Acevedo at ATL.

Jason will be back soon

A quick post: Jason and I have spoken a few times over the last two weeks, and he is currently dealing with a private matter that will prevent him from writing on the blog. Jason regretted having to table his writing at the moment, but we both hope that he can guest blawg at a later date this spring.

Best wishes, Jason.

In Case You Missed It This Week

• Criminal tax fraud cases against Madoff's kids. WSJ.
  

• Ever watch the television show "Snapped"? Hong Kong Court overturns "Milkshake Murder" (American chic is alleged to have doped IBanker husband with a milkshake, and then bludgeoned him to death). AmLawDaily.
  

• Stuy Town is middle-class, right? That's the schtick? Well, they just hired some of the most expensive counsel in town. AmLaw Daily.

• More suits for overdraft fees. The National Law Journal.

• I am late finding this news, but it turns out to be better that way >> the comment string is as entertaining as the issue. Seattle Lawyer sues Sallie Mae over "unrelenting" student loan robocalls. ABAJournal.
  

Photo credit: NYDaily News.

In Case You Missed It This Week

Have a *great* weekend!

• Tea Party Convention. (That's funny just by itself, right?) WaPo.

• Score for EPA and DOJ efforts: $ 1.79 billion settlement for pollution claims. NPR via HuffPo.

• Legal staff still being cut. AmLaw.

• Stupid people and the law: naked burgular (alleged) in the chimney. Guardian via RollOnFriday.

• More of a community in law school than you'd think >> Supreme Court Justice Clarence Thomas responds to a student question on why he went to law school: "I was lost." TampaBay.com via Althouse.

BofA settles with the SEC, is however sued by NYAG Cuomo

Busy day for BofA. I haven't had the opportunity to read through the 30-some page settlement proposal and 90 page complaint yet, but here's the surface data.

The SEC announced today it reached a settlement with BofA as regards both pending suits: failure to properly disclose Merrill bonuses, and separately, failure to properly disclose Merrill 4Q08 losses, to BofA shareholders prior to a proxy vote on the Merrill merger. The settlement submitted to S.D.N.Y. Rakoff for approval includes a $150 million fine and a remediation plan. The $150 million is to be distributed to BofA shareholders on an as yet undetermined schedule. The remediation plan includes new corporate governance for BofA over the next three years: retention of an independent auditor to scrutinize disclosure procedures, as well as "disclosure counsel" who will report to the Board's Audit Committee; the CEO and CFO will certify that they have personally reviewed annual and merger proxy statements; new conflict rules for members of and consultants to the Board's Compensation Committee; a non-binding advisory shareholder say-on-pay vote on matters of executive compensation; and incentive compensation practices will be disclosed on BofA's consumer website.

Half a dozen things come to mind. First, one of the principal reasons Judge Rakoff rejected the Summer 2008 settlement was he felt it unfair that shareholders would bear the burden of the mistake BofA corporate actors made. This has been part of Rakoff's theme – unending in that it has never been answered – that individual actors are responsible for making the decision not to disclose the Merrill bonuses. It remains to be seen how Rakoff will respond to the new terms of the settlement. And I'm not quite certain how the shareholders will benefit from paying themselves a sort of dividend payment on the matter (because although the distribution schedule is as yet undetermined, that's effectively what will happen, correct? BofA pays the fine to the SEC, and then the SEC redistributes the fine to BofA shareholders?).

And second, the SEC includes a lengthy laundry list of 'thank yous' in its public relations release, including the FBI, NCAG Cooper, and TARP's Special Inspector. There has been months of rumor that Cooper and the FBI were working in tandem on separate charges >> I am eager to have the opportunity to read the settlement proposal to see if Cooper has waived any further litigation with the SEC settlement.

And although the SEC also thanks NYAG Cuomo's office, we all know now that Cuomo certainly made no such waiver. Cuomo's office has filed a civil securities suit under the Martin Act against BofA, its former CEO Ken Lewis (now retired), and former CFO Joseph Prince (since stepped down). Cuomo alleges the defendants misled both the public and government actors as regards the Merrill acquisition. Via telephone with the WSJ (NYTimes?), Cuomo remarked, "We believe bank management understated the Merrill Lynch losses to shareholders to get shareholders to approve the deal then [turned around and] overstated their ability to terminate the agreement to get $20 billion from [the] federal government. That is just fraud." Cuomo continued, alleging BofA "exploited" the economic fear in 2008 and "defrauded" the taxpayers. Uber interestingly, Neil Barofsky, Special Inspector General for TARP, was also on the call.

BofA has denied the allegations and indicated it will mount a defense.

Copies of the SEC settlement proposal and NYAG complaint are here. The story is being reported everywhere, apparently first by the NYTimes, but also at AmLaw, Bloomberg, and the WSJ. This blawg's discussion of the BofA matter is here.

Image credit: BofA.

June 29, 2010 – Trial date for SEC v. BofA, Part II

I have to admit that when news hit last month of the SEC's second amended complaint - and then second independent complaint - I was content at the time to read the headlines and news reporting alone. In addition to alleging BofA violated federal securities laws by not properly disclosing the Merrill bonus agreement to BofA shareholders prior to the proxy vote on the merger, the SEC filed new allegations that BofA violated securities laws by not properly disclosing Merrill 4Q08 losses to its shareholders prior to the same vote. The usual remedies are sought: injunction and civil penalty.

A short article ran last week in AmLaw, however, that brought me back to the SEC complaint itself. The gist: the agency's arguments are incompatible and not compellingly strung together. The critique argues that despite S.D.N.Y. Judge Rakoff insisting on accountability by individuals, the SEC continues to chase the corporation itself, and has failed to make any allegations against any BofA officers, directors, or legal counsel. The article ironically states that a corporation is nothing but a vehicle at the behest of individuals. Although the SEC did describe BofA's officers' and counsels' decisions in the complaint as "negligent" and "erroneous," the article points out that such is not unlawful. Further, the SEC's allegations in essence describe Wachtell Lipton as an incompetent advisor. A notion that is infrequently heard, and one that neither Wachtell or BofA has advanced as a matter of defense.

It was an interesting point, and so I went back into the complaints (the second independent complaint is virtually a cut/paste from the material in the second amended complaint). The timeline alleged is really interesting, and the SEC even paints the BofA officers and directors in a substantially more positive light than the media did over the course of 2009. (I am actually sitting here feeling a little bit bad for Ken Lewis.)

September 13th and 14th, 2008. The proverbial financial sky was falling, and BofA and Merrill were in discussion over a possible merger. It was unknown at this time the enormous 4Q08 losses Merrill would sustain (and in all Stef fairness, reasonably so).

September 15th. The parties announced successful negotiations had produced a merger agreement. The deal was valued at $50 billion. BofA would issue shares to Merrill shareholders, issuing 0.8595 BofA shares of common stock for every share of Merrill common stock. The exchange represented a $29 value for each Merrill share, which was a 70% premium from the trading price on Sept. 14th.

October 16th. Merrill issued a 10-Q and announced a net loss of $5.2 billion for 3Q08. The explanatory notes indicated a substantial write-down for selling CDOs backed by non-prime residential mortgages and the terminating related guarantees. The market responded positively to the news, anticipating a net income in 4Q08; the SEC alleges BofA management rode the same optimism wave in response to the news.

November 3rd. BofA and Merrill filed a joint proxy statement, principally for the purpose of soliciting shareholder votes to approve the merger. Separate shareholder meetings were planned for December 5th. BofA also filed a registration statement on Form S-4 to register the issuance of BofA shares to Merrill shareholders, per the merger agreement.

November 12th. Since the Sept. 15th merger announcement, BofA was kept abreast of Merrill's performance. On Nov. 12th Merrill gave BofA an internal forecast report estimating a 4Q08 net loss of $5.4 billion. BofA consulted with in-house and outside counsel as to whether the loss rose to the level of a public disclosure. Both counsel indicated a disclosure was not necessary, reasoning the proxy statement and recent filings describing the current economic environment and its potential impact on Merrill constituted sufficient disclosure. When BofA disclosed to Merrill that a public disclosure may be forthcoming, Merrill also agreed with in-house and outside counsel.

December 3rd. Merrill gave BofA an updated internal forecast report estimating a $6.4 billion net loss for October and November; the 4Q08 net loss was anticipated to be over $7 billion. BofA again consulted with counsel, and counsel again advised that a disclosure was not necessary, reasoning the loss was within the historical range of previous Merrill losses.

December 5th. Without new information, BofA shareholders believed no fundamental changes had occurred since the terms of the agreement were reached between Sept. 13th and 14th; the Merrill acquisition was approved by shareholder vote.

Second Week of December. Merrill gave BofA an updated internal forecast reporting net loss of over $12 billion for 4Q08. BofA considered forfeiting the acquisition altogether under merger agreement provisions of a material adverse change ("MAC").

January 1st, 2009. The merger closed.

January 6th. BofA publicly disclosed that Merrill was subject to a 4Q08 net loss of $15.3 billion. BofA also disclosed it received $20 billion in TARP funds to complete the acquisition.

The SEC alleges BofA failed to make proper disclosure of the 4Q08 Merrill losses in both the joint proxy statement and the Form S-4. The SEC argues the proxy should have contained updated details of the value of the Merrill merger so that shareholders would have been able to adequately consider the merger vote. The SEC argues the Form S-4 required BofA to publicly disclose any material changes to Merrill's affairs that were not otherwise reflected in other filings, and that the form also required BofA to update the shareholders prior to the proxy vote.

Image credit: Bank of America.

Introducing Guest Blawger Jason Silberberg

I am happy to write that Jason Silberberg will be guest blawgging on the site for the next month.

Jason is a graduate of both NYU, and separately, the George Washington University Law School. He studied in Spain while an undergrad and participated in Moot Court and the Project for Older Prisoners Clinic while in law school. Jason has a wide research and writing background; his accomplishments include:

• A legal journal document discussing the right to withdraw consent under the Fourth Amendment.
• A research document and presentation to the English and Dramatic Literature Organization's Annual Conference, entitled Jewish American Participation in the Spanish Civil War: a Socio-Historical Study.
• A number of published articles while working as an intern at The Jewish Daily Forward, including "Mameloshn Thriving in Montreal" and "Debate Rages Over Deafness Test."

Jason's work experience includes interning at both the FCC Enforcement Bureau and FEMA's Office of Chief Counsel. At the FCC Jason researched and wrote on matters ranging between over-the-air-threats and fraud to administrative procedural matters. At FEMA Jason researched and wrote to defend the agency against employment discrimination and equal protection suits. Jason also spent a summer as an associate at the firm Gebhardt & Associates, LLP. He worked on litigation matters, principally research and writing as regards employment litigation.

Apart from the law, Jason is also a musician. He is currently a songwriter to the musical group Steeplechase, and separately, has published and licensed his musical work to various television series. He also founded and performed as Co-President to the record label Argento Records.

Jason is licensed to practice in New Jersey.

Welcome Jason! I am very happy you're writing on the blawg this month - please enjoy your time here!

In Case You Missed It This Week

Have a *great*GREAT* weekend!!

• J.D. Salinger has left the building. Reported everywhere, including AmLawDaily.

• The SEC thinks it's very important investors know how global warming affects the corporations they invest in. WSJ.

• I love it how Congress can keep it real; "largest theft in history." Corporate Counsel.

• Five point plan for when to start disclosing information to regulators. Corporate Counsel.

• Respectfully said, there was another suicide in the law this week. AmLawDaily.

Photo credit: Getty Images, via AmLawDaily.

We're Published! Hastings Business Law Journal

Gratuitous self-congratulatory note to me and Allen as we celebrate a recent offer of publication from the Hastings Business Law Review! The document Litigation and Recoupment of Executive Compensation has been updated since the NYBLJ run, and will appear in the spring edition of the HBLJ.

The Obama Administration’s Proposed Bank Plan; the “Volcker Rule”

Am l-o-v-i-n-g the headlines this morning.

“Asian Markets Drop after Wall Street Reacts to President Obama’s Bank Limits”

“FOREX – Dollar Falls on Obama Bank Plans, Yen Pares Gains”

“India Rupee Has Worst Week Since October on Obama Bank Plan”

Overreact much? For months now, think tanks and paid consultancies have identified several core reasons for the Fall 2008 economic meltdown. Ubiquitously crucial among which has been the ideas: that large organizations which threaten systemic failure with their own should be avoided, and that excessive risk-taking carries costs not immediately identifiable and therefore also should be limited. So yesterday the Obama Administration revealed - an albeit ambitious plan - to address both of those issues, and the market drops to the floor like a petulant toddler. Give me a break already; we have all known that change would come to market mechanisms. The banking industry is a vital and innovative engine for capital generation in this country and around the world; but this also makes it a key member of our shared community, and the hissy fit being thrown in response to being called to responsibility is a little much.

A look at what the bank plan in fact entails. The Administration, purportedly purposely, has left a wide berth for Congress to determine how to effectuate the plan. The core principles are quite clear, however: banking actors are made to choose between traditional banking activities or trading. The choice is forced as, under the plan, any bank that either takes consumer deposits that are federally insured, or otherwise has access to Federal Reserve funds, is prohibited from owning or investing or sponsoring a hedge fund or private equity firm. Banks will be prohibited from trading with their own money; proprietary trading. Administration officials yesterday did say, however, that banks would be able to use their capital to hedge a client’s trade. The intent of the bank plan is to prohibit any trading that is not in the pursuit of servicing a client. There is some ambiguity in the plan as to what “proprietary trading” entails (expect to see a variety of different definitions – and costs to the banking sector – pop up in the news over the next several days).

Separately, the bank plan also tweaks existing rules limiting how large any bank can grow. Currently, no bank can merge or acquire a second bank if the transaction produces an entity that has more than 10% of American deposits. Under the bank plan, deposits would only be one type of funding considered in reaching the 10% ceiling (Ie., short term funding acquired through the market is also proposed as a consideration).

It is expected foreign banks with significant American operations will be pulled into compliance.

Nothing is really ever as simple as all of that, but to boil the plan to the core, you basically have it. The market understands this – hence the hissy fit – because limiting activities is reasonably suspected to seriously constrict profits. (And while the safety afforded by a federal funding buttress is attractive, the real money in banking is in the trading.)

Smells like Glass-Steagall though, right? (Over simplified explanation: different market rules are enforced for different types of investment vehicles [collectively creating a number of different “buckets”], and buckets are not to be mixed.) “No” was the official buzzword from Administration officials throughout the day in response to that question. To be frank, I am too unfamiliar with the Glass-Steagall provisions to speculate, but I am certain there will (also) be plenty of punditry in the next several days that will make analogies and comparisons.

Early analysis has identified some risks to the proposal. The first, that the risky behavior prohibited will be eliminated from the banking industry, but will re-appear in non-financial institutions. Thus eliminating banking risk, but not eliminating the systemic risk. Another risk suggested is that banks, in an effort to make-up for the lost profit, will expand their lending guidelines and threaten the federal funding buttress with too many risky debtors. Relatedly, one of the bigger criticisms has been that the bank plan would not have prevented the Fall 2008 crisis: IBanks Bear Stearns and Lehman Brothers were not commercial banks.

The bank plan now goes to Congress for the House and Senate to pass their own draft legislation. The President's remarks are available here. The plan is in the news everywhere, including Bloomberg, the NYTimes, and the WSJ.

Photo credit: Klip at Wikimedia.

In Case You Missed It This Week

• AIG's GC's generous severance package has U.S. Senators riding Ken Feinberg. Corporate Counsel.

• Even when the SEC does more, it can't escape criticism. AmLaw Litigation Daily.

• Does anyone really doubt Cuomo is running? NYLJ (Registration required).

• So what, really, does it take to get disbarred? AmLaw Daily.

• The "All-American Basketball Alliance" - all white players, and no foreigners. No joke - check out some or the organizers' rationale ... Augusta Chronicle via HuffPo.

In Case You Missed It This Week

• DO NOT believe the headlines that everything is okay: legal staff is still being cut. ATL.

• Bankers making more in 2009 than in 2008 and 2007. Really? I paid for lunch today with the change at the bottom of my purse. WSJ.

• Pat Robertson and the nut parade. WaPo.

• DOJ vs. a teenage Somali pirate. Okay ... WSJ.

• People are just dumb. Or desperate ... NYTimes.

Executive Compensation Re-Regulation: Congress, the Federal Reserve, and the Securities and Exchange Commission

A team I have been working with just fed updates on a research document to some journals >> I scored a new section on executive compensation re-regulation! Each piece of re-regulation described below focuses on localized risk reducing initiatives in the name of the greater financial system.

Congress

The Corporate and Financial Institutional Compensation Fairness Act of 2009. Introduced by Representative Barney Frank (D-MA) in July, and out of Committee and the House Floor that same month. It is currently sitting in the Senate Committee on Banking, Housing, and Urban Affairs. (Most of the commentary I read suggested it would be dealt with there in the Fall of 2009, however …).

The bill amends the '34 Act to give shareholders a nonbinding advisory vote on all issues of executive compensation. Interesting trick here: institutional investment managers that cast such votes are required to publicly disclose how they voted – each year. There is also some discussion about compensation committee members – rules preventing conflicts of interest (so a prohibition on taking any sort of consulting or advisory fees from the issuer). Second interesting trick: the bill directs nearly a dozen federal regulators to formally convene and create new compensation and disclosure rules. One piece of construction guidance offered in the bill: individuals' specific income should not be disclosed. There you go, Tea Partiers. Here is the text of the bill.

The Federal Reserve ("Fed")

The Fed has issued Proposed Guidance on Sound Incentive Compensation Practices. I was deceived when I first opened the Federal Register; it sounded aspirational, at best. On the contrary – I counted the number of times the Fed threatened a poor supervisory rating or an enforcement action for failing to remedy a deficiency - twice - and the number of times the Fed directed immediate effort by banking organizations to come into compliance – three.

Every banking organization under the Fed's supervision is required to come into compliance with the guidance. The guidance is applicable to both executive employees and lower-level employees; it is more targeted towards any employee whose work responsibilities expose the employer bank organization – and again, the larger financial banking system as a whole – to risk. Interesting here: rather than establishing one rule for twenty different types of banking organizations, the guidance states several principles the Fed wants all of the banking organizations to come into compliance with; how any one bank abides by the principles is self-determined. The principles focus on managing the relationship between incentive compensation and employee risk-taking. Broadly, incentive packages should not encourage employees to risk-take beyond the employer banking organization's internal ability to identify, manage, and support that risk. As a means of collecting best practices (maybe a structural means of pushing compliance?), the Fed has created a scheme to supervise compliance. There are two tracks: one for large complex banking organizations ("LCBOs") and a second for smaller, less structurally complicated banking organizations. LCBOs are expected to offer a compensation plan to the Fed; smaller organizations will be assessed on compliance as a part of their annual risk examination process. You can read the text of the Fed's guidance in the Federal Register here.

The Securities and Exchange Commission ("SEC")

In an effort to better enable investors trying to identify the internal risk assumption and reward of a company, the SEC has adopted amendments regarding the disclosure of all employees' compensation. The new disclosure rules are effective February 28, 2010.

Companies are expected to disclose compensation practices that create the risk of a "reasonably likely" "material adverse" effect on the company. Companies are in fact to list situations occurring with their pay practices and among their employees that illustrate when a compensation practice does in fact create a "reasonably likely" risk of "material adverse" effect. (It appears there was a give-and-take during the comment period on the language.) Stef commentary on the effectiveness of the forthcoming disclosure: the list is explicitly non-exhaustive … The disclosure will be made in a new paragraph in Item 402 of Regulation S-K.

Also as regards company disclosure of stock and option grants in the Summary Compensation and Director Compensation Table – use the aggregate fair value grant date and footnote performance awards to disclose an award's maximum value.

(The SEC also voted to approve amendments: creating greater transparency for investors in determining conflicts of interest as regards compensation consultants; and a variety of disclosures regarding the board of directors, as regards nominee and director qualifications, the board's diversity, and the board's structural leadership.)

The final version of the SEC's amendments can be found here.

Image credit: SEC.