Golden Parachute and Indemnification Payments, 67424-67427 [E8-26831]
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hsrobinson on PROD1PC76 with PROPOSALS
67424
Federal Register / Vol. 73, No. 221 / Friday, November 14, 2008 / Proposed Rules
deposit insurance assessment rates; and
also effective April 1, 2009, make
technical and other changes to the rules
governing the risk-based assessment
system. The proposed rules were
published for a 30-day comment period,
which is scheduled to close on
November 17, 2008. In order to afford
interested parties additional time
beyond the present 30-day comment
period to review the proposals with an
April 1, 2009 effective date, the FDIC is
extending the period for public
comment by 30 days, that is, until
December 17, 2008. The present 30-day
comment period for the proposed seven
basis point rate increase for the first
quarter of 2009 only, with its separate
proposed effective date of January 1,
2009, is not extended and will expire on
November 17, 2008.
DATES: Comments must be received on
or before December 17, 2008.
ADDRESSES: You may submit comments,
identified by RIN number, by any of the
following methods:
• Agency Web Site: https://
www.fdic.gov/regulations/laws/federal/
propose.html. Follow instructions for
submitting comments on the Agency
Web Site.
• E-mail: Comments@FDIC.gov.
Include the RIN number in the subject
line of the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429
• Hand Delivery/Courier: Guard
station at the rear of the 550 17th Street
Building (located on F Street) on
business days between 7 a.m. and 5 p.m.
Instructions: All submissions received
must include the agency name and RIN
for this rulemaking. All comments
received will be posted without change
to https://www.fdic.gov/regulations/laws/
federal/propose.html including any
personal information provided.
FOR FURTHER INFORMATION CONTACT:
Munsell W. St. Clair, Chief, Banking and
Regulatory Policy Section, Division of
Insurance and Research, (202) 898–
8967; and Christopher Bellotto, Counsel,
Legal Division, (202) 898–3801.
SUPPLEMENTARY INFORMATION: In its
notice of proposed rulemaking (73 FR
61560), the FDIC proposes to improve
the way the assessment system
differentiates risk among insured
institutions by drawing upon measures
of risk that were not included when the
FDIC first revised its assessment system
pursuant to the Federal Deposit
Insurance Reform Act of 2005 and the
Federal Deposit Insurance Reform
Conforming Amendments Act of 2005
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16:24 Nov 13, 2008
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(collectively, the Reform Act).1 The
proposal will make the assessment
system more sensitive to risk and the
risk-based assessment system fairer, by
limiting the subsidization of riskier
institutions by safer ones. In addition,
the FDIC proposes to change assessment
rates, including base assessment rates,
and to raise assessment revenue as
required under the FDIC’s October 7,
2008 Restoration Plan (73 FR 61598).
In this rulemaking, the FDIC
requested comment on proposed rules
that would (1) effective January 1, 2009,
raise current assessment rates uniformly
by seven basis points for the first quarter
2009 assessment period only; (2)
effective April 1, 2009, alter the way in
which the risk-based assessment system
differentiates for risk and again change
deposit insurance assessment rates; and
(3) also effective April 1, 2009, make
technical and other changes to the rules
governing the risk-based assessment
system. The proposed rules were
published on October 16, 2008, for a
30-day comment period, which is
scheduled to close on November 17,
2008.
To afford interested parties additional
time beyond the present 30-day
comment period to review only those
portions of the proposal that would
become effective April 1, 2009 (items (2)
and (3) above), the FDIC is extending
the period for public comment by 30
days. In light of this determination, the
FDIC is providing the public additional
time to comment on these aspects of the
proposal, and requests that you submit
your comments by December 17, 2008.
The present 30-day comment period
for the proposed seven basis point rate
increase for the January 2009
assessment period only, which has a
separate proposed effective date of
January 1, 2009, is not extended and
will expire as originally provided on
November 17, 2008.
Dated at Washington DC, this 7th day of
November 2008.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. E8–26972 Filed 11–13–08; 8:45 am]
BILLING CODE 6714–01–P
1 Federal Deposit Insurance Reform Act of 2005,
Public Law 109–171, 120 Stat. 9; Federal Deposit
Insurance Conforming Amendments Act of 2005,
Public Law 109–173, 119 Stat. 3601.
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FEDERAL HOUSING FINANCE
AGENCY
12 CFR Part 1231
RIN 2590–AA08
Golden Parachute and Indemnification
Payments
Federal Housing Finance
Agency.
ACTION: Proposed amendment.
AGENCY:
SUMMARY: The Federal Housing Finance
Agency (FHFA) is proposing to amend
the interim final Golden Parachute
Payments regulation published in the
Federal Register on September 16, 2008
(73 FR 53356), and as corrected on
September 19, 2008 (73 FR 54309), and
on September 23, 2008 (73 FR 54673).
This proposed amendment addresses
prohibited and permissible
indemnification payments with regard
to any administrative proceeding
brought by the FHFA against an entityaffiliated party of the Federal National
Mortgage Association, the Federal Home
Loan Mortgage Corporation, and the
Federal Home Loan Banks in light of the
statutory requirements set forth in 12
U.S.C. 4514(e), as amended by the
Housing and Economic Recovery Act of
2008.
DATES: Written comments on the
proposed amendment to the Interim
Final Regulation must be received on or
before December 29, 2008. For
additional information, see
SUPPLEMENTARY INFORMATION.
ADDRESSES: You may submit your
comments on the proposed amendment,
identified by regulatory information
number ‘‘RIN 2590–AA08,’’ by any of
the following methods:
• U.S. Mail, United Parcel Post,
Federal Express, or Other Mail Service:
The mailing address for comments is:
Alfred M. Pollard, General Counsel, and
Christopher Curtis, General Counsel;
Attention: Comments/RIN 2590–AA08,
Federal Housing Finance Agency,
Fourth Floor, 1700 G Street, NW.,
Washington, DC 20552.
• Hand Delivered/Courier: The hand
delivery address is: Alfred M. Pollard,
General Counsel, and Christopher
Curtis, General Counsel; Attention:
Comments/RIN 2590–AA08, Federal
Housing Finance Agency, Fourth Floor,
1700 G Street, NW., Washington, DC
20552. The package should be logged at
the Guard Desk, First Floor, on business
days between 9 a.m. and 5 p.m.
• E-mail: Comments to Alfred M.
Pollard, General Counsel, and
Christopher Curtis, General Counsel,
may be sent by e-mail at
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Federal Register / Vol. 73, No. 221 / Friday, November 14, 2008 / Proposed Rules
RegComments@FHFA.gov. Please
include ‘‘RIN 2590–AA08’’ in the
subject line of the message.
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
FOR FURTHER INFORMATION CONTACT:
Alfred M. Pollard, General Counsel,
telephone (202) 414–3788; or
Christopher Curtis, General Counsel,
telephone (202) 408–2802 (not toll-free
numbers), Federal Housing Finance
Agency, Fourth Floor, 1700 G Street,
NW., Washington, DC 20552. The
telephone number for the
Telecommunications Device for the Deaf
is (800) 877–8339.
SUPPLEMENTARY INFORMATION:
hsrobinson on PROD1PC76 with PROPOSALS
I. Comments
The FHFA invites comments on all
aspects of the proposed amendment and
will take all comments into
consideration before issuing the final
regulation. The FHFA requests that
comments submitted in hard copy also
be accompanied by the electronic
version in Microsoft Word or in
portable document format (PDF) on 3.5″
disk or CD–ROM.
Copies of all comments will be posted
on the internet Web site at https://
www.FHFA.gov. In addition, copies of
all comments received will be available
for examination by the public on
business days between the hours of 10
a.m. and 3 p.m., at the Federal Housing
Finance Agency, Fourth Floor, 1700 G
Street, NW., Washington, DC 20552. To
make an appointment to inspect
comments, please call the Office of
General Counsel at (202) 414–3751.
II. Background
The Housing and Economic Recovery
Act of 2008 (HERA), Public Law 110–
289, 122 Stat. 2654, amended the
Federal Housing Enterprises Financial
Safety and Soundness Act of 1992 (12
U.S.C. 4501 et seq.) (Act) to establish
FHFA as an independent agency of the
Federal Government.1 FHFA was
established to oversee the prudential
operations of the Federal National
Mortgage Association and the Federal
Home Loan Mortgage Corporation
(collectively, the Enterprises), and the
Federal Home Loan Banks (Banks)
(collectively, the regulated entities), and
to ensure that they operate in a safe and
sound manner including being
capitalized adequately; foster liquid,
efficient, competitive and resilient
national housing finance markets;
comply with the Act and rules,
1 See
Division A, titled the ‘‘Federal Housing
Finance Regulatory Reform Act of 2008,’’ Title I,
Section 1101 of HERA.
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regulation, guidelines and orders issued
under the Act, and the respective
authorizing statutes of the regulated
entities; and carry out their missions
through activities authorized and
consistent with the Act and their
authorizing statutes; and, that the
activities and operations of the
regulated entities are consistent with the
public interest.
III. Proposed Amendment to Interim
Final Regulation
The FHFA published the Interim
Final Regulation on Golden Parachute
and Indemnification Payments in the
Federal Register on September 16, 2008
(73 FR 53356). Subsequently, it
published corrections rescinding that
portion of the regulation that addressed
indemnification payments on
September 19, 2008 (73 FR 54309), and
on September 23, 2008 (73 FR 54673).
Section 1114 of HERA amended 12
U.S.C. 4518 to provide additional
authorities to FHFA in addressing
certain compensation and benefits,
including ‘‘golden parachute’’ and
‘‘indemnification payments’’ as those
terms are defined therein. The proposed
amendment would describe prohibited
and permissible indemnification
payments that a regulated entity may
make to an entity-affiliated party in
connection with administrative
proceedings or civil actions instituted
by FHFA. The provisions of the
proposed amendment addressing
indemnification payments are
substantially similar to the regulation
that limits indemnification by insured
depository institutions to institutionaffiliated parties.
In proposing the amendment, FHFA
recognizes that prior to the enactment of
HERA, the regulated entities may have
entered into indemnification agreements
that provide for indemnification beyond
that which is proposed to be permissible
under 12 U.S.C. 4518(e) and the
proposed amendment. The FHFA
intends that the proposed amendment
would apply to agreements entered into
by a regulated entity with an entityaffiliated party on or after the date the
regulation is effective.
The FHFA is also of the view that the
enactment of section 1114 of HERA
makes clear that Congress has
authorized FHFA to limit or prohibit a
regulated entity from indemnifying an
entity-affiliated party for any civil
money penalty, notwithstanding the
language of 12 U.S.C. 4636(g).
Nevertheless, FHFA is of the view that
it would be in the best interests of the
regulated entities to permit
indemnification of first and second tier
civil money penalties where the
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administrative proceeding or civil
action relates to conduct occurring
while the regulated entity was in
conservatorship. FHFA specifically
requests comments on this point.
Section 1313(f) of the Act, as
amended by section 1201 of HERA,
requires the Director, when
promulgating regulations relating to the
Banks, to consider the differences
between the Banks and the Enterprises
with respect to the Banks’ cooperative
ownership structure; mission of
providing liquidity to members;
affordable housing and community
development mission; capital structure;
and joint and several liability. The
Director may also consider any other
differences that are deemed appropriate.
In preparing the proposed amendment,
the Director considered the differences
between the Banks and the Enterprises
as they relate to the above factors. The
Director requests comments from the
public about whether differences related
to these factors should result in a
revision of the proposed amendment as
it relates to the Banks.
Regulatory Impact
Paperwork Reduction Act
The proposed amendment does not
contain any information collection
requirement that requires the approval
of OMB under the Paperwork Reduction
Act (44 U.S.C. 3501 et seq.).
Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) requires that a
regulation that has a significant
economic impact on a substantial
number of small entities, small
businesses, or small organizations must
include an initial regulatory flexibility
analysis describing the regulation’s
impact on small entities. Such an
analysis need not be undertaken if the
agency has certified that the regulation
will not have a significant economic
impact on a substantial number of small
entities. 5 U.S.C. 605(b). The FHFA has
considered the impact of the proposed
amendment under the Regulatory
Flexibility Act. The FHFA certifies that
the proposed amendment is not likely to
have a significant economic impact on
a substantial number of small business
entities because the regulation is
applicable only to the regulated entities,
which are not small entities for the
purposes of the Regulatory Flexibility
Act.
List of Subjects in 12 CFR Part 1231
Golden Parachutes, Governmentsponsored enterprises, Indemnification.
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Federal Register / Vol. 73, No. 221 / Friday, November 14, 2008 / Proposed Rules
Accordingly, for the reasons stated in
the preamble, under the authority of 12
U.S.C. 4518(e) and 4526, the Federal
Housing Finance Agency proposes to
amend part 1231 of subchapter B of title
12 CFR Chapter XII by making the
following amendments:
Subchapter B—Entity Regulations
PART 1231—GOLDEN PARACHUTE
AND INDEMNIFICATION PAYMENTS
1. The authority citation for part 1231
is revised to read as follows:
Authority: 12 U.S.C. 4518(e); 12 U.S.C.
4526.
2. Section 1231.1 is revised to read as
follows:
§ 1231.1
Purpose and scope.
The purpose of this part is to
implement section 1318(e) of the Act
(12 U.S.C. 4518(e)) by setting forth the
standards that the Director will take into
consideration in determining whether to
limit or prohibit golden parachute
payments and by setting forth
prohibited and permissible
indemnification payments that
regulated entities may make to entityaffiliated parties.
3. Section 1231.2 is amended by:
a. Removing the paragraph
designations before each definition.
b. Removing the reserved paragraphs
(l) through (n).
b. Placing the definition for FHFA in
alphabetical order.
c. Adding the definitions for
‘‘Liability or legal expenses,’’
‘‘Payment’’ and ‘‘Prohibited
indemnification payment’’ in
alphabetical order.
The additions read as follows:
§ 1231.2
Definitions.
hsrobinson on PROD1PC76 with PROPOSALS
*
*
*
*
*
Liability or legal expense means—
(1) Any legal or other professional
expense incurred in connection with
any claim, proceeding, or action;
(2) The amount of, and the cost
incurred in connection with, any
settlement of any claim, proceeding, or
action; and
(3) The amount of, and any cost
incurred in connection with, any
judgment or penalty imposed with
respect to any claim, proceeding, or
action.
*
*
*
*
*
Payment, as set forth in the definition
of the term ‘‘prohibited indemnification
payment,’’ includes—
(1) Any direct or indirect transfer of
any funds or any asset; and
(2) Any segregation of any funds or
assets for the purpose of making, or
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pursuant to an agreement to make, any
payment after the date on which such
funds or assets are segregated, without
regard to whether the obligation to make
such payment is contingent on—
(i) The determination, after such date,
of the liability for the payment of such
amount; or
(ii) The liquidation, after such date, of
the amount of such payment.
Prohibited indemnification payment.
(1) The term prohibited indemnification
payment means any payment (or any
agreement to make any payment) by any
regulated entity for the benefit of any
person who is or was an entity-affiliated
party, to pay or reimburse such person
for any civil money penalty or judgment
resulting from any administrative or
civil action instituted by FHFA, or for
any other liability or legal expense with
regard to any administrative proceeding
or civil action instituted by FHFA that
results in a final order or settlement
pursuant to which such person:
(i) Is assessed a civil money penalty;
(ii) Is removed from office or
prohibited from participating in the
conduct of the affairs of the regulated
entity; or
(iii) Is required to cease and desist
from or take any affirmative action
described in section 1371 of the Act (12
U.S.C. 4631) with respect to the
regulated entity.
(2) Exceptions.
(i) The term prohibited
indemnification payment shall not
include any reasonable payment by a
regulated entity that is used to purchase
any commercial insurance policy or
fidelity bond, provided that such
insurance policy or fidelity bond shall
not be used to pay or reimburse an
entity-affiliated party for the cost of any
judgment or civil money penalty
assessed against such person in an
administrative proceeding or civil
action commenced by FHFA, but may
pay any legal or professional expenses
incurred in connection with such
proceeding or action or the amount of
any restitution to the regulated entity or
receiver.
(ii) The term prohibited
indemnification payment shall not
include any reasonable payment by a
regulated entity that represents partial
indemnification for legal or professional
expenses specifically attributable to
particular charges for which there has
been a formal and final adjudication or
finding in connection with a settlement
that the entity-affiliated party has not
violated certain laws or regulations or
has not engaged in certain unsafe or
unsound practices or breaches of
fiduciary duty, unless the
administrative proceeding or civil
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action has resulted in a final prohibition
order against the entity-affiliated party.
(iii) The term prohibited
indemnification payment shall not
include a payment by a regulated entity
for a civil money penalty under section
1376(b)(1) and (2) of the Act (12 U.S.C.
4636(b)(1) and (2)) where the regulated
entity has been placed in
conservatorship.
4. Section 1231.4 is added to read as
follows:
§ 1231.4
Indemnification payments.
(a) Scope. (1) This section applies
only after an administrative proceeding
or civil action has been instituted by
FHFA through issuance of a notice of
charges under regulations issued by the
Director.
(2) The provisions of this section shall
remain in full force and effect with
respect to a regulated entity that is in
conservatorship.
(b) Prohibited indemnification
payments. No regulated entity shall
make or agree to make any prohibited
indemnification payment, except as
provided in this part.
(c) Permissible indemnification
payments. (1) A regulated entity may
make or agree to make reasonable
indemnification payments to an entityaffiliated party with respect to an
administrative proceeding or civil
action initiated by the FHFA, including
payment for a civil money penalty
pursuant to § 1231.2(l)(2)(iii), if:
(i) The board of directors of the
regulated entity, in good faith,
determines in writing after due
investigation and consideration that the
entity-affiliated party acted in good faith
and in a manner he or she believed to
be in the best interests of the regulated
entity;
(ii) The board of directors of the
regulated entity, in good faith,
determines in writing after due
investigation and consideration that
such payments will not materially
adversely affect the safety and
soundness of the regulated entity;
(iii) The indemnification payments do
not constitute prohibited
indemnification payments as that term
is defined in § 1231.2(l); and
(iv) The entity-affiliated party agrees
in writing to reimburse the regulated
entity, to the extent not covered by
payments from insurance or bonds
purchased pursuant to § 1231.2(l)(2), for
that portion of any advanced
indemnification payments that
subsequently become prohibited
indemnification payments, as defined in
§ 1231.2(l).
(2) An entity-affiliated party
requesting indemnification payments
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Federal Register / Vol. 73, No. 221 / Friday, November 14, 2008 / Proposed Rules
shall not participate in any way in the
board’s discussion and approval of such
payments; provided, however, that such
entity-affiliated party may present his or
her request to the board of directors and
respond to any inquiries from the board
of directors concerning his or her
involvement in the circumstances giving
rise to the administrative proceeding or
civil action.
(3) In the event that a majority of the
members of the board of directors are
named as respondents in an
administrative proceeding or civil
action and request indemnification, the
remaining members of the board may
authorize independent legal counsel to
review the indemnification request and
provide the remaining members of the
board with a written opinion of counsel
as to whether the conditions delineated
in paragraph (c)(1) of this section have
been met. If independent legal counsel
opines that said conditions have been
met, the remaining members of the
board of directors may rely on such
opinion in authorizing the requested
indemnification.
(4) In the event that all of the
members of the board of directors are
named as respondents in an
administrative proceeding or civil
action and request indemnification, the
board shall authorize independent legal
counsel to review the indemnification
request and provide the board with a
written opinion of counsel as to whether
the conditions delineated in paragraph
(c)(1) of this section have been met. If
independent legal counsel opines that
said conditions have been met, the
board of directors may rely on such
opinion in authorizing the requested
indemnification.
5. Section 1231.6 is added to read as
follows:
hsrobinson on PROD1PC76 with PROPOSALS
§ 1231.6 Applicability in the event of
receivership.
The provisions of this part, or any
consent or approval granted under the
provisions of this part by the FHFA,
shall not in any way bind any receiver
of a regulated entity in receivership.
Any consent or approval granted under
the provisions of this part by the FHFA
shall not in any way obligate the FHFA
or receiver to pay any claim or
obligation pursuant to any golden
parachute, severance, indemnification,
or other agreement. Claims for employee
welfare benefits or other benefits which
are contingent, even if otherwise vested,
when a receiver is appointed for any
regulated entity, including any
contingency for termination of
employment, are not provable claims or
actual, direct compensatory damage
claims against such receiver. Nothing in
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this part may be construed to permit the
payment of salary or any liability or
legal expense of an entity-affiliated
party contrary to section 1318(e)(3) of
the Act (12 U.S.C. 4518(e)(3)).
Dated: November 5, 2008.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E8–26831 Filed 11–13–08; 8:45 am]
BILLING CODE 8070–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2008–1131; Directorate
Identifier 2008–NE–37–AD]
RIN 2120–AA64
Airworthiness Directives; Pratt &
Whitney (PW) Models PW2037,
PW2037(M), and PW2040 Turbofan
Engines
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:
SUMMARY: The FAA proposes to adopt a
new airworthiness directive (AD) for
PW models PW2037, PW2037(M), and
PW2040 turbofan engines. This
proposed AD would require inspecting
all high-pressure turbine (HPT) 2nd
stage hubs at the next HPT overhaul
after the effective date of the proposed
AD. The inspections of the hubs include
fluorescent penetrant inspection (FPI)
for cracks and an optical comparator
inspection (OCI) of the blade retention
slots to confirm the hubs are within
dimensional tolerances before returning
them to service. This proposed AD
results from an uncontained release of
HPT 2nd stage blades and blade
retention lugs. We are proposing this
AD to detect cracks and remove
nonconforming HPT 2nd stage hubs,
which could result in an uncontained
release of turbine blades and blade
retention lugs, and damage to the
airplane.
We must receive any comments
on this proposed AD by January 13,
2009.
67427
• Mail: Docket Management Facility,
U.S. Department of Transportation, 1200
New Jersey Avenue, SE., West Building
Ground Floor, Room W12–140,
Washington, DC 20590–0001.
• Hand Delivery: Deliver to Mail
address above between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays.
• Fax: (202) 493–2251.
Contact Pratt & Whitney, 400 Main
Street, East Hartford, CT 06108 for the
service information identified in this
AD.
FOR FURTHER INFORMATION CONTACT:
Mark Riley, Aerospace Engineer, Engine
Certification Office, FAA, Engine and
Propeller Directorate, 12 New England
Executive Park, Burlington, MA 01803;
e-mail: mark.riley@faa.gov; telephone
(781) 238–7758, fax (781) 238–7199.
SUPPLEMENTARY INFORMATION:
Comments Invited
We invite you to send us any written
relevant data, views, or arguments
regarding this proposal. Send your
comments to an address listed under
ADDRESSES. Include ‘‘Docket No. FAA–
2008–1131; Directorate Identifier 2008–
NE–37–AD’’ in the subject line of your
comments. We specifically invite
comments on the overall regulatory,
economic, environmental, and energy
aspects of the proposed AD. We will
consider all comments received by the
closing date and may amend the
proposed AD in light of those
comments.
We will post all comments we
receive, without change, to https://
www.regulations.gov, including any
personal information you provide. We
will also post a report summarizing each
substantive verbal contact with FAA
personnel concerning this proposed AD.
Using the search function of the Web
site, anyone can find and read the
comments in any of our dockets,
including, if provided, the name of the
individual who sent the comment (or
signed the comment on behalf of an
association, business, labor union, etc.).
You may review the DOT’s complete
Privacy Act Statement in the Federal
Register published on April 11, 2000
(65 FR 19477–78).
DATES:
Examining the AD Docket
Use one of the following
addresses to comment on this proposed
AD.
• Federal Rulemaking Portal: Go to
https://www.regulations.gov and follow
the instructions for sending your
comments electronically.
You may examine the AD docket on
the Internet at https://
www.regulations.gov; or in person at the
Docket Operations office between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket
contains this proposed AD, the
regulatory evaluation, any comments
received, and other information. The
ADDRESSES:
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]]>Agencies
[Federal Register Volume 73, Number 221 (Friday, November 14, 2008)]
[Proposed Rules]
[Pages 67424-67427]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-26831]
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1231
RIN 2590-AA08
Golden Parachute and Indemnification Payments
AGENCY: Federal Housing Finance Agency.
ACTION: Proposed amendment.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Agency (FHFA) is proposing to
amend the interim final Golden Parachute Payments regulation published
in the Federal Register on September 16, 2008 (73 FR 53356), and as
corrected on September 19, 2008 (73 FR 54309), and on September 23,
2008 (73 FR 54673). This proposed amendment addresses prohibited and
permissible indemnification payments with regard to any administrative
proceeding brought by the FHFA against an entity-affiliated party of
the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, and the Federal Home Loan Banks in light of the
statutory requirements set forth in 12 U.S.C. 4514(e), as amended by
the Housing and Economic Recovery Act of 2008.
DATES: Written comments on the proposed amendment to the Interim Final
Regulation must be received on or before December 29, 2008. For
additional information, see SUPPLEMENTARY INFORMATION.
ADDRESSES: You may submit your comments on the proposed amendment,
identified by regulatory information number ``RIN 2590-AA08,'' by any
of the following methods:
U.S. Mail, United Parcel Post, Federal Express, or Other
Mail Service: The mailing address for comments is: Alfred M. Pollard,
General Counsel, and Christopher Curtis, General Counsel; Attention:
Comments/RIN 2590-AA08, Federal Housing Finance Agency, Fourth Floor,
1700 G Street, NW., Washington, DC 20552.
Hand Delivered/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel, and Christopher Curtis, General
Counsel; Attention: Comments/RIN 2590-AA08, Federal Housing Finance
Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The
package should be logged at the Guard Desk, First Floor, on business
days between 9 a.m. and 5 p.m.
E-mail: Comments to Alfred M. Pollard, General Counsel,
and Christopher Curtis, General Counsel, may be sent by e-mail at
[[Page 67425]]
RegComments@FHFA.gov. Please include ``RIN 2590-AA08'' in the subject
line of the message.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
FOR FURTHER INFORMATION CONTACT: Alfred M. Pollard, General Counsel,
telephone (202) 414-3788; or Christopher Curtis, General Counsel,
telephone (202) 408-2802 (not toll-free numbers), Federal Housing
Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552.
The telephone number for the Telecommunications Device for the Deaf is
(800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Comments
The FHFA invites comments on all aspects of the proposed amendment
and will take all comments into consideration before issuing the final
regulation. The FHFA requests that comments submitted in hard copy also
be accompanied by the electronic version in Microsoft[supreg] Word or
in portable document format (PDF) on 3.5'' disk or CD-ROM.
Copies of all comments will be posted on the internet Web site at
https://www.FHFA.gov. In addition, copies of all comments received will
be available for examination by the public on business days between the
hours of 10 a.m. and 3 p.m., at the Federal Housing Finance Agency,
Fourth Floor, 1700 G Street, NW., Washington, DC 20552. To make an
appointment to inspect comments, please call the Office of General
Counsel at (202) 414-3751.
II. Background
The Housing and Economic Recovery Act of 2008 (HERA), Public Law
110-289, 122 Stat. 2654, amended the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.)
(Act) to establish FHFA as an independent agency of the Federal
Government.\1\ FHFA was established to oversee the prudential
operations of the Federal National Mortgage Association and the Federal
Home Loan Mortgage Corporation (collectively, the Enterprises), and the
Federal Home Loan Banks (Banks) (collectively, the regulated entities),
and to ensure that they operate in a safe and sound manner including
being capitalized adequately; foster liquid, efficient, competitive and
resilient national housing finance markets; comply with the Act and
rules, regulation, guidelines and orders issued under the Act, and the
respective authorizing statutes of the regulated entities; and carry
out their missions through activities authorized and consistent with
the Act and their authorizing statutes; and, that the activities and
operations of the regulated entities are consistent with the public
interest.
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\1\ See Division A, titled the ``Federal Housing Finance
Regulatory Reform Act of 2008,'' Title I, Section 1101 of HERA.
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III. Proposed Amendment to Interim Final Regulation
The FHFA published the Interim Final Regulation on Golden Parachute
and Indemnification Payments in the Federal Register on September 16,
2008 (73 FR 53356). Subsequently, it published corrections rescinding
that portion of the regulation that addressed indemnification payments
on September 19, 2008 (73 FR 54309), and on September 23, 2008 (73 FR
54673).
Section 1114 of HERA amended 12 U.S.C. 4518 to provide additional
authorities to FHFA in addressing certain compensation and benefits,
including ``golden parachute'' and ``indemnification payments'' as
those terms are defined therein. The proposed amendment would describe
prohibited and permissible indemnification payments that a regulated
entity may make to an entity-affiliated party in connection with
administrative proceedings or civil actions instituted by FHFA. The
provisions of the proposed amendment addressing indemnification
payments are substantially similar to the regulation that limits
indemnification by insured depository institutions to institution-
affiliated parties.
In proposing the amendment, FHFA recognizes that prior to the
enactment of HERA, the regulated entities may have entered into
indemnification agreements that provide for indemnification beyond that
which is proposed to be permissible under 12 U.S.C. 4518(e) and the
proposed amendment. The FHFA intends that the proposed amendment would
apply to agreements entered into by a regulated entity with an entity-
affiliated party on or after the date the regulation is effective.
The FHFA is also of the view that the enactment of section 1114 of
HERA makes clear that Congress has authorized FHFA to limit or prohibit
a regulated entity from indemnifying an entity-affiliated party for any
civil money penalty, notwithstanding the language of 12 U.S.C. 4636(g).
Nevertheless, FHFA is of the view that it would be in the best
interests of the regulated entities to permit indemnification of first
and second tier civil money penalties where the administrative
proceeding or civil action relates to conduct occurring while the
regulated entity was in conservatorship. FHFA specifically requests
comments on this point.
Section 1313(f) of the Act, as amended by section 1201 of HERA,
requires the Director, when promulgating regulations relating to the
Banks, to consider the differences between the Banks and the
Enterprises with respect to the Banks' cooperative ownership structure;
mission of providing liquidity to members; affordable housing and
community development mission; capital structure; and joint and several
liability. The Director may also consider any other differences that
are deemed appropriate. In preparing the proposed amendment, the
Director considered the differences between the Banks and the
Enterprises as they relate to the above factors. The Director requests
comments from the public about whether differences related to these
factors should result in a revision of the proposed amendment as it
relates to the Banks.
Regulatory Impact
Paperwork Reduction Act
The proposed amendment does not contain any information collection
requirement that requires the approval of OMB under the Paperwork
Reduction Act (44 U.S.C. 3501 et seq.).
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that
a regulation that has a significant economic impact on a substantial
number of small entities, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's impact on small entities. Such an analysis need not be
undertaken if the agency has certified that the regulation will not
have a significant economic impact on a substantial number of small
entities. 5 U.S.C. 605(b). The FHFA has considered the impact of the
proposed amendment under the Regulatory Flexibility Act. The FHFA
certifies that the proposed amendment is not likely to have a
significant economic impact on a substantial number of small business
entities because the regulation is applicable only to the regulated
entities, which are not small entities for the purposes of the
Regulatory Flexibility Act.
List of Subjects in 12 CFR Part 1231
Golden Parachutes, Government-sponsored enterprises,
Indemnification.
[[Page 67426]]
Accordingly, for the reasons stated in the preamble, under the
authority of 12 U.S.C. 4518(e) and 4526, the Federal Housing Finance
Agency proposes to amend part 1231 of subchapter B of title 12 CFR
Chapter XII by making the following amendments:
Subchapter B--Entity Regulations
PART 1231--GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS
1. The authority citation for part 1231 is revised to read as
follows:
Authority: 12 U.S.C. 4518(e); 12 U.S.C. 4526.
2. Section 1231.1 is revised to read as follows:
Sec. 1231.1 Purpose and scope.
The purpose of this part is to implement section 1318(e) of the Act
(12 U.S.C. 4518(e)) by setting forth the standards that the Director
will take into consideration in determining whether to limit or
prohibit golden parachute payments and by setting forth prohibited and
permissible indemnification payments that regulated entities may make
to entity-affiliated parties.
3. Section 1231.2 is amended by:
a. Removing the paragraph designations before each definition.
b. Removing the reserved paragraphs (l) through (n).
b. Placing the definition for FHFA in alphabetical order.
c. Adding the definitions for ``Liability or legal expenses,''
``Payment'' and ``Prohibited indemnification payment'' in alphabetical
order.
The additions read as follows:
Sec. 1231.2 Definitions.
* * * * *
Liability or legal expense means--
(1) Any legal or other professional expense incurred in connection
with any claim, proceeding, or action;
(2) The amount of, and the cost incurred in connection with, any
settlement of any claim, proceeding, or action; and
(3) The amount of, and any cost incurred in connection with, any
judgment or penalty imposed with respect to any claim, proceeding, or
action.
* * * * *
Payment, as set forth in the definition of the term ``prohibited
indemnification payment,'' includes--
(1) Any direct or indirect transfer of any funds or any asset; and
(2) Any segregation of any funds or assets for the purpose of
making, or pursuant to an agreement to make, any payment after the date
on which such funds or assets are segregated, without regard to whether
the obligation to make such payment is contingent on--
(i) The determination, after such date, of the liability for the
payment of such amount; or
(ii) The liquidation, after such date, of the amount of such
payment.
Prohibited indemnification payment. (1) The term prohibited
indemnification payment means any payment (or any agreement to make any
payment) by any regulated entity for the benefit of any person who is
or was an entity-affiliated party, to pay or reimburse such person for
any civil money penalty or judgment resulting from any administrative
or civil action instituted by FHFA, or for any other liability or legal
expense with regard to any administrative proceeding or civil action
instituted by FHFA that results in a final order or settlement pursuant
to which such person:
(i) Is assessed a civil money penalty;
(ii) Is removed from office or prohibited from participating in the
conduct of the affairs of the regulated entity; or
(iii) Is required to cease and desist from or take any affirmative
action described in section 1371 of the Act (12 U.S.C. 4631) with
respect to the regulated entity.
(2) Exceptions.
(i) The term prohibited indemnification payment shall not include
any reasonable payment by a regulated entity that is used to purchase
any commercial insurance policy or fidelity bond, provided that such
insurance policy or fidelity bond shall not be used to pay or reimburse
an entity-affiliated party for the cost of any judgment or civil money
penalty assessed against such person in an administrative proceeding or
civil action commenced by FHFA, but may pay any legal or professional
expenses incurred in connection with such proceeding or action or the
amount of any restitution to the regulated entity or receiver.
(ii) The term prohibited indemnification payment shall not include
any reasonable payment by a regulated entity that represents partial
indemnification for legal or professional expenses specifically
attributable to particular charges for which there has been a formal
and final adjudication or finding in connection with a settlement that
the entity-affiliated party has not violated certain laws or
regulations or has not engaged in certain unsafe or unsound practices
or breaches of fiduciary duty, unless the administrative proceeding or
civil action has resulted in a final prohibition order against the
entity-affiliated party.
(iii) The term prohibited indemnification payment shall not include
a payment by a regulated entity for a civil money penalty under section
1376(b)(1) and (2) of the Act (12 U.S.C. 4636(b)(1) and (2)) where the
regulated entity has been placed in conservatorship.
4. Section 1231.4 is added to read as follows:
Sec. 1231.4 Indemnification payments.
(a) Scope. (1) This section applies only after an administrative
proceeding or civil action has been instituted by FHFA through issuance
of a notice of charges under regulations issued by the Director.
(2) The provisions of this section shall remain in full force and
effect with respect to a regulated entity that is in conservatorship.
(b) Prohibited indemnification payments. No regulated entity shall
make or agree to make any prohibited indemnification payment, except as
provided in this part.
(c) Permissible indemnification payments. (1) A regulated entity
may make or agree to make reasonable indemnification payments to an
entity-affiliated party with respect to an administrative proceeding or
civil action initiated by the FHFA, including payment for a civil money
penalty pursuant to Sec. 1231.2(l)(2)(iii), if:
(i) The board of directors of the regulated entity, in good faith,
determines in writing after due investigation and consideration that
the entity-affiliated party acted in good faith and in a manner he or
she believed to be in the best interests of the regulated entity;
(ii) The board of directors of the regulated entity, in good faith,
determines in writing after due investigation and consideration that
such payments will not materially adversely affect the safety and
soundness of the regulated entity;
(iii) The indemnification payments do not constitute prohibited
indemnification payments as that term is defined in Sec. 1231.2(l);
and
(iv) The entity-affiliated party agrees in writing to reimburse the
regulated entity, to the extent not covered by payments from insurance
or bonds purchased pursuant to Sec. 1231.2(l)(2), for that portion of
any advanced indemnification payments that subsequently become
prohibited indemnification payments, as defined in Sec. 1231.2(l).
(2) An entity-affiliated party requesting indemnification payments
[[Page 67427]]
shall not participate in any way in the board's discussion and approval
of such payments; provided, however, that such entity-affiliated party
may present his or her request to the board of directors and respond to
any inquiries from the board of directors concerning his or her
involvement in the circumstances giving rise to the administrative
proceeding or civil action.
(3) In the event that a majority of the members of the board of
directors are named as respondents in an administrative proceeding or
civil action and request indemnification, the remaining members of the
board may authorize independent legal counsel to review the
indemnification request and provide the remaining members of the board
with a written opinion of counsel as to whether the conditions
delineated in paragraph (c)(1) of this section have been met. If
independent legal counsel opines that said conditions have been met,
the remaining members of the board of directors may rely on such
opinion in authorizing the requested indemnification.
(4) In the event that all of the members of the board of directors
are named as respondents in an administrative proceeding or civil
action and request indemnification, the board shall authorize
independent legal counsel to review the indemnification request and
provide the board with a written opinion of counsel as to whether the
conditions delineated in paragraph (c)(1) of this section have been
met. If independent legal counsel opines that said conditions have been
met, the board of directors may rely on such opinion in authorizing the
requested indemnification.
5. Section 1231.6 is added to read as follows:
Sec. 1231.6 Applicability in the event of receivership.
The provisions of this part, or any consent or approval granted
under the provisions of this part by the FHFA, shall not in any way
bind any receiver of a regulated entity in receivership. Any consent or
approval granted under the provisions of this part by the FHFA shall
not in any way obligate the FHFA or receiver to pay any claim or
obligation pursuant to any golden parachute, severance,
indemnification, or other agreement. Claims for employee welfare
benefits or other benefits which are contingent, even if otherwise
vested, when a receiver is appointed for any regulated entity,
including any contingency for termination of employment, are not
provable claims or actual, direct compensatory damage claims against
such receiver. Nothing in this part may be construed to permit the
payment of salary or any liability or legal expense of an entity-
affiliated party contrary to section 1318(e)(3) of the Act (12 U.S.C.
4518(e)(3)).
Dated: November 5, 2008.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E8-26831 Filed 11-13-08; 8:45 am]
BILLING CODE 8070-01-P
