Golden Parachute and Indemnification Payments, 30975-30981 [E9-15329]
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30975
Proposed Rules
Federal Register
Vol. 74, No. 123
Monday, June 29, 2009
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
FEDERAL HOUSING FINANCE
AGENCY
12 CFR Part 1231
RIN 2590–AA08
Golden Parachute and Indemnification
Payments
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AGENCY: Federal Housing Finance
Agency.
ACTION: Proposed rule.
SUMMARY: The Federal Housing Finance
Agency (FHFA) is proposing an
amendment to the final Golden
Parachute Payments regulation that was
published in the Federal Register on
January 29, 2009. This proposed
amendment addresses prohibited and
permissible golden parachute payments
to entity-affiliated parties in connection
with the Federal National Mortgage
Association, the Federal Home Loan
Mortgage Corporation, and the Federal
Home Loan Banks (regulated entities) as
well as the Office of Finance. It also sets
forth prohibited and permissible
indemnification payments that
regulated entities and the Office of
Finance may make to an entity-affiliated
party in connection with administrative
proceedings or civil actions instituted
by FHFA.
DATES: Written comments on the
proposed amendment must be received
on or before July 29, 2009. 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 Service,
Federal Express, or Other Mail Service:
The mailing address for comments is:
Alfred M. Pollard, 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,
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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, may be sent
by e-mail at 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. If
you submit your comment to the
Federal eRulemaking Portal, please also
send it by e-mail to FHFA at
RegComments@fhfa.gov to ensure
timely receipt by the agency. Please
include ‘‘RIN 2590–AA08’’ in the
subject line of the message.
FOR FURTHER INFORMATION CONTACT:
Alfred M. Pollard, General Counsel,
(202) 414–3788 (not a toll free number).
The telephone number for the
Telecommunications Device for the Deaf
is (800) 877–8339.
SUPPLEMENTARY INFORMATION:
I. Comments
FHFA invites comments on all aspects
of the proposed amendment and will
take all comments into consideration
before issuing the final regulation.
FHFA previously requested comments
on a proposed amendment, addressing
indemnification payments, to the
Golden Parachute Payments regulation
that was published on November 14,
2008 (73 FR 67424). Comments received
in response to the November 14, 2008
publication will be considered along
with comments received in response to
this amendment.
Copies of all comments will be posted
without change, including any personal
information you provide, such as your
name and address, on the FHFA 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.
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II. Background
A. General 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.) (Safety and
Soundness 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,
the Federal Home Loan Mortgage
Corporation (collectively, Enterprises),
and the Federal Home Loan Banks
(FHLBanks) (collectively, 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 Safety and
Soundness Act and rules, regulation,
guidelines, and orders issued under the
Safety and Soundness Act, and their
respective authorizing statutes; and
carry out their missions through
activities authorized and consistent
with the Safety and Soundness Act and
their authorizing statutes; and, that the
activities and operations of the
regulated entities are consistent with the
public interest. FHFA also has
regulatory authority over the Office of
Finance of the Federal Home Loan Bank
System.
The Office of Federal Housing
Enterprise Oversight (OFHEO) and the
Federal Housing Finance Board (FHFB)
will be abolished one year after
enactment of HERA. However, the
regulated entities continue to operate
under regulations promulgated by
OFHEO and FHFB until such
regulations are superseded by
regulations promulgated by FHFA.
B. Rulemaking Background
Section 1114 of HERA amended
section 1318(e) of the Safety and
Soundness Act (12 U.S.C. 4518(e)) to
provide explicit authorities to FHFA in
addressing golden parachute payments
and indemnification payments. FHFA
published the interim final regulation
on Golden Parachute and
Indemnification Payments in the
1 See Division A, titled the ‘‘Federal Housing
Finance Regulatory Reform Act of 2008,’’ Title I,
Section 1101 of HERA.
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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).
On November 14, 2008 (73 FR 67424),
FHFA published a proposed
amendment to the interim final
regulation in the Federal Register,
which addressed indemnification
payments. The public notice and
comment period closed on December
29, 2008. On January 29, 2009 (74 FR
5101), FHFA published the final
regulation on Golden Parachute
Payments.
FHFA is proposing an amendment to
the final Golden Parachute Payments
regulation that would address in more
detail prohibited and permissible
golden parachute payments. FHFA
believes it is useful to provide an
opportunity to the public to read and
comment on both the proposed golden
parachute payments and
indemnification payments amendments
in context. Therefore, this proposed
amendment also contains a re-proposal
of the indemnification payments
amendment that was first proposed on
November 14, 2008.
III. Office of Finance
Section 1114 of HERA amended
section 1318(e) of the Safety and
Soundness Act (12 U.S.C. 4518(e)) by
providing FHFA with additional
authorities in addressing golden
parachute and indemnification
payments made by the regulated
entities. The Office of Finance is a joint
office of the FHLBanks that was
established by a predecessor to FHFA.
The Office of Finance is governed by a
three-person board of directors
consisting of two FHLBank presidents
and one independent member. Under
the regulations of FHFB, the Office of
Finance is subject to the same regulatory
oversight authority and enforcement
powers as are the FHLBanks and their
respective directors, officers, and
employees.2 The Office of Finance also
is subject to the cease-and-desist
authority of FHFA, and its directors,
officers and management are subject to
the removal and prohibition authority of
FHFA.3 Although the Office of Finance
is not directly covered by section
1318(e), it is subject to the Director’s
‘‘general regulatory authority’’ under
section 1311(b)(2) of the Safety and
Soundness Act (12 U.S.C. 4511(b)(2)), as
amended by HERA. The Director is
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3 12
CFR 985.4 and 985.7.
U.S.C.4631(a) and 4636a(a).
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required to exercise that authority as
necessary to ensure that the purposes of
the Safety and Soundness Act, the
authorizing statutes, and other
applicable law are carried out.
Because of the unique nature of the
Office of Finance and the
interrelationship between it and the
FHLBanks, FHFA believes that the
purposes underlying the limitations on
golden parachute and indemnification
payments can best be carried out if the
limitations are consistent between the
FHLBanks and the Office of Finance,
their joint office. Therefore, based on its
general regulatory authority over the
Office of Finance, FHFA is proposing
that the amendment would apply to the
Office of Finance.
IV. Golden Parachute Payments
FHFA published a final regulation,
Golden Parachute Payments in the
Federal Register on January 29, 2009
(74 FR 5101). The final Golden
Parachute Payments regulation
addressed public comment on factors
the Director would consider in acting on
golden parachute payments. As stated in
the preamble of the final regulation,
comments received that addressed other
elements of a golden parachute
regulation would be considered by
FHFA in subsequent rulemaking for
public comment. Specifically, in
response to comments received, it was
stated that FHFA would consider
adding provisions similar to those of the
Federal Deposit Insurance Corporation
(FDIC) golden parachute regulation in
the subsequent rulemaking. The FDIC
regulation describes more specifically
benefits included or excluded from the
term ‘‘golden parachute payment.’’
Thus, the provisions of the proposed
amendment addressing golden
parachute payments are substantially
similar to the FDIC regulation that limits
golden parachute payments by insured
depository institutions to institutionaffiliated parties.4
The proposed amendment would
describe prohibited and permissible
golden parachute payments that a
regulated entity or the Office of Finance
may make to an entity-affiliated party.
The term ‘‘entity-affiliated party’’ is
statutorily defined under the Safety and
Soundness Act to include any ‘‘officer’’
of the regulated entity.5 The term
‘‘officer’’ for purposes of the Director’s
oversight of golden parachute payments
has broader coverage than the term
‘‘executive officer’’ as defined in section
4502(12) of the Safety and Soundness
Act (12 U.S.C. 4502(12)) with respect to
V. Indemnification Payments
The proposed amendment would
describe prohibited and permissible
indemnification payments that a
regulated entity and the Office of
Finance 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 FDIC
regulation that limits indemnification
by insured depository institutions to
institution-affiliated parties.6
The proposed amendment is
substantially similar to the proposed
amendment addressing indemnification
payments published in the Federal
Register on November 14, 2008 (73 FR
67424). FHFA received seven comment
letters and will consider those comment
letters with comments received in
response to this proposed rulemaking.
In proposing the amendment, FHFA
recognizes that prior to the enactment of
HERA, the regulated entities or the
Office of Finance may have entered into
indemnification agreements that
provide for indemnification beyond that
which is proposed to be permissible
under section 1318(e) of the Safety and
Soundness Act (12 U.S.C. 4518(e)) and
the proposed amendment. FHFA
intends that the proposed amendment
would apply to agreements entered into
by a regulated entity or the Office of
Finance with an entity-affiliated party
on or after the date the regulation is
effective.
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 or the Office of Finance
from indemnifying an entity-affiliated
4 The
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FDIC regulation is found at 12 CFR part 359.
U.S.C. 4502(11).
the Director’s authority to prohibit and
withhold executive compensation under
section 1318(a) of the Safety and
Soundness Act (12 U.S.C. 4518(a)).
In proposing the amendment, FHFA
recognizes that prior to the enactment of
HERA, the regulated entities or the
Office of Finance may have entered into
agreements that provide for golden
parachute payments beyond that which
is proposed to be permissible under
section 1318(e) of the Safety and
Soundness Act (12 U.S.C. 4518(e)) and
the proposed amendment. FHFA
intends that the proposed amendment
would apply to agreements entered into
by a regulated entity or the Office of
Finance with an entity-affiliated party
on or after the date the regulation is
effective.
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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.
VI. Differences Between FHLBanks and
Enterprises
Section 1313(f) of the Safety and
Soundness Act (12 U.S.C. 4513(f)), as
amended by section 1201 of HERA,
requires the Director, when
promulgating regulations relating to the
FHLBanks, to consider the differences
between the FHLBanks and the
Enterprises with respect to the
FHLBanks’ 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 FHLBanks 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
FHLBanks.
Regulatory Impact
Paperwork Reduction Act
The proposed amendment does not
contain any information collection
requirement that requires the approval
of the Office of Management and Budget
under the Paperwork Reduction Act (44
U.S.C. 3501 et seq.).
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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). FHFA has
considered the impact of the proposed
amendment under the Regulatory
Flexibility Act. FHFA certifies that the
proposed amendment is not likely to
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have a significant economic impact on
a substantial number of small business
entities because the proposed
amendment 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.
Accordingly, for reasons stated in the
preamble, under the authority of 12
U.S.C. 4518(e) and 4526, FHFA
proposes to amend part 1231 of
subchapter B of title 12 CFR Chapter XII
as follows:
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. The heading to part 1231 is revised
to read as set forth above.
3. Section 1231.1 is revised to read as
follows:
§ 1231.1
Purpose.
The purpose of this part is to
implement section 1318(e) of the Safety
and Soundness 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 and the Office of
Finance may make to entity-affiliated
parties.
4. Section 1231.2 is amended by:
a. Removing the paragraph
designations before each definition and
arranging definitions in alphabetical
order.
b. Removing the reserved paragraphs
(l) through (n).
c. Removing the definition for the
term ‘‘Act.’’
d. Adding definitions for the terms
‘‘Benefit plan,’’ ‘‘Bona fide deferred
compensation plan or arrangement,’’
‘‘Liability or legal expense,’’
‘‘Nondiscriminatory,’’ ‘‘Payment,’’
‘‘Prohibited indemnification payment,’’
and ‘‘Safety and Soundness Act’’ in
alphabetical order.
e. Revising the definition for the terms
‘‘Entity-affiliated party,’’ ‘‘Golden
parachute payment,’’ and ‘‘Troubled
condition.’’
The additions and revisions read as
follows:
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§ 1231.2
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Definitions.
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Benefit plan means any plan, contract,
agreement, or other arrangement which
is an ‘‘employee welfare benefit plan’’ as
that term is defined in section 3(1) of
the Employee Retirement Income
Security Act of 1974, as amended (29
U.S.C. 1002(1)), or other usual and
customary plans such as dependent
care, tuition reimbursement, group legal
services or cafeteria plans; provided
however, that such term shall not
include any plan intended to be subject
to paragraphs (2)(iii) and (v) of the term
golden parachute payment as defined in
this section.
Bona fide deferred compensation plan
or arrangement means any plan,
contract, agreement or other
arrangement whereby:
(1) An entity-affiliated party
voluntarily elects to defer all or a
portion of the reasonable compensation,
wages or fees paid for services rendered
which otherwise would have been paid
to such party at the time the services
were rendered (including a plan that
provides for the crediting of a
reasonable investment return on such
elective deferrals) and the regulated
entity or the Office of Finance either:
(i) Recognizes compensation expense
and accrues a liability for the benefit
payments according to generally
accepted accounting principles (GAAP);
or
(ii) Segregates or otherwise sets aside
assets in a trust which may only be used
to pay plan and other benefits, except
that the assets of such trust may be
available to satisfy claims of creditors of
the regulated entities or the Office of
Finance in the case of insolvency; or
(2) A regulated entity or the Office of
Finance establishes a nonqualified
deferred compensation or supplemental
retirement plan, other than an elective
deferral plan described in paragraph (1)
of this definition:
(i) Primarily for the purpose of
providing benefits for certain entityaffiliated parties in excess of the
limitations on contributions and
benefits imposed by sections 401(a)(17),
402(g), 415, or any other applicable
provision of the Internal Revenue Code
of 1986 (26 U.S.C. 401(a)(17), 402(g),
415); or
(ii) Primarily for the purpose of
providing supplemental retirement
benefits or other deferred compensation
for a select group of directors,
management or highly compensated
employees (excluding severance
payments described in paragraph (2)(v)
of the term golden parachute payment
as defined in this section and
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permissible golden parachute payments
described in § 1231.3(b); and
(3) In the case of any nonqualified
deferred compensation or supplemental
retirement plans as described in
paragraphs (1) and (2) of this definition,
the following requirements shall apply:
(i) The plan was in effect at least one
year prior to any of the events described
in paragraph (1)(ii) of the term golden
parachute payment as defined in this
section;
(ii) Any payment made pursuant to
such plan is made in accordance with
the terms of the plan as in effect no later
than one year prior to any of the events
described in paragraph (1)(ii) of the term
golden parachute payment as defined in
this section and in accordance with any
amendments to such plan during such
one-year period that do not increase the
benefits payable thereunder;
(iii) The entity-affiliated party has a
vested right, as defined under the
applicable plan document, at the time of
termination of employment to payments
under such plan;
(iv) Benefits under such plan are
accrued each period only for current or
prior service rendered to the employer
(except that an allowance may be made
for service with a predecessor
employer);
(v) Any payment made pursuant to
such plan is not based on any
discretionary acceleration of vesting or
accrual of benefits which occurs at any
time later than one year prior to any of
the events described in paragraph (1)(ii)
of the term golden parachute payment
as defined in this section;
(vi) The regulated entity or the Office
of Finance has previously recognized
compensation expense and accrued a
liability for the benefit payments
according to GAAP or segregated or
otherwise set aside assets in a trust
which may only be used to pay plan
benefits, except that the assets of such
trust may be available to satisfy claims
of the regulated entity’s creditors in the
case of insolvency; and
(vii) Payments pursuant to such plans
shall not be in excess of the accrued
liability computed in accordance with
GAAP.
*
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Entity-affiliated party means:
(1) With respect to the Office of
Finance, any director, officer, or
management of the Office of Finance;
and
(2) With respect to a regulated entity:
(i) Any director, officer, employee, or
controlling stockholder of, or agent for,
a regulated entity;
(ii) Any shareholder, affiliate,
consultant, or joint venture partner of a
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regulated entity, and any other person,
as determined by the Director (by
regulation or on a case-by-case basis)
that participates in the conduct of the
affairs of a regulated entity, provided
that a member of a Federal Home Loan
Bank shall not be deemed to have
participated in the affairs of that Federal
Home Loan Bank solely by virtue of
being a shareholder of, and obtaining
advances from, that Federal Home Loan
Bank;
(iii) Any independent contractor for a
regulated entity (including any attorney,
appraiser, or accountant), if:
(A) The independent contractor
knowingly or recklessly participates in
any violation of any law or regulation,
any breach of fiduciary duty, or any
unsafe or unsound practice; and
(B) Such violation, breach, or practice
caused, or is likely to cause, more than
a minimal financial loss to, or a
significant adverse effect on, the
regulated entity;
(iv) Any not-for-profit corporation
that receives its principal funding, on an
ongoing basis, from any regulated entity;
and
(v) The Office of Finance.
*
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Golden parachute payment means:
(1) Any payment (or any agreement to
make any payment) in the nature of
compensation by any regulated entity or
the Office of Finance for the benefit of
any current or former entity-affiliated
party pursuant to an obligation of such
regulated entity or the Office of Finance
that:
(i) Is contingent on, or by its terms is
payable on or after, the termination of
such party’s primary employment or
affiliation with the regulated entity or
the Office of Finance; and
(ii) Is received on or after, or is made
in contemplation of, any of the
following events:
(A) The insolvency (or similar event)
of the regulated entity which is making
the payment;
(B) The appointment of any
conservator or receiver for such
regulated entity; or
(C) A determination by FHFA that the
regulated entity is in a troubled
condition; or
(D) The Enterprise is assigned a
composite rating of ‘‘Significant
Concerns’’ or ‘‘Critical Concerns’’ by
FHFA, or the Federal Home Loan Bank
or the Office of Finance is assigned a
composite rating of 3 or 4 by FHFA.
(2) Exceptions. The term golden
parachute payment shall not include:
(i) Any payment made pursuant to a
pension or retirement plan which is
qualified (or is intended within a
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reasonable period of time to be
qualified) under section 401 of the
Internal Revenue Code of 1986 (26
U.S.C. 401) or pursuant to a pension or
other retirement plan which is governed
by the laws of any foreign country;
(ii) Any payment made pursuant to a
‘‘benefit plan’’ as that term is defined in
this section;
(iii) Any payment made pursuant to a
bona fide deferred compensation plan or
arrangement as that term is defined in
this section;
(iv) Any payment made by reason of
death or by reason of termination
caused by the disability of an entityaffiliated party; or
(v) Any payment made pursuant to a
nondiscriminatory severance pay plan
or arrangement which provides for
payment of severance benefits to all
eligible employees upon involuntary
termination other than for cause,
voluntary resignation, or early
retirement; provided, however, that no
employee shall receive any such
payment which exceeds the base
compensation paid to such employee
during the 12 months (or such longer
period or greater benefit as the Director
shall consent to) immediately preceding
termination of employment, resignation,
or early retirement, and such severance
pay plan or arrangement shall not have
been adopted or modified to increase
the amount or scope of severance
benefits at a time when the regulated
entity or the Office of Finance is in a
condition specified in paragraph (1)(ii)
of the term golden parachute payment
as defined in this section or in
contemplation of such a condition
without the prior written consent of the
Director; or
(vi) Any severance or similar payment
which is required to be made pursuant
to a State statute or foreign law which
is applicable to all employers within the
appropriate jurisdiction (with the
exception of employers that may be
exempt due to their small number of
employees or other similar criteria); or
(vii) Any other payment which the
director determined to be permissible in
accordance with § 1231.3(b).
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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
actions; 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.
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Nondiscriminatory means that the
plan, contract, or arrangement in
question applies to all employees of a
regulated entity or the Office of Finance
who meet reasonable and customary
eligibility requirements applicable to all
employees, such as minimum length of
service requirements. A
nondiscriminatory plan, contract, or
arrangement may provide different
benefits based only on objective criteria
such as salary, total compensation,
length of service, job grade, or
classification, which are applied on a
proportionate basis (with a variance in
severance benefits relating to any
criterion of plus or minus ten percent)
to groups of employees consisting of not
less than the lesser of 33 percent of
employees or 1,000 employees.
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Payment means:
(1) Any direct or indirect transfer of
any funds or any asset;
(2) Any forgiveness of any debt or
other obligation;
(3) The conferring of any benefit,
including but not limited to stock
options and stock appreciation rights;
and
(4) Any segregation of any funds or
assets, the establishment or funding of
any trust or the purchase of or
arrangement for any letter of credit or
other instrument, for the purpose of
making, or pursuant to any agreement to
make, any payment on or after the date
on which such funds or assets are
segregated, or at the time of or after such
trust is established or letter of credit or
other instrument is made available,
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
means:
(1) Any payment (or any agreement to
make any payment) by any regulated
entity or the Office of Finance for the
benefit of any current or former entityaffiliated 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 such
administrative proceeding or civil
action 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 the Office of Finance; or
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15:27 Jun 26, 2009
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(iii) Is required to cease-and-desist
from or take any affirmative action
described in section 1371 of the Safety
and Soundness 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 or the Office of Finance
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
the receiver or to the Office of Finance.
(ii) The term prohibited
indemnification payment shall not
include any reasonable payment by a
regulated entity or the Office of Finance
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, 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 entityaffiliated party under section 1377 of
the Safety and Soundness Act (12 U.S.C.
4636a).
(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 Safety and
Soundness Act (12 U.S.C. 4636(b)(1)
and (2)) where the regulated entity has
been placed in conservatorship.
*
*
*
*
*
Safety and Soundness Act means the
Federal Housing Enterprises Financial
Safety and Soundness Act of 1992 (12
U.S.C. 4501 et seq.), as amended.
Troubled condition means a regulated
entity that:
(1) Is subject to a cease-and-desist
order or written agreement issued by
FHFA that requires action to improve
the financial condition of the regulated
entity or is subject to a proceeding
initiated by the Director, which
contemplates the issuance of an order
that requires action to improve the
financial condition of the regulated
entity, unless otherwise informed in
writing by FHFA; or
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30979
(2) Is informed in writing by the
Director that it is in a troubled condition
for purposes of the requirements of this
part on the basis of the most recent
report of examination or other
information available to FHFA.
5. Section 1231.3 is added to read as
follows:
§ 1231.3
Golden parachute payments.
(a) Prohibited golden parachute
payments. No regulated entity or the
Office of Finance shall make or agree to
make any prohibited golden parachute
payment, except as provided in this
part.
(b) Permissible golden parachute
payments. (1) A regulated entity or the
Office of Finance may agree to make or
may make a golden parachute payment
if and to the extent that:
(i) The Director determines that such
a payment or agreement is permissible;
or
(ii) Such an agreement is made in
order to hire a person to become an
entity-affiliated party either at a time
when the regulated entity or the Office
of Finance satisfies or in an effort to
prevent it from imminently satisfying
any of the criteria set forth in paragraph
(1)(ii) of the term golden parachute
payment as defined in § 1231.2, and the
Director consents in writing to the
amount and terms of the golden
parachute payment. Such consent by the
Director shall not improve the entityaffiliated party’s position in the event of
the insolvency of the regulated entity
since such consent can neither bind a
receiver nor affect the provability of
receivership claims; or
(iii) Such a payment is made pursuant
to an agreement which provides for a
reasonable severance payment, not to
exceed 12 months salary, to an entityaffiliated party in the event of a change
in control of the regulated entity;
provided, however, that a regulated
entity shall obtain the consent of the
Director prior to making such a payment
and this paragraph (b)(1)(iii) shall not
apply to the regulated entity being
placed into conservatorship or
receivership; and
(iv) A regulated entity or the Office of
Finance making a request pursuant to
paragraphs (b)(1)(i) through (iii) of this
section shall demonstrate that it does
not possess and is not aware of any
information, evidence, documents, or
other materials that would indicate that
there is a reasonable basis to believe, at
the time such payment is proposed to be
made, that:
(A) The entity-affiliated party has
committed any fraudulent act or
omission, breach of trust or fiduciary
duty, or insider abuse with regard to the
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regulated entity or the Office of Finance
that is likely to have a material adverse
effect on the regulated entity or the
Office of Finance;
(B) The entity-affiliated party is
substantially responsible for the
insolvency of, the appointment of a
conservator or receiver for, or the
troubled condition of the regulated
entity;
(C) The entity-affiliated party has
materially violated any applicable
Federal or State law or regulation that
has had or is likely to have a material
effect on the regulated entity or the
Office of Finance; and
(D) The entity-affiliated party has
violated or conspired to violate section
215, 657, 1006, 1014, or 1344 of title 18
of the United States Code, or section
1341 or 1343 of such title affecting a
‘‘financial institution’’ as the term is
defined in title 18 of the United States
Code (18 U.S.C. 20).
(2) In making a determination under
paragraphs (b)(1)(i) through (iii) of this
section, the Director may consider:
(i) Whether, and to what degree, the
entity-affiliated party was in a position
of managerial or fiduciary
responsibility;
(ii) The length of time the entityaffiliated party was affiliated with the
regulated entity or the Office of Finance,
and the degree to which the proposed
payment represents a reasonable
payment for services rendered over the
period of employment; and
(iii) Any other factor the Director
determines relevant to the facts and
circumstances surrounding the golden
parachute payment, including any
fraudulent act or omission, breach of
fiduciary duty, violation of law, rule,
regulation order or written agreement,
and the level of willful misconduct,
breach of fiduciary duty, and
malfeasance on the part of the entityaffiliated party.
6. Section 1231.4 is added to read as
follows:
cprice-sewell on PRODPC61 with PROPOSALS
§ 1231.4
Indemnification payments.
(a) Scope. (1) This section applies
only after an administrative proceeding
or civil action has been instituted by
FHFA.
(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 or the
Office of Finance shall make or agree to
make any prohibited indemnification
payment, except as provided in this
part.
(c) Permissible indemnification
payments. (1) A regulated entity or the
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15:27 Jun 26, 2009
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Office of Finance 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
FHFA, including payment for a civil
money penalty pursuant to paragraph
(2)(iii) of the definition of the term
prohibited indemnification payment in
§ 1231.2 if:
(i) The board of directors of the
regulated entity or the Office of Finance,
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
reasonably believed to be in the best
interests of the regulated entity.
(ii) The board of directors of the
regulated entity or the Office of Finance,
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 or the
Office of Finance;
(iii) The indemnification payments do
not constitute ‘‘prohibited
indemnification payments’’ as that term
is defined in § 1231.2; and
(iv) The entity-affiliated party agrees
in writing to reimburse the regulated
entity or the Office of Finance, to the
extent not covered by payments from
insurance or bonds purchased pursuant
to paragraph (2)(i) of the definition of
the term prohibited indemnification
payment in § 1231.2, for that portion of
any advanced indemnification
payments that subsequently become
‘‘prohibited indemnification payments,’’
as such term is defined in § 1231.2.
(2) An entity-affiliated party
requesting indemnification payments
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
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Fmt 4702
Sfmt 4702
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.
7. Section 1231.5 is revised to read as
follows:
§ 1231.5 Applicability in the event of
receivership.
The provisions of this part, or any
consent or approval granted under the
provisions of this part by 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 FHFA shall
not in any way obligate FHFA or
receiver to pay any claim or obligation
pursuant to any golden parachute,
severance, indemnification, or other
agreement. 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 Safety and
Soundness Act (12 U.S.C. 4518(e)(3)).
8. Section 1231.6 is added to read as
follows:
§ 1231.6
Filing instructions.
(a) Scope. This section contains the
procedures to apply for the consent of
the Director to make golden parachute
payments under § 1231.3(b) or to make
excess nondiscriminatory severance
plan payments under paragraph (2)(v) of
the definition of the term golden
parachute payment in § 1231.2.
(b) Where to file. A Federal Home
Loan Bank or Office of Finance
applicant must submit a letter
application to the Deputy Director of the
Division of Federal Home Loan Bank
Supervision. An Enterprise applicant
must submit a letter application to the
Deputy Director of the Division of
Enterprise Regulation.
(c) Content of filing. The letter
application must contain the following:
(1) The reasons why the regulated
entity or the Office of Finance seeks to
make the payment;
(2) An identification of the entityaffiliated party who will receive the
payment;
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(3) A copy of any contract or
agreement regarding the subject matter
of the filing;
(4) The cost of the proposed payment
and its impact on the capital and
earnings of the regulated entity;
(5) The reasons why the consent to
the payment should be granted; and
(6) Certification and documentation as
to each of the factors listed in
§ 1231.3(b)(1)(iv).
(d) Additional information. FHFA
may request additional information at
any time during the processing of the
letter application.
(e) Written notice. FHFA shall provide
the applicant with written notice of the
decision as soon as it is rendered.
Use one of the following
addresses to comment on this proposed
AD.
• Federal eRulemaking Portal: Go to
https://www.regulations.gov and follow
the instructions for sending your
comments electronically.
• 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.
Dated: June 22, 2009.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E9–15329 Filed 6–26–09; 8:45 am]
FOR FURTHER INFORMATION CONTACT:
Mark Riley, Aerospace Engineer, Engine
Certification Office, FAA, Engine &
Propeller Directorate, 12 New England
Executive Park, Burlington, MA 01803;
e-mail: mark.riley@faa.gov; telephone
(781) 238–7758; fax (781) 238–7199.
Contact International Aero Engines
AG, 400 Main Street, East Hartford, CT
06108; telephone: (860) 565–5515; fax:
(860) 565–5510, for a copy of the service
information identified in this proposed
AD.
BILLING CODE 8070–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2009–0294; Directorate
Identifier 2009–NE–08–AD]
SUPPLEMENTARY INFORMATION:
Comments Invited
RIN 2120–AA64
Airworthiness Directives; International
Aero Engines AG (IAE) V2500–A1,
V2527E–A5, V2530–A5, and V2528–D5
Turbofan Engines
cprice-sewell on PRODPC61 with PROPOSALS
AGENCY: Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking
(NPRM).
SUMMARY: The FAA proposes to adopt a
new airworthiness directive (AD) for
International Aero Engines AG (IAE)
V2500–A1, V2527E–A5, V2530–A5, and
V2528–D5 turbofan engines. This
proposed AD would require reducing
the published life limit of certain highpressure compressor (HPC) stage 9–12
disc assemblies. This proposed AD
would also remove from service those
HPC stage 9–12 disc assemblies using a
drawdown schedule. This proposed AD
results from IAE updating the low-cyclefatigue (LCF) life analysis for certain
HPC stage 9–12 disc assemblies. We are
proposing this AD to prevent an
uncontained failure of the HPC stage
9–12 disc assembly, resulting in an inflight engine shutdown and possible
damage to the airplane.
DATES: We must receive any comments
on this proposed AD by August 28,
2009.
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15:27 Jun 26, 2009
ADDRESSES:
Jkt 217001
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–
2009–0294; Directorate Identifier 2009–
NE–08–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).
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30981
Examining the AD Docket
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
street address for the Docket Operations
office (telephone (800) 647–5527) is the
same as the Mail address provided in
the ADDRESSES section. Comments will
be available in the AD docket shortly
after receipt.
Discussion
IAE Engineering updated their life
analysis for certain HPC stage 9–12 disc
assemblies installed in V2500–A1,
V2527E–A5, V2530–A5, and V2528–D5
turbofan engines. Stress analysis
calculations have shown that missing
ceramic liner material affects thermal
gradients at the weld joining discs stage
11 and 12. This results in an increase in
the stress in the weld, which affects the
life of the component. This condition, if
not corrected, could result in
uncontained engine failure resulting in
an in-flight engine shutdown and
possible damage to the airplane.
FAA’s Determination and Requirements
of the Proposed AD
We have evaluated all pertinent
information and identified an unsafe
condition that is likely to exist or
develop on other products of this same
type design. We are proposing this AD,
which would require:
• Reducing the published life limit of
HPC stage 9–12 disc assemblies, P/N
2A3200, 2A3300, 2A3400, 2A3500,
6A4131, and 6A7545, installed in
V2500–A1 engines, from 15,000 cyclessince-new (CSN) to 14,600 CSN; and
• Reducing the published life limit of
HPC stage 9–12 disc assemblies, P/N
6A4156 and 6A7547, installed in
V2527E–A5 and V2530–A5 engines,
from 12,000 CSN to 11,800 CSN; and
• Reducing the published life limit of
HPC stage 9–12 disc assemblies, P/N
6A4156 and 6A7547, installed in
V2528–D5 engines, from 13,200 CSN to
11,800 CSN.
This proposed AD would also remove
from service those HPC stage 9–12 disc
assemblies using a drawdown schedule.
Costs of Compliance
We estimate that this proposed AD
would affect 18 engines installed on
airplanes of U.S. registry. We also
estimate that it would take about 200
work-hours per engine to perform the
proposed actions, and that the average
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Agencies
[Federal Register Volume 74, Number 123 (Monday, June 29, 2009)]
[Proposed Rules]
[Pages 30975-30981]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-15329]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 74, No. 123 / Monday, June 29, 2009 /
Proposed Rules
[[Page 30975]]
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1231
RIN 2590-AA08
Golden Parachute and Indemnification Payments
AGENCY: Federal Housing Finance Agency.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Agency (FHFA) is proposing an
amendment to the final Golden Parachute Payments regulation that was
published in the Federal Register on January 29, 2009. This proposed
amendment addresses prohibited and permissible golden parachute
payments to entity-affiliated parties in connection with the Federal
National Mortgage Association, the Federal Home Loan Mortgage
Corporation, and the Federal Home Loan Banks (regulated entities) as
well as the Office of Finance. It also sets forth prohibited and
permissible indemnification payments that regulated entities and the
Office of Finance may make to an entity-affiliated party in connection
with administrative proceedings or civil actions instituted by FHFA.
DATES: Written comments on the proposed amendment must be received on
or before July 29, 2009. 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 Service, Federal Express, or
Other Mail Service: The mailing address for comments is: Alfred M.
Pollard, 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, 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,
may be sent by e-mail at 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. If you submit your
comment to the Federal eRulemaking Portal, please also send it by e-
mail to FHFA at RegComments@fhfa.gov to ensure timely receipt by the
agency. Please include ``RIN 2590-AA08'' in the subject line of the
message.
FOR FURTHER INFORMATION CONTACT: Alfred M. Pollard, General Counsel,
(202) 414-3788 (not a toll free number). The telephone number for the
Telecommunications Device for the Deaf is (800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Comments
FHFA invites comments on all aspects of the proposed amendment and
will take all comments into consideration before issuing the final
regulation. FHFA previously requested comments on a proposed amendment,
addressing indemnification payments, to the Golden Parachute Payments
regulation that was published on November 14, 2008 (73 FR 67424).
Comments received in response to the November 14, 2008 publication will
be considered along with comments received in response to this
amendment.
Copies of all comments will be posted without change, including any
personal information you provide, such as your name and address, on the
FHFA 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
A. General 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.)
(Safety and Soundness 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, the
Federal Home Loan Mortgage Corporation (collectively, Enterprises), and
the Federal Home Loan Banks (FHLBanks) (collectively, 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 Safety and Soundness Act and rules, regulation, guidelines, and
orders issued under the Safety and Soundness Act, and their respective
authorizing statutes; and carry out their missions through activities
authorized and consistent with the Safety and Soundness Act and their
authorizing statutes; and, that the activities and operations of the
regulated entities are consistent with the public interest. FHFA also
has regulatory authority over the Office of Finance of the Federal Home
Loan Bank System.
---------------------------------------------------------------------------
\1\ See Division A, titled the ``Federal Housing Finance
Regulatory Reform Act of 2008,'' Title I, Section 1101 of HERA.
---------------------------------------------------------------------------
The Office of Federal Housing Enterprise Oversight (OFHEO) and the
Federal Housing Finance Board (FHFB) will be abolished one year after
enactment of HERA. However, the regulated entities continue to operate
under regulations promulgated by OFHEO and FHFB until such regulations
are superseded by regulations promulgated by FHFA.
B. Rulemaking Background
Section 1114 of HERA amended section 1318(e) of the Safety and
Soundness Act (12 U.S.C. 4518(e)) to provide explicit authorities to
FHFA in addressing golden parachute payments and indemnification
payments. FHFA published the interim final regulation on Golden
Parachute and Indemnification Payments in the
[[Page 30976]]
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). On November 14, 2008 (73 FR
67424), FHFA published a proposed amendment to the interim final
regulation in the Federal Register, which addressed indemnification
payments. The public notice and comment period closed on December 29,
2008. On January 29, 2009 (74 FR 5101), FHFA published the final
regulation on Golden Parachute Payments.
FHFA is proposing an amendment to the final Golden Parachute
Payments regulation that would address in more detail prohibited and
permissible golden parachute payments. FHFA believes it is useful to
provide an opportunity to the public to read and comment on both the
proposed golden parachute payments and indemnification payments
amendments in context. Therefore, this proposed amendment also contains
a re-proposal of the indemnification payments amendment that was first
proposed on November 14, 2008.
III. Office of Finance
Section 1114 of HERA amended section 1318(e) of the Safety and
Soundness Act (12 U.S.C. 4518(e)) by providing FHFA with additional
authorities in addressing golden parachute and indemnification payments
made by the regulated entities. The Office of Finance is a joint office
of the FHLBanks that was established by a predecessor to FHFA. The
Office of Finance is governed by a three-person board of directors
consisting of two FHLBank presidents and one independent member. Under
the regulations of FHFB, the Office of Finance is subject to the same
regulatory oversight authority and enforcement powers as are the
FHLBanks and their respective directors, officers, and employees.\2\
The Office of Finance also is subject to the cease-and-desist authority
of FHFA, and its directors, officers and management are subject to the
removal and prohibition authority of FHFA.\3\ Although the Office of
Finance is not directly covered by section 1318(e), it is subject to
the Director's ``general regulatory authority'' under section
1311(b)(2) of the Safety and Soundness Act (12 U.S.C. 4511(b)(2)), as
amended by HERA. The Director is required to exercise that authority as
necessary to ensure that the purposes of the Safety and Soundness Act,
the authorizing statutes, and other applicable law are carried out.
Because of the unique nature of the Office of Finance and the
interrelationship between it and the FHLBanks, FHFA believes that the
purposes underlying the limitations on golden parachute and
indemnification payments can best be carried out if the limitations are
consistent between the FHLBanks and the Office of Finance, their joint
office. Therefore, based on its general regulatory authority over the
Office of Finance, FHFA is proposing that the amendment would apply to
the Office of Finance.
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\2\ 12 CFR 985.4 and 985.7.
\3\ 12 U.S.C.4631(a) and 4636a(a).
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IV. Golden Parachute Payments
FHFA published a final regulation, Golden Parachute Payments in the
Federal Register on January 29, 2009 (74 FR 5101). The final Golden
Parachute Payments regulation addressed public comment on factors the
Director would consider in acting on golden parachute payments. As
stated in the preamble of the final regulation, comments received that
addressed other elements of a golden parachute regulation would be
considered by FHFA in subsequent rulemaking for public comment.
Specifically, in response to comments received, it was stated that FHFA
would consider adding provisions similar to those of the Federal
Deposit Insurance Corporation (FDIC) golden parachute regulation in the
subsequent rulemaking. The FDIC regulation describes more specifically
benefits included or excluded from the term ``golden parachute
payment.'' Thus, the provisions of the proposed amendment addressing
golden parachute payments are substantially similar to the FDIC
regulation that limits golden parachute payments by insured depository
institutions to institution-affiliated parties.\4\
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\4\ The FDIC regulation is found at 12 CFR part 359.
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The proposed amendment would describe prohibited and permissible
golden parachute payments that a regulated entity or the Office of
Finance may make to an entity-affiliated party. The term ``entity-
affiliated party'' is statutorily defined under the Safety and
Soundness Act to include any ``officer'' of the regulated entity.\5\
The term ``officer'' for purposes of the Director's oversight of golden
parachute payments has broader coverage than the term ``executive
officer'' as defined in section 4502(12) of the Safety and Soundness
Act (12 U.S.C. 4502(12)) with respect to the Director's authority to
prohibit and withhold executive compensation under section 1318(a) of
the Safety and Soundness Act (12 U.S.C. 4518(a)).
---------------------------------------------------------------------------
\5\ 12 U.S.C. 4502(11).
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In proposing the amendment, FHFA recognizes that prior to the
enactment of HERA, the regulated entities or the Office of Finance may
have entered into agreements that provide for golden parachute payments
beyond that which is proposed to be permissible under section 1318(e)
of the Safety and Soundness Act (12 U.S.C. 4518(e)) and the proposed
amendment. FHFA intends that the proposed amendment would apply to
agreements entered into by a regulated entity or the Office of Finance
with an entity-affiliated party on or after the date the regulation is
effective.
V. Indemnification Payments
The proposed amendment would describe prohibited and permissible
indemnification payments that a regulated entity and the Office of
Finance 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 FDIC regulation that limits
indemnification by insured depository institutions to institution-
affiliated parties.\6\
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\6\ 12 CFR part 359.
---------------------------------------------------------------------------
The proposed amendment is substantially similar to the proposed
amendment addressing indemnification payments published in the Federal
Register on November 14, 2008 (73 FR 67424). FHFA received seven
comment letters and will consider those comment letters with comments
received in response to this proposed rulemaking.
In proposing the amendment, FHFA recognizes that prior to the
enactment of HERA, the regulated entities or the Office of Finance may
have entered into indemnification agreements that provide for
indemnification beyond that which is proposed to be permissible under
section 1318(e) of the Safety and Soundness Act (12 U.S.C. 4518(e)) and
the proposed amendment. FHFA intends that the proposed amendment would
apply to agreements entered into by a regulated entity or the Office of
Finance with an entity-affiliated party on or after the date the
regulation is effective.
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 or the Office of Finance from indemnifying an entity-
affiliated
[[Page 30977]]
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.
VI. Differences Between FHLBanks and Enterprises
Section 1313(f) of the Safety and Soundness Act (12 U.S.C.
4513(f)), as amended by section 1201 of HERA, requires the Director,
when promulgating regulations relating to the FHLBanks, to consider the
differences between the FHLBanks and the Enterprises with respect to
the FHLBanks' 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 FHLBanks 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
FHLBanks.
Regulatory Impact
Paperwork Reduction Act
The proposed amendment does not contain any information collection
requirement that requires the approval of the Office of Management and
Budget 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). FHFA has considered the impact of the
proposed amendment under the Regulatory Flexibility Act. 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 proposed amendment 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.
Accordingly, for reasons stated in the preamble, under the
authority of 12 U.S.C. 4518(e) and 4526, FHFA proposes to amend part
1231 of subchapter B of title 12 CFR Chapter XII as follows:
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. The heading to part 1231 is revised to read as set forth above.
3. Section 1231.1 is revised to read as follows:
Sec. 1231.1 Purpose.
The purpose of this part is to implement section 1318(e) of the
Safety and Soundness 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 and the Office of Finance may make to entity-
affiliated parties.
4. Section 1231.2 is amended by:
a. Removing the paragraph designations before each definition and
arranging definitions in alphabetical order.
b. Removing the reserved paragraphs (l) through (n).
c. Removing the definition for the term ``Act.''
d. Adding definitions for the terms ``Benefit plan,'' ``Bona fide
deferred compensation plan or arrangement,'' ``Liability or legal
expense,'' ``Nondiscriminatory,'' ``Payment,'' ``Prohibited
indemnification payment,'' and ``Safety and Soundness Act'' in
alphabetical order.
e. Revising the definition for the terms ``Entity-affiliated
party,'' ``Golden parachute payment,'' and ``Troubled condition.''
The additions and revisions read as follows:
Sec. 1231.2 Definitions.
* * * * *
Benefit plan means any plan, contract, agreement, or other
arrangement which is an ``employee welfare benefit plan'' as that term
is defined in section 3(1) of the Employee Retirement Income Security
Act of 1974, as amended (29 U.S.C. 1002(1)), or other usual and
customary plans such as dependent care, tuition reimbursement, group
legal services or cafeteria plans; provided however, that such term
shall not include any plan intended to be subject to paragraphs
(2)(iii) and (v) of the term golden parachute payment as defined in
this section.
Bona fide deferred compensation plan or arrangement means any plan,
contract, agreement or other arrangement whereby:
(1) An entity-affiliated party voluntarily elects to defer all or a
portion of the reasonable compensation, wages or fees paid for services
rendered which otherwise would have been paid to such party at the time
the services were rendered (including a plan that provides for the
crediting of a reasonable investment return on such elective deferrals)
and the regulated entity or the Office of Finance either:
(i) Recognizes compensation expense and accrues a liability for the
benefit payments according to generally accepted accounting principles
(GAAP); or
(ii) Segregates or otherwise sets aside assets in a trust which may
only be used to pay plan and other benefits, except that the assets of
such trust may be available to satisfy claims of creditors of the
regulated entities or the Office of Finance in the case of insolvency;
or
(2) A regulated entity or the Office of Finance establishes a
nonqualified deferred compensation or supplemental retirement plan,
other than an elective deferral plan described in paragraph (1) of this
definition:
(i) Primarily for the purpose of providing benefits for certain
entity-affiliated parties in excess of the limitations on contributions
and benefits imposed by sections 401(a)(17), 402(g), 415, or any other
applicable provision of the Internal Revenue Code of 1986 (26 U.S.C.
401(a)(17), 402(g), 415); or
(ii) Primarily for the purpose of providing supplemental retirement
benefits or other deferred compensation for a select group of
directors, management or highly compensated employees (excluding
severance payments described in paragraph (2)(v) of the term golden
parachute payment as defined in this section and
[[Page 30978]]
permissible golden parachute payments described in Sec. 1231.3(b); and
(3) In the case of any nonqualified deferred compensation or
supplemental retirement plans as described in paragraphs (1) and (2) of
this definition, the following requirements shall apply:
(i) The plan was in effect at least one year prior to any of the
events described in paragraph (1)(ii) of the term golden parachute
payment as defined in this section;
(ii) Any payment made pursuant to such plan is made in accordance
with the terms of the plan as in effect no later than one year prior to
any of the events described in paragraph (1)(ii) of the term golden
parachute payment as defined in this section and in accordance with any
amendments to such plan during such one-year period that do not
increase the benefits payable thereunder;
(iii) The entity-affiliated party has a vested right, as defined
under the applicable plan document, at the time of termination of
employment to payments under such plan;
(iv) Benefits under such plan are accrued each period only for
current or prior service rendered to the employer (except that an
allowance may be made for service with a predecessor employer);
(v) Any payment made pursuant to such plan is not based on any
discretionary acceleration of vesting or accrual of benefits which
occurs at any time later than one year prior to any of the events
described in paragraph (1)(ii) of the term golden parachute payment as
defined in this section;
(vi) The regulated entity or the Office of Finance has previously
recognized compensation expense and accrued a liability for the benefit
payments according to GAAP or segregated or otherwise set aside assets
in a trust which may only be used to pay plan benefits, except that the
assets of such trust may be available to satisfy claims of the
regulated entity's creditors in the case of insolvency; and
(vii) Payments pursuant to such plans shall not be in excess of the
accrued liability computed in accordance with GAAP.
* * * * *
Entity-affiliated party means:
(1) With respect to the Office of Finance, any director, officer,
or management of the Office of Finance; and
(2) With respect to a regulated entity:
(i) Any director, officer, employee, or controlling stockholder of,
or agent for, a regulated entity;
(ii) Any shareholder, affiliate, consultant, or joint venture
partner of a regulated entity, and any other person, as determined by
the Director (by regulation or on a case-by-case basis) that
participates in the conduct of the affairs of a regulated entity,
provided that a member of a Federal Home Loan Bank shall not be deemed
to have participated in the affairs of that Federal Home Loan Bank
solely by virtue of being a shareholder of, and obtaining advances
from, that Federal Home Loan Bank;
(iii) Any independent contractor for a regulated entity (including
any attorney, appraiser, or accountant), if:
(A) The independent contractor knowingly or recklessly participates
in any violation of any law or regulation, any breach of fiduciary
duty, or any unsafe or unsound practice; and
(B) Such violation, breach, or practice caused, or is likely to
cause, more than a minimal financial loss to, or a significant adverse
effect on, the regulated entity;
(iv) Any not-for-profit corporation that receives its principal
funding, on an ongoing basis, from any regulated entity; and
(v) The Office of Finance.
* * * * *
Golden parachute payment means:
(1) Any payment (or any agreement to make any payment) in the
nature of compensation by any regulated entity or the Office of Finance
for the benefit of any current or former entity-affiliated party
pursuant to an obligation of such regulated entity or the Office of
Finance that:
(i) Is contingent on, or by its terms is payable on or after, the
termination of such party's primary employment or affiliation with the
regulated entity or the Office of Finance; and
(ii) Is received on or after, or is made in contemplation of, any
of the following events:
(A) The insolvency (or similar event) of the regulated entity which
is making the payment;
(B) The appointment of any conservator or receiver for such
regulated entity; or
(C) A determination by FHFA that the regulated entity is in a
troubled condition; or
(D) The Enterprise is assigned a composite rating of ``Significant
Concerns'' or ``Critical Concerns'' by FHFA, or the Federal Home Loan
Bank or the Office of Finance is assigned a composite rating of 3 or 4
by FHFA.
(2) Exceptions. The term golden parachute payment shall not
include:
(i) Any payment made pursuant to a pension or retirement plan which
is qualified (or is intended within a reasonable period of time to be
qualified) under section 401 of the Internal Revenue Code of 1986 (26
U.S.C. 401) or pursuant to a pension or other retirement plan which is
governed by the laws of any foreign country;
(ii) Any payment made pursuant to a ``benefit plan'' as that term
is defined in this section;
(iii) Any payment made pursuant to a bona fide deferred
compensation plan or arrangement as that term is defined in this
section;
(iv) Any payment made by reason of death or by reason of
termination caused by the disability of an entity-affiliated party; or
(v) Any payment made pursuant to a nondiscriminatory severance pay
plan or arrangement which provides for payment of severance benefits to
all eligible employees upon involuntary termination other than for
cause, voluntary resignation, or early retirement; provided, however,
that no employee shall receive any such payment which exceeds the base
compensation paid to such employee during the 12 months (or such longer
period or greater benefit as the Director shall consent to) immediately
preceding termination of employment, resignation, or early retirement,
and such severance pay plan or arrangement shall not have been adopted
or modified to increase the amount or scope of severance benefits at a
time when the regulated entity or the Office of Finance is in a
condition specified in paragraph (1)(ii) of the term golden parachute
payment as defined in this section or in contemplation of such a
condition without the prior written consent of the Director; or
(vi) Any severance or similar payment which is required to be made
pursuant to a State statute or foreign law which is applicable to all
employers within the appropriate jurisdiction (with the exception of
employers that may be exempt due to their small number of employees or
other similar criteria); or
(vii) Any other payment which the director determined to be
permissible in accordance with Sec. 1231.3(b).
* * * * *
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 actions; 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.
[[Page 30979]]
Nondiscriminatory means that the plan, contract, or arrangement in
question applies to all employees of a regulated entity or the Office
of Finance who meet reasonable and customary eligibility requirements
applicable to all employees, such as minimum length of service
requirements. A nondiscriminatory plan, contract, or arrangement may
provide different benefits based only on objective criteria such as
salary, total compensation, length of service, job grade, or
classification, which are applied on a proportionate basis (with a
variance in severance benefits relating to any criterion of plus or
minus ten percent) to groups of employees consisting of not less than
the lesser of 33 percent of employees or 1,000 employees.
* * * * *
Payment means:
(1) Any direct or indirect transfer of any funds or any asset;
(2) Any forgiveness of any debt or other obligation;
(3) The conferring of any benefit, including but not limited to
stock options and stock appreciation rights; and
(4) Any segregation of any funds or assets, the establishment or
funding of any trust or the purchase of or arrangement for any letter
of credit or other instrument, for the purpose of making, or pursuant
to any agreement to make, any payment on or after the date on which
such funds or assets are segregated, or at the time of or after such
trust is established or letter of credit or other instrument is made
available, 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 means:
(1) Any payment (or any agreement to make any payment) by any
regulated entity or the Office of Finance for the benefit of any
current or former 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 such administrative
proceeding or civil action 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 the Office of
Finance; or
(iii) Is required to cease-and-desist from or take any affirmative
action described in section 1371 of the Safety and Soundness 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 or the
Office of Finance 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 the receiver or to
the Office of Finance.
(ii) The term prohibited indemnification payment shall not include
any reasonable payment by a regulated entity or the Office of Finance
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, 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 under section
1377 of the Safety and Soundness Act (12 U.S.C. 4636a).
(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 Safety and Soundness Act (12 U.S.C.
4636(b)(1) and (2)) where the regulated entity has been placed in
conservatorship.
* * * * *
Safety and Soundness Act means the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.), as
amended.
Troubled condition means a regulated entity that:
(1) Is subject to a cease-and-desist order or written agreement
issued by FHFA that requires action to improve the financial condition
of the regulated entity or is subject to a proceeding initiated by the
Director, which contemplates the issuance of an order that requires
action to improve the financial condition of the regulated entity,
unless otherwise informed in writing by FHFA; or
(2) Is informed in writing by the Director that it is in a troubled
condition for purposes of the requirements of this part on the basis of
the most recent report of examination or other information available to
FHFA.
5. Section 1231.3 is added to read as follows:
Sec. 1231.3 Golden parachute payments.
(a) Prohibited golden parachute payments. No regulated entity or
the Office of Finance shall make or agree to make any prohibited golden
parachute payment, except as provided in this part.
(b) Permissible golden parachute payments. (1) A regulated entity
or the Office of Finance may agree to make or may make a golden
parachute payment if and to the extent that:
(i) The Director determines that such a payment or agreement is
permissible; or
(ii) Such an agreement is made in order to hire a person to become
an entity-affiliated party either at a time when the regulated entity
or the Office of Finance satisfies or in an effort to prevent it from
imminently satisfying any of the criteria set forth in paragraph
(1)(ii) of the term golden parachute payment as defined in Sec.
1231.2, and the Director consents in writing to the amount and terms of
the golden parachute payment. Such consent by the Director shall not
improve the entity-affiliated party's position in the event of the
insolvency of the regulated entity since such consent can neither bind
a receiver nor affect the provability of receivership claims; or
(iii) Such a payment is made pursuant to an agreement which
provides for a reasonable severance payment, not to exceed 12 months
salary, to an entity-affiliated party in the event of a change in
control of the regulated entity; provided, however, that a regulated
entity shall obtain the consent of the Director prior to making such a
payment and this paragraph (b)(1)(iii) shall not apply to the regulated
entity being placed into conservatorship or receivership; and
(iv) A regulated entity or the Office of Finance making a request
pursuant to paragraphs (b)(1)(i) through (iii) of this section shall
demonstrate that it does not possess and is not aware of any
information, evidence, documents, or other materials that would
indicate that there is a reasonable basis to believe, at the time such
payment is proposed to be made, that:
(A) The entity-affiliated party has committed any fraudulent act or
omission, breach of trust or fiduciary duty, or insider abuse with
regard to the
[[Page 30980]]
regulated entity or the Office of Finance that is likely to have a
material adverse effect on the regulated entity or the Office of
Finance;
(B) The entity-affiliated party is substantially responsible for
the insolvency of, the appointment of a conservator or receiver for, or
the troubled condition of the regulated entity;
(C) The entity-affiliated party has materially violated any
applicable Federal or State law or regulation that has had or is likely
to have a material effect on the regulated entity or the Office of
Finance; and
(D) The entity-affiliated party has violated or conspired to
violate section 215, 657, 1006, 1014, or 1344 of title 18 of the United
States Code, or section 1341 or 1343 of such title affecting a
``financial institution'' as the term is defined in title 18 of the
United States Code (18 U.S.C. 20).
(2) In making a determination under paragraphs (b)(1)(i) through
(iii) of this section, the Director may consider:
(i) Whether, and to what degree, the entity-affiliated party was in
a position of managerial or fiduciary responsibility;
(ii) The length of time the entity-affiliated party was affiliated
with the regulated entity or the Office of Finance, and the degree to
which the proposed payment represents a reasonable payment for services
rendered over the period of employment; and
(iii) Any other factor the Director determines relevant to the
facts and circumstances surrounding the golden parachute payment,
including any fraudulent act or omission, breach of fiduciary duty,
violation of law, rule, regulation order or written agreement, and the
level of willful misconduct, breach of fiduciary duty, and malfeasance
on the part of the entity-affiliated party.
6. 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.
(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 or the
Office of Finance shall make or agree to make any prohibited
indemnification payment, except as provided in this part.
(c) Permissible indemnification payments. (1) A regulated entity or
the Office of Finance 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 FHFA,
including payment for a civil money penalty pursuant to paragraph
(2)(iii) of the definition of the term prohibited indemnification
payment in Sec. 1231.2 if:
(i) The board of directors of the regulated entity or the Office of
Finance, 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 reasonably believed to be in the best
interests of the regulated entity.
(ii) The board of directors of the regulated entity or the Office
of Finance, 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 or
the Office of Finance;
(iii) The indemnification payments do not constitute ``prohibited
indemnification payments'' as that term is defined in Sec. 1231.2; and
(iv) The entity-affiliated party agrees in writing to reimburse the
regulated entity or the Office of Finance, to the extent not covered by
payments from insurance or bonds purchased pursuant to paragraph (2)(i)
of the definition of the term prohibited indemnification payment in
Sec. 1231.2, for that portion of any advanced indemnification payments
that subsequently become ``prohibited indemnification payments,'' as
such term is defined in Sec. 1231.2.
(2) An entity-affiliated party requesting indemnification payments
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.
7. Section 1231.5 is revised to read as follows:
Sec. 1231.5 Applicability in the event of receivership.
The provisions of this part, or any consent or approval granted
under the provisions of this part by 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 FHFA shall not in
any way obligate FHFA or receiver to pay any claim or obligation
pursuant to any golden parachute, severance, indemnification, or other
agreement. 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 Safety and Soundness Act
(12 U.S.C. 4518(e)(3)).
8. Section 1231.6 is added to read as follows:
Sec. 1231.6 Filing instructions.
(a) Scope. This section contains the procedures to apply for the
consent of the Director to make golden parachute payments under Sec.
1231.3(b) or to make excess nondiscriminatory severance plan payments
under paragraph (2)(v) of the definition of the term golden parachute
payment in Sec. 1231.2.
(b) Where to file. A Federal Home Loan Bank or Office of Finance
applicant must submit a letter application to the Deputy Director of
the Division of Federal Home Loan Bank Supervision. An Enterprise
applicant must submit a letter application to the Deputy Director of
the Division of Enterprise Regulation.
(c) Content of filing. The letter application must contain the
following:
(1) The reasons why the regulated entity or the Office of Finance
seeks to make the payment;
(2) An identification of the entity-affiliated party who will
receive the payment;
[[Page 30981]]
(3) A copy of any contract or agreement regarding the subject
matter of the filing;
(4) The cost of the proposed payment and its impact on the capital
and earnings of the regulated entity;
(5) The reasons why the consent to the payment should be granted;
and
(6) Certification and documentation as to each of the factors
listed in Sec. 1231.3(b)(1)(iv).
(d) Additional information. FHFA may request additional information
at any time during the processing of the letter application.
(e) Written notice. FHFA shall provide the applicant with written
notice of the decision as soon as it is rendered.
Dated: June 22, 2009.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E9-15329 Filed 6-26-09; 8:45 am]
BILLING CODE 8070-01-P