Several major banks are trying to keep their practice of paying executives for entering government work on “lock down.” However, the payment of multimillion dollar awards no longer remains hidden. The three banks involved are Citigroup, Goldman Sachs, and Morgan Stanley. Last month, each of these sought exemption from the Securities and Exchange Commission (SEC) from a proposal that would require them to release the identity of executives eligible for the financial reward. Lots of folks, including the bank shareholders, are questioning what the banks believe they have to hide in seeking the exemption.
Recently, Antonio Weiss noted in financial disclosures that he would receive $21 million in unvested income and deferred compensation when he left his job as an investment banker at Lazard for a government position. Weiss now serves as counselor to Treasury Secretary Jack Lew. However, he also was being considered for the position of undersecretary for domestic finance. Many of these banks have policies found in their SEC disclosure filings that outline the awards. For example, Goldman Sachs lists that they offer a “lump sum cash payment” for government service.
Other banks are more subtle in their awards, such as allowing executives’ equity options to continue to vest or allowing the executives to keep retention bonuses if they leave for a government position. A major concern among critics is that the banks have filled government positions with their former executives and that these individuals may act in favor of their former employer.
In November, AFL-CIO President Richard Trumpka wrote to seven major banks to ask for an explanation of how these incentives to executives for government positions benefit the banks’ shareholders. The AFL-CIO office reported that there was not much of a response to the inquiry. Instead of initially proposing an outright ban on the awards, the AFL-CIO filed proposals seeking full disclosure to be voted on at the companies’ annual meetings. These proposals ask for the names of each executive eligible for an award and the total amount of the award. This will give the federation a sense of how common this occurrence is before any kind of ban is set in place.
JP Morgan Chase is the only bank with a policy in place that has not asked for an exemption. Citigroup did not reach out to the federation before submitting a letter for exemption. In the letter, Citigroup argues it has substantially implemented the proposal already and that a disclosure of its award agreement with the SEC is satisfactory. Additionally, Citigroup states that its executives already disclose the information elsewhere and that it is not necessary to have to duplicate this information.
Lastly, Citigroup states that its executives receive the same treatment, as long as they do not leave the company for a competitor. Citigroup refers to a New York Times article that claims these benefits are a way to encourage public service. Goldman Sachs and Morgan Stanley have also filed no-action letters that essentially argue the same thing.
The SEC will probably make a decision on these letters in the next couple of months. AFL-CIO Investment Office Director Slavkin Corzo stated, “It would be really unfortunate if shareholders are not allowed to get basic information about what’s being done with their money.”
Lawyers at Beasley Allen continue to vigorously investigate fraud against both the federal and state governments and encourage anyone who knows of fraudulent activities to step forward. Potential whistleblowers have the right to not be retaliated against for doing the right thing and reporting the fraud they have witnessed. Anyone considering doing the right thing and blowing the whistle is strongly urged to seek legal advice before doing so. Lawyers at Beasley Allen are very familiar with the federal False Claims Act and its state counterparts and can guide whistleblowers along the process. If you have any information and would like to speak with a lawyer, contact Andrew Brashier, a lawyer in our firm’s Consumer Fraud Section, at Andrew.Brashier@BeasleyAllen.com, or at 800-898-2034 or 334-269-2343.
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