Warning that banks could be prosecuted in New York if their bonus payments are considered “illegal fraudulent conveyances,” state Attorney General Andrew Cuomo is demanding detailed information about bonus-pool allocations from the boards of nine institutions that received $125 billion from the Federal Reserve.
He also asked their boards to explain what mechanisms they have put in place to protect taxpayer funds.
Cuomo warned in a letter to the firms — Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, State Street, and Wells Fargo — that corporate expenditures and payments, made in the absence of fair consideration by undercapitalized firms, may subject the banks to prosecution. His big concern is that the banks are using government bailout money to pay the bonuses.
“In particular, it is vital that you immediately provide us with any and all information concerning your firm’s expected bonus pool for this year, both prior to and after you understood that the firm would be a recipient of taxpayer funds pursuant to the Troubled Asset Relief Program (TARP),” the letter stated. “Obviously, we will have grave concerns if your expected bonus pool has increased in any way as a result of your receipt or expected receipt of taxpayer funds from TARP.”
Specifically, the AG asked for a description of all bonus pools anticipated for this year, including a description of the process by which the pools were or will be established; a description of the process by which the bonus pools will be allocated and distributed; a description of how, if at all the calculation and plans for allocation of the bonus pools have changed as a result of the firm’s receipt of TARP funds; and for the years 2006 and 2007, a description of the bonuses awarded to employees receiving more than $250,000 in compensation.
“We believe that the Board of Directors is most appropriately positioned to respond to our requests as the firm’s top management likely has a significant interest in the size of the bonus pools,” Cuomo wrote. “In this new era of corporate responsibility we are entering, boards of directors must step up to the plate and prevent wasteful expenditures of corporate funds on outsized executive bonuses and other unjustified compensation.”
The New York Times noted that on Tuesday, Rep. Henry A. Waxman (D-Calif.) asked the nine bank companies to explain why they are paying billions of dollars in compensation and bonuses after they accepted the $125 billion.