Frank Bill Would Bar Use of Insurance to Protect Financial Execs from Penalties

NU Online News Service, May 30, 2:49 p.m. EDT

A bill introduced in the House would bar financial firm officials who are found liable for actions harming their companies from purchasing insurance to cover the cost of the penalties imposed.

The bill is the Executive Compensation Clawback Full Enforcement Act of 2012, to be introduced by Rep. Barney Frank, D-Mass. There is no bill number yet.

Rep. Henry Waxman, D-Calif., ranking member of the House Energy and Commerce Committee, and Rep. Collin C. Peterson, D-Minn., ranking member of the Agriculture Committee, are also original cosponsors of this legislation.

The bill would require any officer, director, or employee of a financial firm who is required under a federal financial-regulatory law to repay previously earned compensation or to pay a civil penalty to be personally liable for the amounts owed. 

These individuals would be prevented from using insurance or other forms of hedging to protect their personal assets, and their employers could not procure such protection on their behalf.

In introducing the new legislation, Frank says he, Waxman and Peterson hope to prevent circumventing provisions of federal law that are designed to hold individuals personally responsible when their actions negatively affect their financial firms.

Frank says, "The creation of insurance policies to insulate financial executives from clawbacks is one more effort by some in the industry to perpetuate a lack of accountability."