§2277a–10b Authority to Regulate Golden Parachute and Indemnification Payments

Summary

Gives the Farm Credit regulator the power to stop or limit big exit payouts and payments that cover legal costs when a Farm Credit System institution is in trouble. A few short definitions: golden parachute payment — money promised because someone’s job ends and paid when the institution is insolvent, under a conservator/receiver, rated CAMEL 4 or 5, or officially “troubled”; indemnification payment — money the institution pays to cover a person’s legal costs or penalties after an enforcement action that leads to a final penalty or removal order; institution-related party — people like directors, officers, employees, agents, certain stockholders, consultants, partners, or contractors who knowingly or recklessly helped cause harm; liability or legal expense — legal fees, settlements, judgments, or penalties; payment — any transfer of funds or assets or funds set aside to pay later. The regulator can make rules or orders limiting or banning those payments by troubled institutions (including conservators or receivers). The regulator must list factors it will use, such as whether there is reason to believe the person committed fraud, breach of duty, insider abuse, caused the insolvency or troubled condition, materially broke laws or certain federal criminal statutes, held a managerial role, how long they were with the institution, and whether the payment fairly reflects earned compensation. Institutions may not prepay salary or legal costs if done when insolvency was expected or after insolvency and the payment would hide assets from creditors or favor one creditor over another. Institutions may still buy regular commercial insurance or fidelity bonds so long as the insurance does not cover the types of legal or liability payments described, and nothing here limits the regulator’s other powers.