Bailout Bill Gives SEC Oversight Role; Uses SEC Executive Compensation Rules

The Emergency Economic Stabilization Act empowers the Secretary of the Treasury to purchase illiquid mortgage-backed securities under strong oversight by a board composed of the SEC and Fed Chairs, as well as the HUD Secretary. The Financial Stability Oversight Board will oversee the broad and still extraordinary powers granted to the Secretary even after the modifications to the the Treasury's original proposal. The Secretary will set the terms and conditions of the bailout program, adopt rules and guidance, name some financial institutions federal agents to assist in the program, and execute contracts. Unlike the original proposal, the Act provides for judicial review of the Secretary's abuse of discretion, and arbitrary and capricious acts, albeit on an expedited basis.

The Act also restricts executive compensation and golden parachutes to the top five executive officers of the financial institution selling illiquid asset-backed securities to the federal government under the plan adopted by the Secretary. The Act specifically provides that the five executive officers are to be the five executive officers that must report their compensation under the SEC's new executive compensation disclosure regime. This means that the chief executive officer, the chief financial officer, and the three highest paid officers are the five covered by the Act.