CV05-00030 - U S Dept of Justice, David C Farmer, Trustee vs Harmon

THE UNITED STATES DEPARTMENT OF JUSTICE

OFFICE OF THE U.S. TRUSTEE

David C. Farmer, Successor Trustee

vs.

Bobby N. Harmon

(Formerly Mary Lou Woo vs. Harmon and James Nicholson vs. Harmon)

CV05-00030 DAE/KSC

United States District Court, District of Hawaii

Judges: David A. Ezra; Kevin S. Chang

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DEFENDANT’S WITNESS

KENNETH FEINBERG

Kenneth Feinberg is the “pay czar” appointed by President Obama as a “Special Master for Compensation” to ensure that companies receiving federal bailout funds are abiding by executive-pay guidelines.

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JUNE 5, 2009

White House Set to Appoint a Pay Czar

By DEBORAH SOLOMON

WASHINGTON -- The Obama administration plans to appoint a "Special Master for Compensation" to ensure that companies receiving federal bailout funds are abiding by executive-pay guidelines, according to people familiar with the matter.

The administration is expected to name Kenneth Feinberg, who oversaw the federal government's compensation fund for victims of the Sept. 11, 2001, terrorist attacks, to act as a pay czar for the Treasury Department, these people said.

Kenneth Feinberg, who oversaw payouts to 9/11 victims, will keep tabs on executive pay at companies in bailout.

Mr. Feinberg's appointment could be announced as early as next week, when the administration is expected to release executive-compensation guidelines for firms receiving aid from the $700 billion Troubled Asset Relief Program. Those companies, which include banks, insurers and auto makers, are subject to a host of compensation restrictions imposed by the Bush and Obama administrations and by Congress.

Wall Street has been anxiously awaiting more details on how the rules will be applied. "The law is confusing and a bit ambiguous, and so we're looking for certainty as to how to structure pay incentives," said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a trade association.

The move comes amid a series of sometimes-overlapping efforts to curb pay at financial firms following perceived industry excesses that led to the lending boom and bust.

The Obama administration earlier this year issued guidelines that include limiting salary for top executives at some firms receiving TARP funds and requiring that additional pay be in the form of restricted stock, vesting only after the company repays its debt, with interest, to the government. Congress then chimed in with even tougher rules curbing bonuses for top earners at firms receiving TARP money. As part of that effort, lawmakers barred those firms from paying top earners bonuses that equal more than a third of their total compensation.

The White House has been wrestling with how to marry those two efforts, which in combination are more punitive than administration officials had intended.

The government is also pursuing a separate revamping of financial-sector rules that could change industry compensation practices more broadly. For instance, the Federal Reserve is considering rules that would curb banks' ability to pay employees in a way that would threaten the "safety and soundness" of the bank.

Mr. Feinberg is expected to focus on pay restrictions related to firms receiving TARP bailout funds, helping companies to interpret the rules and ensure that they are being followed.

For instance, companies have been confused about whether to pay 2008 bonuses, since restrictions on incentive pay didn't go into effect until early 2009. Some firms have made the payments while others have held off. Many firms are also unsure whether the "top earners" targeted by Congress include rank-and-file employees or just executives.

“ Obama is establishing a new cabinet of officials who are accountable only to him. This is an unprecedented power grab. ”

— Kathryn Reagan

Mr. Feinberg will report to Treasury Secretary Timothy Geithner, but he is expected to have wide discretion on how the rules should be interpreted. Firms likely won't be able to appeal decisions that Mr. Feinberg makes to Mr. Geithner, according to people familiar with the matter.

Mr. Feinberg, founder and managing partner of the law firm Feinberg Rozen LLP, spent several years overseeing payouts totaling more than $7 billion to victims of the 9/11 attacks. He personally reviewed every claim, approving or denying awards and allocating sums to be paid out of the Treasury.

- Write to Deborah Solomon at deborah.solomon@wsj.com

The Wall Street Journal

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August 27, 2009

AIG stock up 264% in August

Shares soar nearly 27% Thursday on reports that salary for new CEO Robert Benmosche has been approved by Obama's pay czar.

By David Goldman, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- AIG's stock closed at $47.84 on Thursday. At the start of the month, shares were trading at a mere $13.14.

What's going on here?

AIG's stock has nearly quadrupled in August, but the company is no closer to paying back the $80 billion it owes taxpayers.

Investors got all wound up after the company announced in the past few weeks that it had appointed a new CEO and returned to profitability.

Shares gained another 27% Thursday after The Wall Street Journal reported that new Chief Executive Robert Benmosche's $10.5 million pay package has been fast-tracked for approval by Obama administration "pay czar" Kenneth Feinberg.

AIG pressed for a quick decision on Benmosche's compensation, over concerns he might leave the company if it wasn't immediately approved, according to the report.

The news actually came as little surprise, since AIG had previously announced that Feinberg gave the pay package a preliminary nod of approval.

A spokeswoman for AIG said the company would not comment on the status of Benmosche's pay package or on the stock price.

Investors' excitement about AIG began to build on Aug. 3, when the company announced it would replace retiring Chief Executive Ed Liddy with Benmosche, the former MetLife (MET, Fortune 500) CEO. Shares gained a modest 3.5%.

The stock skyrocketed on Aug. 5, with shares soaring 63% on hints that the company would post its first quarterly profit since October 2007. On Aug. 7, when AIG announced it earned $1.8 billion in the second quarter, shares gained another 20.5%.

On Aug. 20, Benmosche said that he was optimistic the company would be able to pay back the more than $80 billion it owes the U.S. taxpayers and return to the company's former glory. Shares rocketed 21% higher that day.

"People really like this guy Robert Benmosche, because he's really a salt-of-the-earth New York financial guy," said Damon Vickers, managing director of Nine Points Management & Research fund, which has bought up AIG's stock in recent days. "He looks like he's got the spirit to take on this situation and make the best of it."

Since the beginning of the month, shares of AIG (AIG, Fortune 500) are up 264%. The company held a 20-1 reverse stock split on June 30, when shares closed at $1.16.

Vickers said AIG's stock has a chance to hit $60 in the near term and $100 in the coming months. He noted that after the stock split, AIG's all-time high stands at $1,400, so the stock has plenty of room to grow.

No help for taxpayers

Since the government holds its 79.9% interest in AIG in preferred shares, taxpayers don't stand to gain from a steep rise in the company's common stock price.

Instead, the preferred shares pay a dividend. But the dividends on the TARP part of the bailout -- $41.6 billion, or about half of its overall loan -- are "noncumulative." That means that the company can skip dividend payments without the obligation to make up the difference later.

And that's just what AIG did on Aug. 3, failing to declare its dividend payment to Treasury.

Should AIG miss three more dividends, the government will have the right to nominate two more directors to the insurer's board.

Despite Benmosche and investors' enthusiasm, AIG is still a very troubled company with a sizeable debt to repay to the government.

The insurer has said it did not make enough profit to repay the taxpayers, and AIG said it won't likely be able to sustain a string of profitable quarters anyway, as it will take hefty restructuring charges for its looming core asset sales.

AIG plans on paying back the government by selling off pieces of the company. But those asset sales have been slow-going and sold at depressed values thus far, as credit remains tight. AIG has made just over $9 billion on those deals to date. As a result, AIG has agreed to spin off three huge chunks of its business, selling stakes in two of them to the Federal Reserve to reduce its loan by $25 billion.

Before his retirement on Aug. 10, Liddy reiterated that the company would likely be able to repay the government in full in three to five years, which Benmosche echoed last week.

The company also has to deal with the ongoing distraction of hundreds of millions of dollars in bonuses that have still yet to be paid to employees of its troubled Financial Products unit. The company became the subject of a public uproar after the revelation in March that AIG paid $165 million in bonuses to employees of the division that nearly brought the company to its collapse.

Still, traders like Vickers are undeterred.

"As risky as AIG seems, it has the full backing of the U.S. government," he said.

"Apparently you can take that to the bank. I'm comparing AIG to a U.S. Treasury, and I know it's insane, but it's nonetheless true."