[House Report 111-50]
[From the U.S. Government Publishing Office]



111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     111-50

======================================================================



 
END GOVERNMENT REIMBURSEMENT OF EXCESSIVE EXECUTIVE DISBURSEMENTS (END 
                               GREED) ACT

                                _______
                                

 March 24, 2009.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Conyers, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 1575]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 1575) to authorize the Attorney General to limit or 
recover excessive compensation paid or payable by entities that 
have received Federal financial assistance on or after 
September 1, 2008, having considered the same, reports 
favorably thereon without amendment and recommends that the 
bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     2
Background and Need for the Legislation..........................     2
Hearings.........................................................     8
Committee Consideration..........................................     8
Committee Votes..................................................     8
Committee Oversight Findings.....................................     9
New Budget Authority and Tax Expenditures........................     9
Congressional Budget Office Cost Estimate........................     9
Performance Goals and Objectives.................................    10
Constitutional Authority Statement...............................    10
Advisory on Earmarks.............................................    10
Section-by-Section Analysis......................................    11
Additional Views.................................................    12

                          Purpose and Summary

    In the wake of widespread financial instability and the 
failures of multiple large financial institutions, the United 
States government has implemented programs beginning in 2008 to 
provide billions of dollars in assistance to financial 
entities. News reports have revealed that some of the very same 
companies that received government funds, rewarded executives 
with bonus payments that for some companies reached hundreds of 
millions, even billions, of dollars.\1\
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    \1\See, e.g., Louise Story, $2.5 Billion in Merrill Bonuses Would 
Elude Tax, N.Y. Times, Mar. 20, 2009; Dawn Kopecki, Frank Asks 
Regulator to Pull Fannie, Freddie Bonuses, Bloomberg, Mar. 20, 2009; 
Dennis Cho & Brady Dennis, Bailout King AIG Still to Pay Millions in 
Bonuses, Wash. Post, Mar. 15, 2009, at A01.
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    H.R. 1575 statutorily authorizes the United States Attorney 
General to recover a portion of these funds on behalf of 
companies that have received more than $10 billion in Federal 
financial assistance since September 1, 2008. The legislation 
has two key components. First, it creates a Federal fraudulent 
transfer statute that will authorize the Attorney General to 
bring suit to recover prior excessive payments by the company 
to employees. This permits the Government, standing in the 
shoes of a creditor, to show that there were excessive 
compensation payments having no relationship to fair value, and 
to recover those payments for the company. Second, it 
authorizes the Attorney General to bring suit to limit future 
payments to company executives to ten times the average of non-
management wages, just as would have been the case if the 
company had been forced into bankruptcy. In addition, the bill 
authorizes the Attorney General to issue a subpoena to obtain 
pertinent information from these companies about employee bonus 
and compensation payments.

                Background and Need for the Legislation

                               BACKGROUND

    In August 2007, financial instability became widely 
apparent in the credit markets. Although initially thought to 
be limited to subprime mortgages, this instability spread 
throughout our Nation's financial system by 2008, causing 
several large financial institutions to fail and potentially 
leading to a global-wide freeze in the credit market.
    At first, the Government intervened to address these 
failures on a case-by-case basis.\2\ When such efforts failed 
to stem the credit crisis, Congress passed several bills that 
were enacted into law by the President.
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    \2\See Baird Webel & Edward V. Murphy, The Emergency Stabilization 
Act and Recent Financial Turmoil: Issues and Analysis, Congressional 
Research Service, Jan. 23, 2009.
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    On July 24, 2008, Congress passed the Housing and Economic 
Recovery Act of 2008, which was signed by President George W. 
Bush on July 30, 2008. This Act sought to restore confidence in 
Fannie Mae and Freddie Mac, two of the Nation's largest 
suppliers of mortgage financing, by strengthening regulations 
and injecting capital into these entities.\3\
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    \3\Pub. L. No. 110-289 (2008).
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    In early October 2008, Congress passed and President Bush 
signed the Emergency Economic Stabilization Act of 2008, which 
established the Troubled Assets Relief Program (TARP). Under 
TARP, the Treasury Department was authorized to purchase 
mortgage-backed securities and to provide Government funding 
for other purposes.\4\
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    \4\Pub. L. No. 110-343 (2008).
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    Most recently, Congress passed and President Barack Obama 
signed the American Recovery and Reinvestment Act of 2009 last 
month. This Act included tax reduction provisions and 
authorized various spending programs to stimulate the 
economy.\5\
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    \5\Pub. L. No. 111-5 (2009).
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    In each of these three major pieces of legislation 
addressing the economic crisis, the Government sought to impose 
executive compensation limits on those entities receiving 
taxpayer funding. The Housing and Economic Recovery Act of 
2008, for example, imposes restrictions on compensation for 
executives of Federal home loan banks, Fannie Mae, and Freddie 
Mac, and limits golden parachute payments to executives.\6\ 
Under the Emergency Economic Stabilization Act of 2008, the 
Secretary of the Treasury was tasked with requiring financial 
institutions whose troubled assets are purchased to meet 
appropriate standards for executive compensation.\7\ The 
American Recovery and Reinvestment Act of 2009 replaced and 
expanded the executive compensation requirements previously 
imposed under the Emergency Economic Stabilization Act of 
2008.\8\
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    \6\Specifically, Section 1117 allows the Secretary of the Treasury, 
in exercising temporary authority to purchase obligations issued by any 
Federal home loan bank, Fannie Mae, or Freddie Mac to consider 
limitations on the payment of executive compensation. Sections 1113 and 
1114 allow the Director of the Federal Housing Finance Agency to 
prohibit and withhold executive compensation from executives of Federal 
home loan banks, Fannie Mae, or Freddie Mac if wrongdoing has occurred. 
Section 1114 also provides authority to the Director of the Federal 
Housing Finance Agency to limit golden parachute payments to these 
executives.
    \7\Pursuant to Section 111, these standards are required to include 
limits on incentive-based compensation for unnecessary and excessive 
risks, recovery of bonuses and incentive compensation based on criteria 
later proven to be materially inaccurate, and a prohibition on golden 
parachutes.
    \8\As amended by the American Recovery and Reinvestment Act of 
2009, Section 111 provides a more comprehensive and uniform set of 
rules for all TARP recipients.
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    In the months following the passage of these initiatives, 
reports began to surface alleging excessive executive 
compensation arrangements by companies that had received 
billions of dollars in government funds. For example, the 
revelation that one company that had received $20 billion in 
taxpayer funds had paid out $3.6 billion in executive bonuses 
prompted a State attorney general to file suit alleging the 
bonuses were fraudulent.\9\ Evidence also emerged that another 
company had awarded a total of $4.4 million in retention 
bonuses to four of its top executives after it was taken over 
by the government.\10\ In March 2009, reports emerged that 
another company had given its executives hundreds of millions 
of dollars in bonus payments after receiving $180 billion from 
the government.\11\ Despite prior legislative efforts to limit 
excessive executive compensation and bonuses paid by recipients 
of government assistance, these efforts have proven to be 
ineffective.
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    \9\Louise Story, Cuomo Wins Ruling to Name Merrill Bonus 
Recipients, N.Y. Times, Mar. 19, 2009, at B1.
    \10\See, e.g., Dawn Kopecki, Frank Asks Regulator to Pull Fannie, 
Freddie Bonuses, Bloomberg, Mar. 20, 2009.
    \11\See, e.g., Dennis Cho & Brady Dennis, Bailout King AIG Still to 
Pay Millions in Bonuses, Wash. Post, Mar. 15, 2009, at A01.
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                      LEGAL ANALYSIS OF H.R. 1575

Fraudulent Transfer Law and Its Applicability to H.R. 1575
            Overview
    A fraudulent transfer\12\ essentially involves the act of 
placing assets beyond the reach of one's creditors. Thus, being 
able to undo a fraudulent transfer is one of the ``most 
powerful tools'' available to creditors who otherwise would 
have been able to satisfy their claims from those assets, if 
they had not been transferred.\13\ The modern law of fraudulent 
transfers dates back at least to Elizabethan times, with the 
enactment in 1571 of the Statute of Elizabeth,\14\ and possibly 
earlier.\15\
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    \12\As used here, the term ``fraudulent transfer'' is intended to 
be interchangeable with the term ``fraudulent conveyance.''
    \13\5 Alan N. Resnick & Henry J. Sommer, eds., Collier on 
Bankruptcy, 548.01 at 548-8 (15th ed. rev'd 2007).
    \14\See, e.g., Statute of 13 Eliz. c. 5 (1571) (deemed void any 
conveyance made with intent to delay, hinder or defraud creditors); 
Twyne's Case, 3 Coke 80b, 76 Eng. Rep. 809 (Star Chamber 1601) (thought 
to be one of the oldest cases interpreting the 1571 Statute of 
Elizabeth). As one leading bankruptcy law treatise observes, ``The 
substance of the Statute of Elizabeth is part of the common law of 
every state, and forms the basis of the actual fraudulent intent 
avoidance provisions of section 548(a)(1)(A) of the [Bankruptcy] Code, 
as well as the uniform laws that most states have enacted.'' 5 Alan N. 
Resnick & Henry J. Sommer, eds., Collier on Bankruptcy, 548.LH[1] at 
548-89 (15th ed. rev'd 2007).
    \15\See Bruce A. Markell, Lawyer-Made Law, Lex Juris and Confusing 
the Message with the Messenger--A Comment on Frankel, 12 Duke J. of 
Comp. & Int'l L. 493, 497 n. 18 (2002) (``Roman law had recognized as a 
nominate tort an action fraus creditiorum similar in purpose and effect 
to the modern intentional fraudulent conveyance.'').
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    The classic illustration of a fraudulent transfer is where 
someone--rather than using his or her assets to repay debts 
owed to his or her creditors--transfers them to a friend or 
relative with actual intent to defraud his or her creditors. 
The law of fraudulent transfers also applies to an asset 
transfer made by an entity who is in a precarious financial 
condition and who received less than reasonably equivalent 
value in exchange for the transfer.
Types of Fraudulent Transfer Laws
    Four States, including New York,\16\ have adopted the 
Uniform Fraudulent Conveyance Act (UFCA), which essentially 
codifies the Statute of Elizabeth.\17\ Thirty-nine States and 
the District of Columbia have adopted the Uniform Fraudulent 
Transfer Act (UFTA),\18\ a modernized, though very similar, 
successor to the UFCA.\19\ Other States rely on common law 
theories of fraudulent transfer.
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    \16\These states are: Maryland, New York, Tennessee, and Wyoming. 
Cornell University Law School Legal Information Institute--Uniform 
Business and Financial Laws Locator, at http://www.law.cornell.edu/
uniform/vol7.html#frcon
    \17\The National Conference of Commissioners on Uniform State Laws 
proposed the Uniform Fraudulent Conveyance Act (UFCA) in 1918. 
According to the Conference, ``It was created to supersede the Statute 
of 13 Elizabeth which was enacted in some form by many states, and 
which introduced the concept of the fraudulent conveyance into the law 
of every American jurisdiction, with or without enactment.'' National 
Conference of Commissioners on Uniform State Laws, Uniform Fraudulent 
Transfer Act--Summary, at http://www.nccusl.org/nccusl/
uniformact_summaries/uniformacts-s-ufta.asp (last visited Mar. 22, 
2009).
    \18\Cornell University Law School Legal Information Institute--
Uniform Business and Financial Laws Locator, at http://
www.law.cornell.edu/uniform/vol7.html#frcon
    \19\The National Conference of Commissioners on Uniform State Laws 
approved the UFTA in 1984. The principal differences between the UFCA 
and the UFTA are summarized by the Conference as follows:

      Much of the UFTA resembles the UFCA, its predecessor. What, 
      then, are some of the differences? . . . To begin with, the 
      term ``transfer'' taken from the Federal Bankruptcy Act 
      replaces the term ``conveyance.'' UFCA uses the term ``fair 
      consideration'' instead of ``reasonably equivalent value.'' 
      ``Reasonably equivalent value'' does not include the 
      element of good faith as ``fair consideration'' does, and 
      is more sharply defined than ``fair consideration'' is in 
      the UFCA. UFTA overcomes the problem raised in the case of 
      Durrett v. Washington National Insurance Co., 621 F.2d 201 
      (5th Cir. 1980), a case that jeopardized mortgage 
      foreclosure sales. Under UFTA, a properly conducted 
      foreclosure sale is not a fraudulent transfer, 
      notwithstanding the fact that it does not recover an amount 
      somewhat near the actual market value of the property. The 
      concept of the ``insider'' is new in the UFTA. UFTA 
      provides for defenses of transferees and for a statute of 
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      limitations. Both issues are not addressed in the UFCA.

National Conference of Commissioners on Uniform State Laws, Uniform 
Fraudulent Transfer Act--Summary, at http://www.nccusl.org/nccusl/
uniformact_summaries/uniformacts-s-ufta.asp (last visited Mar. 22, 
2009).
    The law of bankruptcy is currently the only federally 
codified source of fraudulent transfer law. Under bankruptcy 
law, a trustee (a fiduciary for creditors) may undo or 
``avoid'' a fraudulent transfer on behalf of all of the 
debtor's creditors. If the trustee's action is successful, the 
assets are brought into the bankruptcy estate for distribution 
to the debtor's creditors.
    A bankruptcy trustee may pursue a fraudulent transfer under 
two authorities. First, section 548 of the Bankruptcy Code\20\ 
codifies Federal fraudulent transfer law for bankruptcy cases. 
It is substantively identical to the UFTA. Second, Section 
544(b) of the Bankruptcy Code\21\ allows the trustee to ``step 
into the shoes of a creditor of the debtor'' and assert that 
creditor's rights under applicable state fraudulent transfer 
law.\22\ Thus, in a bankruptcy case filed in New York where the 
debtor transferred assets for less than reasonably equivalent 
value while insolvent, the trustee may invoke the applicable 
New York law with respect to such transfers.\23\
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    \20\11 U.S.C. Sec. 548 (2008).
    \21\11 U.S.C. Sec. 544(b) (2008).
    \22\5 Alan N. Resnick & Henry J. Sommer, eds., Collier on 
Bankruptcy, 548.01[4] at 548-12 (15th ed. rev'd 2007).
    \23\See N.Y. Debtor & Creditor L. Sec. 273 (2008) (``Every 
conveyance made and every obligation incurred by a person who is or 
will be thereby rendered insolvent is fraudulent as to creditors 
without regard to his actual intent if the conveyance is made or the 
obligation is incurred without a fair consideration.''); N.Y. Debtor & 
Creditor L. Sec. 275 (2008) (``Every conveyance made and every 
obligation incurred without fair consideration when the person making 
the conveyance or entering into the obligation intends or believes that 
he will incur debts beyond his ability to pay as they mature, is 
fraudulent as to both present and future creditors.'').
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    Section 548, in pertinent part, authorizes a trustee to 
undo a transfer by a debtor in exchange for less than 
reasonably equivalent value in a case where the debtor:

        (I) was insolvent on the date that such transfer was 
        made or such obligation was incurred, or became 
        insolvent as a result of such transfer or obligation;

        (II) was engaged in business or a transaction, or was 
        about to engage in business or a transaction, for which 
        any property remaining with the debtor was an 
        unreasonably small capital;

        (III) intended to incur, or believed that the debtor 
        would incur, debts that would be beyond the debtor's 
        ability to pay as such debts matured; or

        (IV) made such transfer to or for the benefit of an 
        insider, or incurred such obligation to or for the 
        benefit of an insider, under an employment contract and 
        not in the ordinary course of business.\24\
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    \24\11 U.S.C. Sec. 548(a)(1)(B) (2008).

It should be noted that the last item, concerning employment 
contracts, was added on a retroactive basis in 2005, based on a 
bipartisan floor amendment passed by voice vote by the House 
during the course of its consideration of bankruptcy reform 
legislation in the 108th Congress.\25\
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    \25\149 Cong. Rec. H2055 (daily ed. Mar. 19, 2003). In the 108th 
Congress, the House adopted, by voice vote, an amendment offered by 
Representative Chris Cannon (R-UT) and William Delahunt (D-MA), which, 
in relevant part, increased the reach-back period during which 
fraudulent transfers can be avoided from 1 to 2 years, and clarified 
that section 548(a)(1)(B) applied to compensation paid to insiders 
under an employment contract.
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Relation to the End the GREED Act
    H.R. 1575 is intended to, among other things, establish a 
uniform law giving the United States Attorney General similar 
authority to what a bankruptcy trustee has under relevant 
portions of sections 548(a)(1)(B)(i)(I), (II), 544(b), and 550 
of the Bankruptcy Code with respect to a entity's payment of 
compensation to its employees. Accordingly, the Attorney 
General would have the discretion under H.R. 1575 to commence a 
civil action to avoid and recover any transfer of compensation 
made by a recipient entity (as defined in section 6 of the 
bill), and to avoid the obligation pursuant to which the 
transfer occurred, to the extent of the transfer, under certain 
circumstances.
    Much like Bankruptcy Code section 548(a)(1)(B)(ii), the 
Attorney would be so authorized to pursue this action if: (1) 
the recipient entity was insolvent on the date that such 
compensation was transferred (not taking into account any line 
of credit, loan, or payment in exchange of stock received by 
such entity from the United States); or (2) such entity was 
engaged in business or in a transaction (or about to engage in 
such activities) that left the entity with an unreasonably 
small capital for the continuation of such business or 
transaction.
    In addition, H.R. 1575 is intended to empower the Attorney 
General with the same authority as under Bankruptcy Code 
section 544(b). As such, the Attorney General would be 
authorized to ``step into the shoes of a creditor'' of the 
entity and assert that creditor's rights under applicable State 
fraudulent transfer law.
    In determining whether an entity is insolvent for purposes 
of H.R. 1575, the court should use the long-established 
definition of this term under section 101(32) of the Bankruptcy 
Code,\26\ which is ``essentially a balance sheet test in which 
the sum of the debts is greater than the sum of the assets, at 
a fair valuation,'' exclusive of certain types of property 
interests.\27\ Likewise, the term ``transfer,'' as it is used 
under H.R. 1575, is intended to have the same breadth of 
application as that term has under the Bankruptcy Code, which 
defines it in section 101(54) of the Code.\28\
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    \26\11 U.S.C. Sec. 101(32) (2008). Section 101(32), in pertinent 
part, defines ``insolvent'' as follows:

(A) with reference to an entity other than a partnership and a 
municipality, financial condition such that the sum of such entity's 
debts is greater than all of such entity's property, at a fair 
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valuation, exclusive of--

      (i) property transferred, concealed, or removed with intent 
      to hinder, delay, or defraud such entity's creditors; and

      (ii) property that may be exempted from property of the 
      estate under section 522 of this title;

(B) with reference to a partnership, financial condition such that the 
sum of such partnership's debts is greater than the aggregate of, at a 
fair valuation--

      (i) all of such partnership's property, exclusive of 
      property of the kind specified in subparagraph (A)(i) of 
      this paragraph; and

      (ii) the sum of the excess of the value of each general 
      partner's nonpartnership property, exclusive of property of 
      the kind specified in subparagraph (A) of this paragraph, 
      over such partner's nonpartnership debts[.]

Id.
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    \27\5 Alan N. Resnick & Henry J. Sommer, eds., Collier on 
Bankruptcy, 548.05[1][a] at 548-32-33 (15th ed. rev'd 2007).
    \28\In relevant part, Bankruptcy Code section 101(54) defines 
transfer to mean ``each mode, direct or indirect, absolute or 
conditional, voluntary or involuntary, of disposing of or parting 
with--(i) property; or (ii) an interest in property.'' 11 U.S.C. 
Sec. 101(54) (2008).
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    Under H.R. 1575, an employee who received a bonus or 
excessive compensation has an opportunity to prove why he or 
she provided value warranting such payment. Thus, where the 
employee, in good faith, received such compensation, the court 
should allow the employee to retain that portion of the 
compensation representing fair value provided by the employee 
in exchange.\29\
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    \29\Cf. 11 U.S.C. Sec. 548(c) (2008).
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                     CONSTITUTIONAL CONSIDERATIONS

    The Committee has considered carefully the constitutional 
issues implicated in H.R. 1575, and is confident that the bill 
is constitutionally sound. It is well within Congress's 
authority under the Bankruptcy Clause, the Commerce Clause, the 
Spending Clause, and the Necessary and Proper Clause. Nor is 
H.R. 1575 an unconstitutional taking of property in violation 
of due process under the Fifth Amendment, or an 
unconstitutional bill of attainder.
    Congress's authority under article I, section 8, clause 4 
to ``establish . . . uniform Laws on the subject of 
Bankruptcies throughout the United States'' applies not only to 
laws regarding bankruptcy itself, but also to laws regarding 
companies facing insolvency generally. ``While attempts have 
been made to formulate a distinction between bankruptcy and 
insolvency, it has long been settled that, within the meaning 
of the [Bankruptcy Clause], the terms are convertible.''\30\ 
Although the Supreme Court has ``noted that `[t]he subject of 
bankruptcies is incapable of final definition,' [it has] 
previously defined `bankruptcy' as the `subject of relations 
between an insolvent or nonpaying or fraudulent debtor and his 
creditors, extending to his and their relief.'''\31\ As the 
Supreme Court noted in Wright v. Union Central Life Ins. 
Co.,\32\ Congress also has a broad general grant of enhancing 
power under the Necessary and Proper Clause, article 1, section 
8, clause 18.
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    \30\Continental Illinois National Bank & Trust Co. v. Chicago Rock 
Island & Pacific Railway, 294 U.S. 648, 667-68 (1945).
    \31\Railway Labor Executives' Ass'n v. Gibbons, 455 U.S. 457, 466 
(1982) (quoting Wright v. Union Central Life Ins. Co., 304 U.S. 502, 
513-14 (1938)).
    \32\304 U.S. at 513.
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    Congress also has broad authority under the Commerce 
Clause, article I, section 8, clause 3, ``to regulate Commerce 
with foreign Nations and among the several States. . . .'' The 
Supreme Court has reiterated the breadth of the Commerce Clause 
power on numerous occasions.\33\ And again, Congress also has 
broad applicable enhancing authority under the Necessary and 
Proper Clause.
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    \33\See, e.g., Gonzales v. Raich, 545 U.S. 1, 17 (2005); Perez v. 
United States, 402 U.S. 146, 150-152 (1971); Wickard v. Filburn, 317 
U.S. 111, 123-24 (1942).
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    Aside from these authorities, in this instance, where the 
bill is limited to companies that have received extraordinary 
Federal financial support of at least $10 billion since last 
September 1, Congress also has ample authority under the 
Spending Clause to set conditions on how these funds are 
spent\34\--again, enhanced by the Necessary and Proper Clause.
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    \34\See, e.g., South Dakota v. Dole, 483 U.S. 203, 206-07 (1987); 
Lau v. Nichols, 414 U.S. 563, 569 (1974); Steward Machine Co. v. Davis, 
301 U.S. 548 (1937).
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    H.R. 1575 is clearly not an unconstitutional taking without 
due process. First, the Attorney General would not be 
recovering the unjustified bonuses and other compensation for 
the Government's own use, but rather would be restoring them to 
the company where they originated, for its proper benefit and 
use. ``Congress has considerable leeway to fashion economic 
legislation, including the power to affect contractual 
commitments between private parties.''\35\ And second, the 
threshold burden for the claimant in a takings case is 
demonstrating a legitimate interest in the property in 
question.\36\ It is axiomatic that there is no legitimate 
property interest in the proceeds of a fraudulent transfer. 
Moreover, the determination that a particular transfer of 
compensation was for ``less than a reasonably equivalent value 
in exchange'' is made by the court, after trial, based on the 
evidence presented. The Act, including its application to 
existing compensation arrangements, is manifestly ``supported 
by a legitimate legislative purpose furthered by rational 
means.''\37\
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    \35\Eastern Enterprises v. Apfel, 524 U.S. 498, 528 (1998).
    \36\See Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 539 (2005); 
Bair v. U.S., 515 F.3d 1323, 1327 (Fed. Cir. 2008).
    \37\United States v. Carlton, 512 U.S. 26, 32 (1994); Pension 
Benefit Guaranty Corporation v. R.A. Gray & Co., 467 U.S. 717, 729 
(1984); Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 16 (1976).
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    Nor is H.R. 1575 a bill of attainder or violation of the Ex 
Post Facto Clause. It is an essential hallmark of a bill of 
attainder that it must ``inflict punishment without a judicial 
trial.''\38\ As the Court explained in United States v. 
Brown,\39\ ``[t]he Bill of Attainder Clause was intended . . . 
as an implementation of the separation of powers, a general 
safeguard against legislative exercise of the judicial 
function, or more simply--trial by legislature.'' In contrast, 
under H.R. 1575, no one would be required to surrender any 
compensation except pursuant to court action. Thus, even 
assuming that the act of avoiding, and recovering for the 
benefit of the company, a bonus unjustifiably given might be 
considered ``punishment''--doubtful under well-settled 
precedents\40\--it is the court, not the legislature, that 
would impose it. And because the legislation is not criminal in 
nature, it cannot violate the Ex Post Facto Clause.\41\
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    \38\Garner v. Board of Public Works, 341 U.S. 716, 722 (1951); 
Cummings v. Missouri, 17 U.S. (4 Wall.) 277, 323 (1866).
    \39\381 U.S. 437, 442 (1965).
    \40\See, e.g., Nixon v. Administrator of General Services, 433 U.S. 
425, 471-73 (1977).
    \41\See, e.g., Collins v. Youngblood, 497 U.S. 37, 41 (1990); 
Calder v. Bull, 3 U.S. (3 Dall.) 386, 397 (1798).
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                                Hearings

    The Committee on the Judiciary held no hearings on H.R. 
1575.

                        Committee Consideration

    On March 18, 2009, the Committee met in open session and 
ordered the bill, H.R. 1575, favorably reported without 
amendment by voice vote, a quorum being present.

                            Committee Votes

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that there 
were no recorded votes during the Committee's consideration of 
H.R. 1575.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 1575, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 23, 2009.
Hon. John Conyers, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1575, the End 
Government Reimbursement of Excessive Executive Disbursements 
(End GREED) Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Leigh Angres, 
who can be reached at 226-2860.
            Sincerely,
                                      Douglas W. Elmendorf,
                                                  Director.

Enclosure

cc:
        Honorable Lamar S. Smith.
        Ranking Member
H.R. 1575--End Government Reimbursement of Excessive Executive 
        Disbursements (End GREED) Act.
    H.R. 1575 would invoke the bankruptcy power of the U.S. 
Constitution to authorize the U.S. Attorney General (AG), after 
consultation with the Secretary of the Treasury, to recoup 
existing, and limit future, payments for employment 
compensation made by companies that have received federal 
financial assistance since September 2008. The bill would apply 
to those companies that received a loan, line of credit, 
payment made in exchange for stock purchases, or some 
combination of assistance that exceeds a total of $10 billion.
    Specifically, the bill would allow the AG to commence a 
civil action under certain circumstances to recover any payment 
made by a company to an employee on or after September 1, 2008, 
if such employee received an amount that was unreasonably 
greater than the value received by the company. Such recoveries 
would be returned to the company. The AG could also commence a 
civil action to limit the amount of the compensation paid or 
payable under an employment contract to a company's employees 
on or after the date of enactment, if such compensation exceeds 
a certain amount. That amount would be greater than 10 times 
the average amount of compensation paid or payable to such 
company's nonmanagement employees during a calendar year.
    Any costs to pursue such cases would be subject to the 
availability of appropriated funds. Because CBO expects few 
cases would be pursued under the bill, any associated costs 
would be negligible.
    H.R. 1575 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on state, local, or tribal governments.
    H.R. 1575 would impose a private-sector mandate, as defined 
in UMRA, to the extent that it would require individuals to pay 
back certain compensation received from companies that accepted 
$10 billion or more in financial assistance from the federal 
government on or after September 1, 2008. The costs of 
complying with that mandate would be the lost compensation, 
plus court costs and attorney fees. Because those costs, if 
any, would depend on future court decisions and settlements, 
CBO cannot determine whether they would exceed the annual 
threshold established in UMRA for private-sector mandates ($139 
million in 2009, adjusted annually for inflation).
    The CBO staff contacts for this estimate are Leigh Angres 
(for federal costs) and Paige Piper/Bach (for the private-
sector impact). This estimate was approved by Theresa Gullo, 
Deputy Assistant Director for Budget Analysis.

                    Performance Goals and Objectives

    The Committee states that pursuant to clause 3(c)(4) of 
rule XIII of the Rules of the House of Representatives, H.R. 
1575 will promote the stewardship of taxpayer dollars that have 
been used to stabilize entities in financial distress.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article I, section 8, clauses 1, 3, 4, and 
18 of the Constitution.

                          Advisory on Earmarks

    In accordance with clause 9 of rule XXI of the Rules of the 
House of Representatives, H.R. 1575 does not contain any 
congressional earmarks, limited tax benefits, or limited tariff 
benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.

                      Section-by-Section Analysis

    The following discussion describes the bill as reported by 
the Committee.
    Sec. 1. Short Title. Section 1 sets forth the short title 
of the bill as the ``End Government Reimbursement of Excessive 
Executive Disbursements (End GREED) Act.''
    Sec. 2. Statement of Authority. Section 2 sets forth a 
statement of congressional authority. Pursuant to this 
authority, section 2 authorizes the Attorney General, after 
consultation with the Secretary of the Treasury, to: (1) seek 
recovery of previous excessive payments of compensation made by 
recipient entities (as defined in section 6 of the bill); and 
(2) limit excessive payments of compensation to be made by such 
entities.
    Sec. 3. Recovery of Excessive Compensation. Subsection (a) 
of section 3 authorizes the Attorney General, after 
consultation with the Secretary of the Treasury, to review on 
behalf of the Government any employment contract made by a 
recipient entity, and any payment made by a recipient entity to 
an employee on or after September 1, 2008.
    Subsection (b) authorizes the Attorney General to commence 
a civil action in the appropriate United States district court 
to avoid any payment made by a recipient entity to an employee 
(including a payment under an employment contract) that was 
made on or after September 1, 2008, if such entity received 
less than a reasonably equivalent value in exchange for such 
payment, under certain circumstances. The provision applies if 
such entity was either: (1) insolvent on the date that the 
payment was made, not taking into account any line of credit, 
loan, or payment in exchange for stock, received by such entity 
from the United States on or after September 1, 2008; or (2) 
engaged in business or a transaction (or about to engage in 
business or a transaction) for which property remaining in the 
recipient entity was an unreasonably small capital.
    For purposes of this subsection, the Attorney General may 
avoid any interest of a recipient entity in property, or any 
obligation incurred by such entity, that is avoidable under 
applicable law by a creditor holding an unsecured claim against 
such entity.
    Subsection (c) authorizes the Attorney General to commence 
a civil action in the appropriate United States district court 
to limit the amount of compensation paid or payable on or after 
the date of enactment of this Act by a recipient entity under 
an employment contract if such compensation is greater than an 
amount equal to ten times the amount of the mean amount of 
compensation paid or payable to such entity's non-management 
employees for any purpose during the calendar year in which 
compensation was paid or payable by such entity.
    Sec. 4. Subpoena Authority. Section 4 authorizes the 
Attorney General to issue a subpoena to require the attendance 
and testimony of witnesses as well as require the production of 
documentary evidence relating to any matter relevant to the 
implementation of this Act, including the circumstances 
surrounding any employment contract or payment of compensation. 
In any instance of contumacy or refusal to obey, section 4 
provides that the subpoena shall be enforceable by order of an 
appropriate district court of the United States.
    Sec. 5. Rule of Construction. Section 5 sets forth a rule 
of construction. Other than limiting compensation paid or 
payable under employment contracts or providing for the 
recovery of previously paid compensation, section 5 provides 
that nothing in this Act shall be construed to have any impact 
on a recipient entity, its financial status, or the financial 
status of its creditors.
    Sec. 6. Definitions. Section 6 defines two terms used in 
the Act. First, it defines ``employment contract'' as a 
contract that provides for the payment of compensation 
(including performance or incentive compensation, bonus, or 
other financial return designed to replace or enhance 
incentive, stock, or other compensation. Second, it defines 
``recipient entity'' as a person (including any subsidiary of 
such person) that receives during any period beginning on 
September 1, 2008 from the United States, in excess of $10 
billion in the aggregate, (1) a line of credit or a loan, (2) a 
payment in exchange for stock of such person (or such 
subsidiary), or (3) any combination of such lines of credit, 
loans, or payments.

                            Additional Views

    As the financial crisis of Fall 2008 sprang to life, the 
United States bailed out of imminent financial disaster the 
insurance giant American International Group (AIG). This 
decision was attended by no small controversy. It preceded a 
much greater controversy still, that over the passage of the 
Emergency Economic Stabilization Act of 2008.
    Since those actions, federal bailouts have continued to 
come to the rescue of financial institutions. The Executive and 
the Department of the Treasury have attempted multiple 
strategies to revive the Nation's ailing finance system, its 
associated institutions, and the broader economy. Chief among 
these was the American Recovery and Reinvestment Act of 2009, 
commonly known as the ``Stimulus Bill.'' Governments around the 
world have taken parallel actions to save their ravaged systems 
and economies. Yet still the crisis rages on. Public 
frustration mounts, and global anxiety has not diminished.
    In this tension-filled environment, over the weekend of 
March 14-15, 2009, it was revealed that, out of the $180 
billion-plus dollars that AIG has received from the federal 
government to date, AIG had just distributed more than $160 
million in retention bonuses to its executives and members of 
its Financial Products Subsidiary, the AIG unit principally 
responsible for the firm's meltdown. According to the Attorney 
General of New York, the most richly paid bonus recipient 
received more than $6.4 million in taxpayer funds. The top 
seven bonus recipients received more than $4 million each. The 
top ten bonus recipients received a combined $42 million. 
Twenty-two individuals received bonuses of $2 million or more; 
combined they received more than $72 million. Seventy-three 
individuals received bonuses of $1 million or more. Eleven of 
the individuals who received ``retention'' bonuses of $1 
million or more are no longer working at AIG. One of these 
received $4.6 million. Meanwhile, in the devastated economy AIG 
helped to unleash upon the American public, unemployment has 
risen by leaps and bounds, standing now at over eight percent. 
The stock market has plunged by well over 30 percent. Trillions 
of dollars of American wealth has evaporated.
    As the week of March 15, 2009 has unfolded, the chairman of 
the Senate Banking Committee has admitted that he inserted into 
the Stimulus Bill a stealth provision protecting AIG's ability 
to pay these bonuses, in response to the urging of the Obama 
Administration. The Secretary of the Treasury has admitted that 
it was his department that urged the Banking Committee chairman 
to insert the provision into the Stimulus Bill, in response to 
concerns over lawsuits that could be filed if the bonuses were 
not paid. It has been revealed that Executive Branch officials 
knew about the bonuses but made no effort to prevent them. And 
AIG has responded that it had no choice but to pay these sums, 
due to contractual obligations that were part of its employee 
retention plan.
    The American people have had a different response. Outrage 
has swept the country. The AIG bonuses have detonated the 
powder keg that was first filled, and has since progressively 
smoldered, as the congressional majority and the Administration 
have failed to take the steps needed to halt the economy's 
bleeding.
    The House majority, for its part, has taken yet another 
response to this debacle. It could have held itself accountable 
for its role in the scandal. After all, the House majority 
passed the bonus-enabling Stimulus Bill without even reading 
it, over the opposition of every Republican member of the 
House. But the majority did not hold itself accountable. The 
House majority also could have held the Executive and the 
Department of the Treasury accountable for their failures. But 
it did not, and, adding insult to injury, it blocked Republican 
legislation that would have helped to ensure that the 
Executive, including the Treasury Secretary, would never let 
this happen again. What is more, the House majority has failed 
to introduce legislation to recoup the taxpayers' lost funds 
through the course of future dealings with a company the U.S. 
government now effectively owns, AIG--which will surely come as 
the crisis drags on. Rather than hold itself, the Executive or 
the Secretary accountable, the House majority has even gone so 
far as to offer and debate a resolution that the Executive 
Branch has done everything it could to avoid what has gone 
wrong in this crisis. Stunningly, this resolution, H. Con. Res. 
76, garnered nearly every House Democrat's vote.
    The majority has, in addition, introduced the bill before 
us, H.R. 1575, entitled the ``End the Government Reimbursement 
of Excessive Executive Disbursements (End the GREED) Act.'' 
Ostensibly using the Congress' power under the Bankruptcy 
Clause, the bill asserts that AIG, had it not been bailed out, 
would be insolvent; that AIG, were it insolvent, would be 
subject to the bankruptcy power; that, in bankruptcy, AIG's 
bonus contracts could have been abrogated, so that the bonuses 
need not have been paid; and that, accordingly, the still 
solvent AIG should be subject to the abrogation of contracts 
outside of bankruptcy, in civil actions brought by the Attorney 
General and involving no other AIG creditors. In addition to 
this gerrymandering of the Bankruptcy Clause, the bill extends 
the power to abrogate contracts, not simply to the employment 
contracts of AIG, but to those of any institution receiving $10 
billion or more from a loan, line of credit, or payment by a 
federal agency. It establishes the power for the Attorney 
General to suppress significantly, not just executive 
compensation, but any employee's compensation. And it enshrines 
these powers in perpetuity.
    This sweeping bill raises clear constitutional concerns 
under the Bankruptcy Clause and the Takings Clause. It may 
raise concerns under other clauses of the Constitution as well, 
such as Article III's Case or Controversy Clause. It is likely 
to trigger litigation on one or more of these grounds; if those 
challenges are successful, the statute will accomplish nothing 
to remedy the enormity that is the AIG bonuses. The bill also, 
by its highly unusual, overly broad and open-ended incursion on 
contracts, threatens to chill lenders from seeking needed 
federal aid, and to chill investors from investing in our 
markets for fear of what the Congress might do next.
    For example, the Bankruptcy Clause, residing in Article I, 
section 8, clause 4 of the Constitution, provides that the 
Congress has the authority to establish ``uniform Laws on the 
subject of Bankruptcies throughout the United States.'' This 
power, while broad, is not without limit. In Louisville Joint 
Stock Land Bank v. Radford, 295 U.S. 555, 589 (1935), the 
Supreme Court held that ``[t]he bankruptcy power, like the 
other great substantive powers of Congress, is subject to the 
Fifth Amendment.'' Similarly in United States v. Security 
Industrial Bank, 459 U.S. 70, 75 (1982), the Court stated that 
``[t]he bankruptcy power is subject to the Fifth Amendment's 
prohibition against taking private property without 
compensation.'' As a result, because the bill relies on the 
Bankruptcy Clause as authority for its enactment, the bill must 
respect, not only the limits of the Bankruptcy Clause's terms 
in and of themselves, but the limits which the Fifth Amendment 
superimposes on those terms. We believe it fair to presume that 
the bill relies on the Bankruptcy Clause specifically to try to 
skirt the reach of the Takings Clause. But the notion that the 
federal government can provide financial assistance to a 
company to keep it from becoming insolvent and filing for 
bankruptcy, then claim that it can treat the company outside of 
bankruptcy as if it had become insolvent and filed in 
bankruptcy, just to avoid takings claims that might be brought 
against its interference with contracts--under which contracts 
the Congress essentially pre-authorized payment--is highly 
questionable and presents an unprecedented (or, at least, the 
majority has offered no precedent) use of the Bankruptcy 
Clause. Certainly, it is not a concept that we should rush to 
embrace, or should expect with confidence that the courts will 
affirm.
    What is more, while it may be true that, in a case brought 
in bankruptcy court, bonus compensation might be subject to 
limitation or recapture provisions in the Bankruptcy Code, see 
11 U.S.C. secs. 503(c) and section 544(b), such a limitation or 
recovery would generally accrue to the benefit of all of the 
creditors in the case. The federal government would ordinarily 
be a party to the case only if it were owed tax payments, or if 
a government agency such as the Pension Benefit Guaranty 
Corporation had a legitimate seat at the table. H.R. 1575's 
quasi-bankruptcy proposal, however, makes the federal 
government the only party in interest. Any and all recoveries 
of excessive executive compensation will flow back to the U.S. 
Treasury. Not one dime will accrue to other AIG creditors, of 
whom there assuredly are many. We understand that, in this 
instance, the Congress desires to recover specifically federal 
monies. We raise the point, however, merely to illustrate how 
clearly the bill stands outside the ordinary bankruptcy 
framework.
    Also departing from usual bankruptcy norms is the complete 
lack of any end to the reach of the bill. In a true bankruptcy 
case, there is always an end, and a prompt one. That end is 
called ``discharge,'' see, e.g., 11 U.S.C. sec. 727, or 
ultimately liquidation. Under H.R. 1575, however, there is no 
release from the reach of the federal government. There is no 
discharge. On the contrary, once an entity has received 
government assistance that exceeds $10 billion it is subject to 
the bill's tortured, quasi-bankruptcy control of executive 
compensation--and non-executive compensation--until the end of 
time. In other words, a continuous government presence to 
determine compensation.
    In an attempt to smooth over the bill's lurking Bankruptcy 
Clause problems, the majority has advanced the theory that 
state and federal fraudulent conveyance laws provide a 
foundation for incorporating bankruptcy powers into the bill. 
This is a provocative theory; we are willing to concede for 
purposes of argument that there may be at least partial merit 
to it. The Committee, however, has not had time to explore this 
claim fully through the testing of witnesses at a hearing, and 
serious questions remain. For example, what is to be done with 
AIG bonuses that may not have constituted ``fraudulent 
conveyances?'' Let it not be forgotten that the congressional 
majority, at the behest of the Administration, snuck into the 
Stimulus Bill a provision specifically to protect AIG's right 
to pay these bonuses after removing a bipartisan Senate 
amendment that could have prevented the payment of these 
bonuses, and that the bonus-protecting provision was signed 
into law. Could that not drastically undermine the theory that 
the bonuses were fraudulently conveyed? If the bonuses were not 
fraudulently conveyed, might not an attempt to recoup the 
bonuses through the civil actions H.R. 1575 would authorize 
amount to an attempted taking? Might not that attempt strain 
this stretch of the Bankruptcy Clause beyond the breaking 
point? Finally, if it is a fraudulent conveyance theory that 
the majority embraces, why does the majority not simply 
introduce a fraudulent conveyance statute, eschewing any 
reliance on the Bankruptcy Clause? Is it because the majority 
knows that there are serious obstacles to proving that any of 
these bonuses were fraudulently--as opposed to foolishly--
conveyed?
    The above issues do not exhaust our concerns under the 
Bankruptcy Clause. But for the sake of brevity--and because the 
majority's hasty tactics have not permitted time to plumb these 
questions fully--let us turn to our concerns under the Takings 
Clause and the Case or Controversy Clause.
    To begin with the Takings Clause, contracts, of course, are 
constitutionally protected property. See, e.g., Lynch v. United 
States, 292 U.S. 571, 579 (1934) (``Valid contracts are 
property, whether the obligor be a private individual, a 
municipality, a state, or the United States.''); United States 
Trust Co. v. New Jersey, 431 U.S. 1, 19 (1977) (``Contract 
rights are a form of property and as such may be taken for a 
public purpose provided that just compensation is paid.''). As 
a result, the proposal to exact from recipients payments that 
have already been paid, pursuant to pre-existing contracts that 
are not suggested to be invalid, under the shadow of Stimulus 
Bill authority that could easily be viewed to have ratified the 
contractual rights to the payments, could very well be a 
proposal to exact a taking. Of course, if this were a taking, 
it would have to be either compensated--defeating the very 
purpose of the exaction--or held unconstitutional. United Trust 
Co., 431 U.S. at 19. This quandary, no doubt, lies at the root 
of the majority's invocation of the Bankruptcy Clause.
    The Case or Controversy Clause may also present an issue 
that is destined to doom the bill. In the case of In re TMI 
Litigation Cases II, 940 F.2d 832 (3rd Cir., 1982), for 
example, the federal courts held once again that, under this 
clause of the Constitution, for Congress to confer a valid 
grant of federal jurisdiction, the cause of action concerned 
must be one which ``arises under'' the laws of the United 
States. Yet while H.R. 1575 certainly endeavors to grant the 
courts jurisdiction to hear, and the Attorney General authority 
to bring, cases that would undo the AIG bonus contracts, the 
bill cites no underlying substantive federal law which the 
bonus payments violated. And, again, struggle as it might, it 
is questionable whether the bill could, given that the Stimulus 
Bill appears to have ratified the payment of the bonuses under 
existing AIG contracts.
    Amendments to the bill might have been reached that could 
have avoided these and other problems, had we been given time 
to work the problems through and craft appropriate solutions. 
That time was available, and the Constitution deserved it. The 
AIG bonuses have already been paid. The time for urgent action 
to keep them from being paid has passed us, however so much in 
the night. The time to take steps to recover them is ample. Yet 
this bill was brought to our attention in draft form on the 
morning of March 17, 2009; introduced in a new form on the 
evening of that day; and brought directly to full Committee 
mark-up on March 18, 2009. No Subcommittee or full Committee 
hearings were held. No Subcommittee mark-up was entertained. No 
time for reasoned consideration was allowed. And no time is 
being lost in hurrying this bill to the floor of the House. We 
understand that the majority will bring the bill to a vote as 
soon as three legislative days after our Committee's mark-up, 
under a suspension of the House rules, preventing any final 
possibility of amendment.
    AIG's bonus payments are astounding. Still more astounding, 
however, is the rush by the majority to legislate, when that 
rush risks trampling the Constitution. In the current 
environment, we can only conclude that this haste is being 
indulged in, not so much to address the AIG bonuses, but to 
deflect attention from, and deter reflection on, the role of 
the congressional majority and the current Administration in 
allowing the outrage of the bonuses to occur in the first 
place. Our Constitution and our people deserve better.

                                   Lamar Smith.
                                   Steve King.
                                   Trent Franks.
                                   Jim Jordan.
                                   Ted Poe.
                                   Jason Chaffetz.
                                   Gregg Harper.

                                 
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