* Insurers sell bankers protection against pay claw-backs
* Frank: Need bill to preserve Dodd-Frank, Sarbanes-Oxley
* Marsh launched protection program last year
(Adds JPMorgan context)
By Alexandra Alper and Ben Berkowitz
WASHINGTON/BOSTON, May 30 Executives at
financial firms would no longer be able to buy insurance to
protect themselves against compensation claw-backs or civil
penalties under legislation introduced on Wed nesday by U.S.
Representative Barney Frank.
The bill, Frank said, is aimed at protecting the intent of
the 2010 Dodd-Frank financial reform law, the 2002
Sarbanes-Oxley Act and other laws that let federal regulators
recoup compensation or impose fines on individuals who break the
law or engage in unsafe conduct.
"The creation of insurance policies to insulate financial
executives from claw-backs is one more effort by some in the
industry to perpetuate a lack of accountability," Frank, a
Democrat and co-author of Dodd-Frank, said in a statement.
The claw-back provision was inserted in the Dodd-Frank law
in response to public anger that executives at banks and Wall
Street firms such as AIG were still being paid large
salaries and bonuses despite mistakes that fueled the 2007-2009
Frank's bill ensures that anyone subject to a claw-back is
personally liable for any payments, and bans insuring or hedging
against that liability.
Claw-backs are under consideration at JPMorgan, which
announced a $2 billion-and-growing trading loss on May 10 due to
a botched hedging strategy.
JPMorgan CEO Jamie Dimon, a vocal critic of Wall Street
reform, mentioned the possibility of clawing back pay from
executives responsible for the trades at an annual shareholder
meeting earlier this month. "We will do the right thing. That
may well include claw-backs," he told reporters after the annual
Frank's bill is likely a response to an insurance program
launched in early 2011 by Marsh, one of the world's largest
brokerages. Its "FDIC Receivership Endorsement" protects
executives and directors from claw backs by the Federal Deposit
The endorsement, which attaches to traditional directors and
officers' insurance, does not defend against fraudulent
behavior, but does help cover attorneys' fees and other costs.
Other underwriters of D&O policies have also reportedly looked
into adding claw-back coverage to their insurance.
The company has not disclosed sales for the product, though
a Marsh executive told industry trade letter InsuranceNewsNet
last October that executives at "dozens" of nonbank financial
firms had already signed up.
A spokesman for Marsh, a unit of Marsh & McLennan,
had no immediate comment.
Democratic Representatives Henry Waxman and Collin C.
Peterson co-sponsored the legislation with Frank.
(Reporting By Alexandra Alper in Washington and Ben Berkowitz
in Boston; Editing by Jan Paschal and Dan Grebler)