May 19, 2020

Warren Urges Fed to Hold CEOs Personally Accountable for Companies' Compliance with CARES Act Bailout Terms

Senator Calls for Robust Certification Process, Strict and Severe Penalties for Violations of Eligibility Criteria

Letters Come Ahead of Senate Banking Committee Hearing with Chairman Powell, Secretary Mnuchin

Text of Letters (PDF)

Washington, D.C. - United States Senator Elizabeth Warren (D-Mass.), a member of the Senate Banking Committee, sent letters to the Federal Reserve Bank of New York and Federal Reserve Bank of Boston regarding the certification process for the recipients of bailout funds distributed through lending facilities developed by the Federal Reserve (Fed) using taxpayer dollars from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In her letters, Senator Warren called on the Fed to implement a comprehensive and robust set of requirements for top executives of these companies to verify their eligibility before they receive any bailout funds.  Secretary Mnuchin and Fed Chair Powell, who will be testifying today, also received copies of the letter.

"You have been trusted to administer these bailout funds, and it is incumbent on you to develop a comprehensive certification process that adequately protects the taxpayers who provided them," the senator wrote in her letters. "You must ensure that-unlike in the wake of the 2008 financial crisis-companies that rip off taxpayers and the executives that run them are not let off the hook with minimal fines, no criminal liability, and no requirements that they even admit guilt."

The Primary Market Corporate Credit Facility (PMCCCF) and Secondary Market Corporate Credit Facility (SMCCF) are being implemented by the New York Fed and will fund debt issued by corporations struggling as a result of COVID-19 and support credit to large employers. The Main Street Lending Program-including the Main Street New Loan Facility (MSNLF), the Main Street Expanded Loan Facility (MSELF) and the Main Street Priority Loan Facility (MSPLF)-is being implemented by the Boston Fed and will "support lending to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 pandemic." Issuers will be required to certify their compliance with CARES Act requirements before participating in these facilities.

Certification that bailout funds are being used appropriately by the recipients is critical to ensuring that only companies that meet the specified eligibility criteria receive this taxpayer-subsidized bailout funds. After the 2007-2008 financial crisis, multiple companies improperly accepted bailout money and abused taxpayer-funded relief programs such as the Troubled Asset Relief Program (TARP).

Instead of simply requiring CEOs and executives to check a box claiming that they intend to meet these requirements before participating in these programs, Senator Warren urged the New York Fed and Boston Fed to impose three requirements:

  • The certification procedures put in place must be robust and comprehensive.
  • Businesses must be required to reaffirm their eligibility so long as bonds or loans remain outstanding; This means that CEOs and executives should be required to periodically conduct due diligence to ensure that they still meet the relevant eligibility criteria.
  • All certification paperwork should contain clear language that indicates that the executives are subject to criminal and civil penalties, including disgorgement, if they provide fraudulent or misleading information or misuse funds, and should be required to immediately repay their loans for the full amount when eligibility criteria are breached.

"It is essential to ensure that the primary beneficiaries of this bailout are workers, not executives and shareholders," the senator wrote. "However, the Fed's reluctance to impose these basic conditions to protect workers has made it all the more necessary that the certification process include strict and severe penalties for violations of eligibility criteria to ensure that individuals do not violate the terms of participation in these taxpayer-backed programs.

This week, Senator Warren led her colleagues unveiling the Coronavirus Oversight and Recovery Ethics (CORE) Act, a comprehensive bill to ensure stronger oversight, accountability, and transparency in the federal government's response to COVID-19 crisis. Among the CORE Act's many ambitious measures are provisions allowing workers to sue when companies violate bailout terms, provisions clarifying that CEOs can have their compensation seized when their companies violate bailout terms, and provisions requiring any recipient of emergency funding or support to provide regular, public reporting about how that money is being used. 

In March, Senator Warren wrote to Federal Reserve Chairman Jay Powell and Treasury Secretary Steven Mnuchin laying out a detailed list of conditions that should come with any bailout funds to corporate America, including a requirement that CEOs make personal, annual certifications to Treasury and the Federal Reserve that their companies are complying with the rules, and ensuring that these CEOs would face civil and criminal penalties for violating these terms.