February 11, 2009
TARP Banks Oppose Shareowner Efforts to Mandate Accountability
by Robert Kropp
Shareowner proposal introduced by Harrington Investments would establish Board Committees on US
Economic Security to consider the economic impact of bank policies.
The Emergency Economic Stabilization Act of 2008 was passed by Congress in October, in
response to the unprecedented crisis in which by then the global economy was thoroughly embroiled.
The fundamental component of the Act is the Troubled Assets Relief Program (TARP), which gives
broad authority to the Secretary of the Treasury to purchase or insure up to $700 billion of the
troubled assets of financial institutions.
Among the banks and financial companies
that have received funds under TARP are Citigroup and Bank of America, which together were
refinanced by American taxpayers at an estimated amount of $52.5 billion.
Citigroup and Bank of America, as well as the other banks that received TARP funds, were asked to
account for how they spent the money, they responded with generic public relations statements about
balance sheets and making loans. None of the banks provided specific answers, and many refused to
discuss the issue at all.
Harrington Investments, a socially responsible
investment advisory and shareholder advocacy firm, found that the Bank of America recently used
over $7 billion to complete their purchase of approximately 20% of the stock in the China
Construction Bank, which is majority owned and controlled by the totalitarian government of the
Peoples Republic of China.
Although the US Treasury has purchased preferred stock in these
and other financial companies, it has waived all voting rights, effectively leaving no mechanism
for US taxpayers to intervene on behalf of their financial interests.
Harrington submitted binding bylaw amendments at Citigroup, Bank of America, and Goldman Sachs that
would create Board Committees on US Economic Security. The shareowner proposal argues that the
taxpayer-funded TARP effort to stabilize the economy was precipitated by "years of irresponsible
lending and business practices. Unregulated trading in speculative derivatives and a general lack
of management and board oversight at major U.S. financial institutions has brought the global
economy to the brink of disaster."
The proposed bylaw amendment states that as part of
their fiduciary duty, the Boards of Directors at these financial institutions should consider the
impact of bank policies on US economic security.
In December, Harrington Investments
announced that Citigroup and Bank of America opposed its proposal and had written to the SEC
seeking permission from the Securities and Exchange Commission (SEC) to disqualify the proposal on
grounds that it violates Delaware law.
By February, the extraordinary pressure exerted by
the banks has grown to the extent that they have sent a total of eight letters and memoranda to the
SEC seeking permission to keep the resolution off the 2009 proxy.
"Our government has
handed over literally billions of taxpayer dollars to failed financial institutions with almost no
strings attached. Now the banks are attempting to deny shareholders the right to vote on a proposal
to help ensure that the banks are doing what they can to protect our country's economic security,"
said John Harrington, president of Harrington Investments.
Attorney Sanford Lewis,
representing Harrington Investments, has sent letters to the SEC rebutting each of the banks'
Shareowner advocates are hopeful that the SEC under the direction of the new
chairperson Mary Schapiro will reverse the tendency of the agency during the years of the Bush
administration to side with corporate interests when proposals designed to protect shareowner
interests are challenged.
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