Two leaders of a Congressional panel investigating corporate scandals are asking the Securities and Exchange Commission not to grant any exemptions to a recently enacted law barring insider loan transactions, including split-dollar life insurance.
The industry has mounted a counterattack in a letter to the SEC.
Sens. Carl Levin, D-Mich., and Susan M. Collins, R-Maine–who are, respectively, chairman and ranking Republican on the Permanent Subcommittee on Investigations–are urging the SEC to resist efforts to weaken the legislation, known as the Sarbanes-Oxley Act.
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In their letter to SEC Chairman Harvey L. Pitt, Levin and Collins say that opponents of the Sarbanes-Oxley Act are seeking exemptions for certain purposes, including the purchase of insurance.
“But the legislative history provides no basis for creating these exemptions or otherwise weakening the provision,” they say.
“To the contrary,” Levin and Collins say, “the statutory prohibition makes it clear that publicly-traded companies are not supposed to be using company funds to provide personal financing to company directors or officers for any reason.”
The issue revolves around revelations that Kenneth Lay, former chairman of Enron, benefitted from a variety of insider loans, including a large split-dollar life insurance policy.
The Sarbanes-Oxley Act was enacted into law in the wake of Enron and other corporate scandals as a means of upgrading corporate governance. One provision of the Act barred corporate loans to inside executives.
The life insurance industry insists that the prohibition should not apply to split- dollar, which the industry says is intended as compensation, not a loan, and routinely disclosed in annual reports and proxy statements.
In a letter to the SEC, Carl Wilkerson, chief counsel for securities with the American Council of Life Insurers, asks to “reconfirm” that split-dollar life insurance should be treated as executive compensation and not as a loan.
The letter was submitted on behalf of ACLI, the Association for Advanced Life Underwriting and the National Association of Insurance and Financial Advisors.
The letter says split-dollar life insurance, in both form and substance, is insurance and not an extension of credit within the common meaning of that phrase.
Indeed, the letter continues, the treatment of split-dollar life insurance as executive compensation is the result of long-standing SEC interpretations.