Treatment of Conflicts of Interest in the Congressional Bailout Bill

On Wednesday night the Senate passed the legislation known as the Emergency Economic Stabilization Act of 2008 (the “Act”), a bill intended to bring relief to the troubled credit markets. Although the House declined to pass an earlier version of the bill on Monday, many observers expect that the revised version passed by the Senate will be approved by the House shortly and quickly signed into law by the President. We wanted to highlight certain aspects of the Act relating to how the Treasury Department will handle conflicts of interest arising from its administration of the troubled asset relief program (the “Program”) established by the Act.

Section 108 of the Act provides that the Secretary of the Treasury (the “Secretary”) shall, as soon as is practicable after the passage of the Act, “issue regulations or guidelines necessary to address and manage or to prohibit conflicts of interest that may arise in connection with the administration and execution of the authorities provided” under the Act. Certain specific examples are referenced including conflicts arising in the selection or hiring of contractors or advisors, conflicts relating to the purchase of troubled assets, the management of troubled assets and post employment restrictions on employees. No guidance other than making these references was provided.