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Yesterday, IBM settled an enforcement action in which the SEC found that IBM had violated the Form 8-K reporting requirements and Rule 12b-20’s requirement to disclose additional material information so as to make required statements not misleading. Here is the SEC’s press release.

The case focused on a Form 8-K filed under Item 7.01 – regarding Regulation FD disclosure – that included as one of its exhibits some presentation materials used for an analyst conference call and webcast. The SEC found that IBM made materially misleading statements in a chart – included as part of those materials – concerning the impact of IBM’s decision to expense employee stock options in its quarterly and fiscal year results.

According to the SEC’s Order, while the company’s management did not specifically mention the expected quantitative impact of stock option expensing during the course of the conference call, they did encourage analysts to update their models to reflect the accounting change. At the same time, the chart included information suggesting stock option expense numbers that were higher than management’s expectations. Management rejected the idea of providing more specific guidance about the stock option expense numbers during the call, partly due to concerns about how the analysts would factor that information into their forecasts and the potential effect on the company’s projected growth rate.

This settlement highlights the importance of ensuring that the total mix of information presented in conference calls and webcasts is complete and accurate – and should no doubt cause folks to take a second look at their powerpoint slides and how they compare to the related script and Q&A responses.

CFOs Catch a Break: IRS Updates Guidance on Section 162(m) Covered Employees

Earlier this week, the IRS issued Notice 2007-49, which provides some much needed guidance on identifying “covered employees” under Section 162(m) in the wake of last summer’s amendments to the executive compensation disclosure rules. It won’t be published until June 18th. Mark Borges has blogged several times about the circumstances under which a chief financial officer may now be considered a “covered employee.”

Below is what Mike Melbinger had to say about this guidance in “Melbinger’s Compensation Blog” on CompensationStandards.com:

Section 162(m)(3) defines a “covered employee” as any employee of the company if, (A) as of the close of the taxable year, such employee is the chief executive officer of the company or is an individual acting in such a capacity, or (B) the total compensation of such employee for the taxable year is required to be reported to shareholders under the Securities Exchange Act of 1934 by reason of such employee being among the 4 highest compensated officers for the taxable year (other than the chief executive officer). Regulations Section 1.162-27(c)(2)(ii) provides that whether an individual is the chief executive officer or among the four highest compensated officers (other than the chief executive officer) is determined pursuant to the executive compensation disclosure rules under the Exchange Act.

When the SEC issued its new rules relating to executive compensation disclosure last year, it altered the composition of the group of executives that are covered by the disclosure rules (“named executive officers”) The definition of covered employee in 162(m)(3) mirrored the definition of named executive officers under the old disclosure rules, but it is not the same as that definition under the amended disclosure rules. The amended disclosure rules increase the number of executives who are named executive officers by virtue of their position from one to two, and reduce the number of executives who are named executive officers based on their compensation level from four to three.

To reconcile this difference, Notice 2007-49 indicates that the IRS will interpret the term “covered employee” for purposes of Section 162(m) to mean any employee of the company if, as of the close of the taxable year, such employee is the chief executive officer (within the meaning of the amended disclosure rules) of the company or an individual acting in such a capacity, or if the total compensation of such employee for that taxable year is required to be reported to shareholders under the Exchange Act by reason of such employee being among the 3 highest compensated officers for the taxable year (other than the chief executive officer or the chief financial officer). Accordingly, the term covered employee for purposes of 162(m) does not include those individuals for whom disclosure is required under the Exchange Act on account of the individual being the company’s chief financial officer (within the meaning of the amended disclosure rules) or an individual acting in such a capacity.

The Art of the Cross-Border Deal

Join us tomorrow for a DealLawyers.com webcast – “The Art of the Cross-Border Deal” – to hear Tina Chalk of the SEC, Frank Acquila of Sullivan & Cromwell, Greg Wolski of E&Y and Peter King of Shearman & Sterling analyze the latest M&A tactics in cross-border deals.

[Broc’s Ten Cents: Tune into today’s free webcast from the SEC Historical Society: “Beyond Borders: A New Approach to the Regulation of Global Securities Offerings.”]

– Dave Lynn