TheCorporateCounsel.net

As promised by Chair Schapiro earlier this month, the SEC has calendared an open Commission meeting for next Wednesday, July 1st, where it will consider proposals related to executive compensation disclosures, TARP’s say-on-pay and other corporate governance issues. It also will consider approving the NYSE’s “elimination of broker non-votes for director elections” proposal. This is a biggie.

There is one curious item on the SEC’s agenda – I have no idea what the second part of Item 3 relates to: “to clarify certain of the rules governing proxy solicitations.” I haven’t heard anything about problems with the proxy solicitation requirements. [Note: I now understand that this relates to codification of the Amylin letters (Eastbourne Capital/Carl Icahn) letters and other “housekeeping” rules.]

Early Bird Expires Tomorrow: With the SEC’s goal to have new executive compensation disclosure rules in place before next proxy season – combined with the real likelihood of say-on-pay legislation and the loss of broker nonvotes for director elections – our the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”) will be more important than ever. These Conferences will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9-10th.

Take advantage of reduced rates that will expire tomorrow, June 26th by registering now. These rates will not be extended – there will be no early bird discounts after Friday!

The SEC’s Quick Response to Insider Trading Allegations: A More Restrictive Compliance Program

As media accounts continue to dribble out that damage the SEC’s reputation (eg. see this recent Washington Post article regarding the Cox years), it appears that the furor over allegations over possible insider trading by SEC Staffers has died down.

One of the reasons may be the SEC’s quick response – it quickly announced a series of measures that will strengthen its internal compliance program as noted in this WSJ article. More specifically, as outlined in this SEC press release, the measures include:

– New set of new internal rules governing securities transactions for all SEC employees that will require preclearance of all trades
– Prohibition on trading in securities of companies under SEC investigation regardless of whether an employee has personal knowledge of the investigation
– Contracting with an outside firm to develop a computer compliance system to track, audit and oversee employee securities transactions and elicit financial disclosure in real time
– Consolidated responsibility for securities transactions and financial disclosure reporting oversight within the SEC’s Ethics Office
– Authorized the hiring of a new Chief Compliance Officer

Here is a noteworthy Washington Post article in which a SEC Staffer responds to complaints unrelated to the insider trading allegation, but which were included in the related SEC’s Inspector General report .

Alleged Insider Trading: Reactions from Our Community

Since our members are closer to what happens at the SEC compared to the general public, it’s worth noting some of their reactions to the insider trading allegations. I’ve already blogged my own thoughts in a piece entitled “My Ten Cents: What Does This Alleged Insider Trading Scandal Mean?”

And we have these poll results regarding “Should the IG’s Report Have Been Made Public So Soon?”:

– 54.6% said it shouldn’t have been made public yet
– 34% said it should have been made public when it was
– 14.4% said the report was too long to read
– 15.5% wanted to cry
– 7.2% wanted to laugh

Here some of the member reactions that I received:

– Perhaps the SEC should do what some of the more conservative law firms do and prohibit its employees from trading in anything except index funds and ETFs? That would reduce the workload for the clearance officer and virtually eliminate any appearance of conflict. Still, if either of these people is guilty, they’re just plain stupid since they of all people know how easy it is for the SEC to trace suspicious acvtivity.

– It is unclear whether the SEC Enforcement Attorneys traded on inside information or seriously violated SEC rules. However, the IG has been investigating for 15+ months and felt strong enough about the record to refer it to the US Attorney. Doesn’t sound good- especially the parts about trading in stocks with potential or current investigations. I do note that the IG’s last two reports to Congress mention the investigation and give identifying details.

– One person said that certain people who were familiar with the record found that the many of the questioned trades “didn’t make sense.” No one was happy with this reputational hit.

– These appear to be innocent (yet sloppy) transactions, not intentional fraud. One of the big problems at the SEC is that not many truly understand how the law and the financial markets work in a macro sense and how everything is connected to each other. Sure you have brillant people is specialized offices who know all about net capital rules, investment company communications or no action letters, etc… but not many who understand what really make investors, financial analyst and traders tick (can we say “Madoff”). This is not an easy thing as its takes a ton of work and reading to keep on top of things as you are aware. Thus you actually have to commend those who try to help others bridge the gap (this is how to invest in a stock, this is a bond) and who generally try to hone their skill sets.

– Didn’t the SEC say they wanted to hire more financial professionals, do they expect these people to put all of their money in T-bills when they join? Unfortunately, the careers of these lawyers are probably doomed regardless of their culpability since if you did that many trades eventually you will probably run into a SEC conflict at some point, especially if you are buying financial stocks. I remember trying to pre-screen trades at the SEC many years ago; itf was essentially a broken system, so I hope that is not the reason for their predicament. Bottomline: expect future risk taking, innovation, and morale at the SEC to take a further set back.

– Broc Romanek