April 30, 2003

In a bizarre development, on April 11th, Senator Biden included an extensive "legislative history" of Sarbanes-Oxley in the Congressional Record. His submission includes views that are inconsistent with some current practices, such as the the prevailing view that Section 906 does not cover Forms 8-K and 6-K. We have posted this "legislative history" at http://www.thecorporatecounsel.net/member/Sarbanes/LegislativeHistory.htm.

Yesterday, Sens. Barbara Boxer (D-Calif.) and John Ensign (R-Nev.) introduced a bill in the Senate that would delay enforcement of an upcoming FASB proposal that would require companies to treat stock options as expenses. The bill would direct the SEC to enhance financial disclosures of stock options - and then study the issue for 3 years before enforcing any new rules. A similar bill was introduced in the House last month.

For TheCorporateCounsel.net subscribers, today is our "Regulation G Unplugged" webcast - see more at http://www.greatgovernance.com/programs.html#current.

April 28, 2003

On Friday, the SEC reaffirmed the FASB as the accounting standards setter - and recognized the PCAOB as the auditing standard setter. See http://www.sec.gov/news/press/2003-53.htm and http://www.sec.gov/news/press/2003-52.htm.

Today, the SEC announced its global settlement with Wall Street regarding analyst conflicts - see http://www.sec.gov/news/press/2003-54.htm.

We have posted our May issue of TheCorporateCounsel.net Eminders at http://www.thecorporatecounsel.net/E-minders/.

April 24, 2003

At today's open Commission meeting, the SEC adopted final rules on mandatory Edgar filing of Section 16 reports. Although not much was said at the meeting, we do know that the rules will be effective June 30th (no more paper after that!), the temporary hardship exemption is being eliminated for Section 16 reports, the filing deadline is being extended from 5:30 pm to 10 pm EST (but just for Section 16 reports; not other types of filings), and there will be a one-year temporary relief period for making Item 405 disclosures in the proxy statement for filings that are only one day late. See the SEC's press release at http://www.sec.gov/news/press/2003-51.htm.

In addition, the SEC adopted amendments to Regulation 13B2 that implement Section 303 of Sarbanes-Oxley Act. The new rules prohibit officers and directors of an issuer, and persons acting under the direction of an officer or director, from coercing, manipulating, misleading, or fraudulently influencing the auditor of the issuer's financial statements if that person knew or should have known that such action could render the financial statements materially misleading.

Over the objections of some commentators, the SEC decided to keep a "negligence" standard as proposed - although it modified the language to the more traditonal negligence language of "knows or should have known." The SEC did not adopt an "intent" standard even though commentators argued that was more consistent with Section 303 of Sarbanes-Oxley (which had language that arguably was an intent standard - "for the purpose of").

Chairman Donaldson has announced his primary leadership team - none of whom have overwhelming experience with the securities laws. Laura Cox has been named Managing Executive for External Affairs, to deal with legislative and public affairs. She currently serves as Deputy Assistant Secretary for Banking and Finance in the Office of Legislative Affairs at the Treasury Department. Prior to joining the Treasury, Cox was Vice President for Strategic Policy Communications, Government and Regulatory Affairs at Instinet Corporation.

Peter Derby has been named Managing Executive for Operations, to assist the Chairman with the increase in the SEC's operational effectiveness and responsiveness while considering administrative, operational and management issues as the Commission grows. He had served as an elected member of the Board of Trustees of the Village of Irvington-on-Hudson, New York, since 2002. Derby spent a decade in Russia, where he participated in the founding of DialogBank, the first private Russian bank to receive an international banking license.

Patrick Von Bargen has been named Managing Executive for Policy and Staff, to handle the promulgation and enforcement of policies, regulations, rules and procedures. He will be Chairman Donaldson's primary liaison with the other Commissioners' offices and conduct the management of the Chairman's personal office. Prior to this, he was Executive Director of the National Center for Regional Innovation and Competitiveness and Vice President of the Council on Competitiveness, a public policy organization of major CEO's, university presidents and labor leaders. He had served as Chief of Staff for United States Senator Jeff Bingaman (D-NM) from 1989 to 1999.

April 24, 2003

Yesterday, the PCAOB voted to require foreign auditors who audit companies that sell securities in the US to register with it (the SEC still must approve these rules before they become effective). This was a controversial action after intense lobbying by overseas regulators, who argued that accountants should abide by rules set by their own countries and noted conflicts with their country's privacy laws. The PCOAB still must address the controversial issue of whether foreign auditors will be subject to the Board's inspections and discipline.

In response to the 40 comment letters received, the PCAOB agreed to give foreign auditors an additional 6months to register - until April 2004. It also agreed that foreign auditors would not have to provide certain kinds of information if they include copies of the conflicting privacy law, legal opinions on the issue, and a certification that they tried and failed to get waivers to provide the information in question.

In addition, the PCAOB adopted a $68 million 2003 budget, announcing that it would hire as many as 200 accountants and support staffers by the end of the year and would open a New York office. Companies will receive invoices for support fees based on this budget sometime in May.

For TheCorporateCounsel.net subscribers, one of our finest features is the Rule 144 Q&A Forum with Bob Barron, where Bob and Jesse Brill can answer your Rule 144 questions - see http://www.thecorporatecounsel.net/member/QA2/message.asp?BoardID=1654.

April 23, 2003

The SEC has delayed the timetable for its new Section 16 website to go "live." It was supposed to occur over the weekend - but is now delayed to an undetermined date. See the SEC's notice at http://www.sec.gov/info/edgar/ednews/rel85delay.htm.

The SEC's open meeting tommorrow has been pushed back from 10 am to 1 pm.

Yesterday, FASB unanimously endorsed the expensing of stock options - now it has to determine how to value them, which it hopes to do sometime next year. See the related Washington Post article at http://www.washingtonpost.com/wp-dyn/articles/A17602-2003Apr22.html.

For TheCorporateCounsel.net subscribers, we have posted a more recent version of the SEC Telephone Directory (September 2002 edition) at http://www.thecorporatecounsel.net/member/SEC/SEC2002PhoneBook.pdf.

April 22, 2003

Everyone is still waiting to see if the SEC staff issues interpretative guidance on Regulation G (and how far it goes beyond addressing transitional issues). We are hearing that the staff still intends to issue guidance - but they have been saying that for a few weeks. In our "Regulation G/Earnings Portal," we have links to over 100 Item 12 8-Ks - see http://www.thecorporatecounsel.net/member/FAQ/RegulationG/index.htm#2.

The PCAOB is holding a meeting tommorrow to adopt rules regarding registration of foreign audit firms - and on Thursday, it makes its case to the SEC for it to be recognized as an official body. At that point, its interim auditing standards would be effective (and displace all existing standards).

For TheCorporateCounsel.net, we have posted an interview with Andrew Humphrey of Faegre & Benson on the impact of SOX on private companies - see http://www.thecorporatecounsel.net/member/InsideTrack/04_21_03_Humphrey.htm.

April 19, 2003

Gearing up for its official recognition as an oversight entity, the PCAOB has been very busy. On Friday, it adopted final rules for funding, including the support fees that companies will pay (http://www.pcaobus.org/pcaob1/Rules/Release2003-003.pdf) - and it proposed rules regarding setting auditing standards (http://www.pcaobus.org/pcaob1/Rules/Release2003-005.pdf). In the meantime, the Oversight Board has established some interim auditing standards based on existing standards (http://www.pcaobus.org/pcaob1/Rules/Release2003-006.pdf).

In addition, the PCAOB has hired long-time investor advocate, Douglas Carmichael, as Chief Auditor. See the related Washington Post article at http://www.washingtonpost.com/wp-dyn/articles/A48432-2003Apr17.html.

This Thursday, the SEC is having an open Commission meeting to consider final rules under Section 303 of Sarbanes-Oxley regarding improper influence of auditors - and under Section 403 regarding mandatory Edgar filing of Section 16 reports.

April 18, 2003

Anyone who has filed a 1933 Act registration statement in the past year or two knows that the staff has been reviewing and commenting on Exhibit 5 opinions. The ABA Federal Regulation of Securities Committee established a task force last year to review Exhibit 5 opinion practice and attempt to work with the staff to develop practices and forms of opinion that satisfy the staff and don't give heartburn to opining counsel. We hear that the dialogue between the staff and the ABA is proceeding productively. When the ABA report is finalized, we'll post it here.

As we posted on April 9, Senator Carl Levin attached an amendment to a Senate bill (relating to charitable giving) seeking to give the SEC fining authority. That bill passed the Senate by a vote of 95 to 5, and would allow the SEC to impose fines on lawyers who advise public companies in connection with filings that violate the federal securities laws. Critics of the bill say it will chill communications between lawyers and their public company clients and make lawyers more conservative in advising companies regarding their disclosure obligations.

April 15, 2003

The search appears to be over. The Commission announced today that William J. McDonough is its nominee to become the new Chairperson of the five-member Public Company Accounting Oversight Board. (The Commission said it will not "formally" appoint McDonough until a thorough background check has been performed.) McDonough chas been the president of the Federal Reserve Bank of New York since 1993, but will resign that position to assume his position as chairperson of the PCAOB. The Commission's press release announcing McDonough's nomination is available at http://www.sec.gov/news/press/2003-48.htm.

April 14, 2003

The Commission declined today to review the staff's position that a registrant may exclude from its proxy statement a shareholder proposal seeking to allow any beneficial owner of 3% or more of the outstanding stock to propose a board nominee for inclusion in the registrant's proxy statement. The American Federation of State, County and Municipal Employees had requested that the Commission reverse the staff's position (expressed in a no-action letter to Citigroup) that such a proposal relates to an election of directors and therefore is excludable under Rule 14a-8(i)(8). At the same time, the Commission asked the staff for a report on all rules and intepretations relating to the election of directors and recommendations for improving shareholder participation. The report is to be based on the input of all interested constituencies, and is due July 15. The Commission's press release is available at http://www.sec.gov/news/press/2003-46.htm.

This is a hot governance topic, and at least one Commissioner has expressed sympathy for AFSCME's position in recent speeches.

If shareholder proponents win the right to include alternative nominees in the registrant's proxy statement, the nature of election contests will change dramatically. So, expect this issue to receive major shareholder and media attention.

April 11, 2003


The NYSE has posted amendments to its corporate governance listing standards dated April 4th at http://www.nyse.com/pdfs/amend1-04-09-03.pdf. Coming on the heels of recent amendments proposed in March regarding director independence, this set of amendments reflect the audit committee requirements of Section 301 of Sarbanes-Oxley and also clarifies certain disclosure obligations. It also revises the effective dates of some standards and discusses the applicability of specific corporate governance listing standards to foreign private issuers.

Yesterday, the SEC posted the adopting release on audit committee requirements/prohibitions at http://www.sec.gov/rules/final/33-8220.htm.

The SEC also posted a technical corrections release regarding acceleration of periodic report deadlines at http://www.sec.gov/rules/final/33-8128a.htm.

Next week, I will be on vacation (Spring Break 2003!) and Alan Dye will be your blogger. Alan has been feverishly wrapping up a new 6th edition of the Romeo & Dye Forms and Filings Handbook - updated for all the Section 16 rulemaking that has taken place these past few months.

April 10, 2003

Over 50 companies have already filed 8-Ks under Item 12 (but technically under Item 9 per the SEC as Edgar is not ready for Item 12s) to provide their earnings releases or to submit investor presentations that contain non-gaap measures. For TheCorporateCounsel.net subscribers, we have created a Regulation G/Earnings Release Portal which includes links to dozens of these filings - and we will continue to update the portal daily with new ones. See http://www.thecorporatecounsel.net/member/FAQ/RegulationG/index.htm.

We have also posted an interview with Mike Halloran and Elisa Lowy of Pillsbury Winthrop on splitting the Chair and CEO - see http://www.thecorporatecounsel.net/member/InsideTrack/04_08_03_Halloran.htm.

The SEC is about a week behind in posting comment letters on the controversial "noisy withdrawal" reproposal for which the deadline passed on Monday - many comment letters have been filed including one signed by 77 law firms.

April 9, 2003

On the Section16.net's "Comparing the Section 16 Filers" webcast yesterday, the SEC staff indicated that its web-based system will go live on either April 24th or 25th. This means that filers then will be able to make Section 16 filings only by either using the SEC's website, using a service provider that has brought its product up to speed or by filing on paper (ie - there won't be parallel systems - so filing by "normal" Edgar won't work). The webcast is archived on Section16.net and a transcript will be available early next week.

The SEC staff also explained how their website will have limitations (e.g. there is no "save" feature - so you can't input some data and turn to something else for a significant amount of time before filing. You must basically input data and file all in one session).

For those seeking a filer, we recommend that you try the Romeo & Dye Section 16 Filer. It can be used free by anyone - including law firms - until September 30th (and then its only $195 for Section16.net subscribers thru the end of 2004). It is simple and practical, with a new recordkeeping functionality (and compliant with the SEC's new system). You can download and try the Romeo & Dye Filer at http://www.section16.net/Filer/index.htm.

Senator Levin has tacked an amendment on a bill - which is likely to pass - which would give fining authority to the SEC without having to go to court. The SEC unsuccessfully tried to get this authority in the Sarbanes-Oxley Act. See the related Washington Post article at http://www.washingtonpost.com/wp-dyn/articles/A59981-2003Apr8.html.

April 8, 2003

In the absence of DOL or SEC guidance, the debate rages - with differing opinions from different lawyers - about whether a 906 certificate is required for 11-Ks. Not that it is necessarily persuasive, but the 11-Ks filed so far don't appear to contain certificates (although they could have been submitted supplementally as the SEC's directive to file them as exhibits just came recently).

The ABA Task Force on Corporate Responsibility (chaired by James Cheek) issued its Final Report on March 31st. It is not yet available on the ABA's website.

For Section16.net subscribers, today is the "Comparing the Section 16 Filers" programs - featuring key SEC staffers to describe the SEC's new filing system - and 12 service providers to explain how they can add value. See more at http://www.section16.net/webcast0403/.

April 7, 2003

On Friday, the Delaware Supreme Court - in a rare 3-2 decision - finally issued its opinion in the Omnicare vs. NCS Healthcare case. Although the dissenters (including Chief Judge Norman Veasey) argue that the holding should apply only to the case's facts, the M&A bar has been shaken because the case loosely stands for the proposition that lock-ups with majority shareholders can't be absolute (e.g. not combined with fiduciary outs, etc.).

For TheCorporateCounsel.net subscribers, we have posted the Omnicare opinion at http://www.thecorporatecounsel.net/member/MA/04_07_03_Omnicare.pdf.

April 3, 2003

After Alan Beller spoke on Friday at the ABA Spring Meeting, it remains unclear if Section 906 CEO/CFO certifications are required for Form 11-Ks. Alan merely noted that the staff has not taken a position (which makes sense as it is a DOL matter). Note that Section 302 certifications are not required for Form 11-Ks as the SEC made clear in its adopting release last summer. However, that release did not address 906 certifications (as again, it is a DOL matter).

Before the House Financial Services Committee, in a hearing yesterday, the SEC was criticized for lax oversight of the credit rating industry. See the Washington Post article at http://www.washingtonpost.com/wp-dyn/articles/A15116-2003Apr2.html.

For TheCorporateCounsel.net subscribers, we have posted an interview with Ken Blackman and Michael Levitt of Fried Frank on Earnings Releases and Announcements at http://www.thecorporatecounsel.net/member/InsideTrack/04_01_03_Blackman.htm.

April 2, 2003

The SEC staff has issued no-action relief - and the precise form of CEO/CFO certifications - for two classes of asset-backed issuers: auto lease securitizations and resecuritizations. The no-action letters are http://www.sec.gov/divisions/corpfin/cf-noaction/mldepositor032803.htm and http://www.sec.gov/divisions/corpfin/cf-noaction/mitsubishi032703.htm.

Yesterday, at Chairman Donaldson's 1st open Commission meeting, the SEC adopted rules regarding audit committee requirements and delisting standards. For the most part, the adopted rules are the same as the proposed rules. The following provides a snapshot certain aspects of the new rules regarding "independence" [thanks to Mike Holliday] - more details are in the SEC's press release available below:

- Advisory and consulting fees - The new rules do not contain a de minimus amount exception.

- Safe harbor - The adopted safe harbor keeps the proposed ownership test at 10% (so that a person who is not an executive officer or 10% owner will not be an "affiliated person"). The final rules will indicate that failure to meet the safe harbor terms will not create an presumption that the person is affiliated, which will be subject to a facts and circumstances test.

- Outside director of company and subsidiary - The final rules contain the exemption that a director otherwise independent to both companies would be permitted to be on the audit committee of a listed company as well as an affiliate. There was no discussion as to whether any change was made to the proposal that the exemption applies to a consolidated, majority-owned subsidiary.

- IPO exemption - The proposed exemption was expanded to require at least one independent member on the audit committee at the time of listing, a majority of independent members within 90 days, and all independent members within a full year.

Companies must be in compliance with the new rules by their 1st annual meeting after January 15, 2004 (or by October 31, 2004 at the latest). Foreign issuers and small business issuers would have until July 31, 2005. As adopted, the transition period is about 6-7 months longer than the proposed period. This will be helpful for March 31, June 30 and September 30 fiscal year-end companies. However, because it does not add a complete annual cycle to the proposal, it will not really provide any additional lead time for calendar year fiscal year companies.

The SEC's press release is at http://www.sec.gov/news/press/2003-43.htm.

April 1, 2003

Yesterday, the PCAOB held its roundtable on foreign auditors and made its case for the outstanding proposal to require foreign firms auditing U.S.-traded companies to register with it (all of the SEC Commissioners attend to show their support). This has created quite a bit of controversy overseas.

As reported by the Washington Post, this meeting follows the SEC's recent warning to British accountants that disclaimers of liability that they were slapping on audit opinions better not show up on U.S. financial statements. Here are other tidbits from the roundtable:

- David Wright, director of financial markets for the European Commission, argued that the PCAOB should wait one year before making foreign auditors register to give European countries time to work out conflicts between their laws and US laws. The PCAOB disagreed.

- The PCAOB plans to initially focus on about 6 key areas - with more than 1,200 pages of audit standards.

- The AICPA has tried to hold on to a role in the writing of audit standards. The PCAOB responded by informing the AICPA that Congress had given them control over audit standards and that the oversight board would not be required to follow the AICPA's recommendations.

- The PCAOB is also replacing a widely criticized oversight system, in which accounting firms reviewed each other's work. The board is hiring accountants -- the number may grow to 100 by next year and is developing a code of conduct to prevent potential conflicts of interest by inspectors hired from Big Four firms. The new team is to start inspecting the Big Four this summer and smaller firms next year.

- Inspectors will operate differently as the new inspection team will examine audits under litigation - cases now exempt from the peer-review process. The board will also examine quality-control issues, such as how lead audit partners are paid, whether accounting firms have the right "tone at the top," and whether audit work is sufficiently independent from tax and other services the firms offer.

The Washington Post article is at http://www.washingtonpost.com/wp-dyn/articles/A62762-2003Mar31.html.