Late Breaking 703 Developments
I understand that the SEC staff has reached an agreement on the treatment of restricted stock that is forfeited for purposes of the 703 stock repurchase table. The key determinant here is whether the company pays any consideration when the stock is returned - even a de minimis amount is sufficient consideration so that the returned stock must be included in the table. If there is no consideration given for the forfeited stock at all - it need not be included in the table.
By the way, at the ABA-JCEB meeting this week, the SEC staff apparently stated that stock repurchases by a 401(k) plan or other employee benefit plan may be required to be reported when the plan is an "affiliated purchaser" within the meaning of Rule 10b-18(a)(3). This could be a real problem in cases where a benefit plan is administered in-house, instead of being handled by a brokerage firm, transfer agent or other outside party. I would wait until the staff has a position in writing on this one before taking any drastic actions, such as hiring a third-party administrator.
Under Rule 10b-18, an "affiliated purchaser" is:
(i) A person acting, directly or indirectly, in concert with the issuer for the purpose of acquiring the issuer's securities; or
(ii) An affiliate who, directly or indirectly, controls the issuer's purchases of such securities, whose purchases are controlled by the issuer, or whose purchases are under common control with those of the issuer; Provided, however, that "affiliated purchaser "shall not include a broker, dealer, or other person solely by reason of such broker, dealer, or other person effecting Rule 10b-18 purchases on behalf of the issuer or for its account, and shall not include an officer or director of the issuer solely by reason of that officer or director's participation in the decision to authorize Rule 10b-18 purchases by or on behalf of the issuer.
"Please Disregard The Attached Document"
After attending 3 conferences in 3 days (more on that next week), I need a light moment - and what better than repeating this great 4/29 blog from Bruce Carton of the SecuritiesLitigationWatch Blog:
"What would you do if a secretary in your publicly-traded company accidentally e-mailed a sensitive internal document showing weaker-than-expected profits to 50 of your investors? Would you immediately post the internal document on the front page of your company website with a request that "no reliance whatever should be placed on the estimates, forecasts or opinions expressed therein" and that the company "would be grateful if you disregard this information"?
That's what Amvescap did on Tuesday on the front page of its website, after a secretary in London inadvertently e-mailed this "Presentation to the Executive Management Committee" to a group of investors. Amvescap added on its website that the presentation was sent out "in error," was "in the course of preparation" and was "incomplete in a number of important respects."
Under the SEC's Regulation FD, Amvescap probably had no other real choice. Reg FD requires an issuer that inadvertently discloses material nonpublic information regarding itself to promptly make a public disclosure of that information, as well. This can be done either by filing a Form 8-K with the SEC or through some other method that is "reasonably designed to provide broad, non-exclusionary distribution of the information to the public." Amvescap's posting of the document on its website was presumably done to provide the "broad, non-exclusionary distribution" of the information required under Reg FD (as long as it was combined with a press release).
The inadvertent disclosure had several other ripple effects. First, many analysts media speculated that a $300 million "exceptional item" mentioned in the document was its estimate of costs to resolve an SEC investigation into alleged improper mutual fund trading, which was reportedly three times analysts' estimates. Amvescap, however, denies that it made any such estimate in that document.
In addition, the investors' receipt of the report presented compliance and insider trading landmines at those investors' companies. According to this article, for example, some compliance officers prohibited investment bankers receiving the document from talking to investors or the trading desk after it became clear that they were in possession of confidential documents. One investment banker stated that "we effectively had inside information for two hours, so we took legal counsel and I had to stay incommunicado."
According to the Financial Times, however, not all the proscriptions against insider dealing were effective. On Tuesday of this week, over $40 million shares changed hands - nearly four times the daily average - and Amvescap ADRs fell 3.5% to $14.08." Thanks Bruce!