December 30, 2008

SEC Updates Oil and Gas Disclosure Requirements

Yesterday, the SEC announced that it had approved changes to the disclosure requirements applicable to oil and gas companies. The Commission’s approval of these rule changes is the culmination of a long running project in Corp Fin to update the antiquated oil and gas disclosure requirements specified in Regulation S-K, S-X and Industry Guide 2. The SEC’s announcement indicates that an adopting release is forthcoming.

Noticeably absent from the announcement of the rule revisions is any indication that somehow the changes are tied to resolving the financial crisis – such proclamations have become a fixture in recent SEC announcements, orders, releases and open meeting statements. It is somehow comforting to know that, with projects such as this, life goes on in the world of adopting rule changes that are simply trying to improve disclosure for investors.

Treasury Throws GMAC a Lifeline

Last night, the Treasury Department announced the completion of a $5 billion cash infusion into GMAC, with up to another $1 billion to be loaned to GM so that it can participate in a GMAC rights offering. GMAC is struggling through the process of converting to a bank holding company, which will ultimately allow the auto finance company to access more funds through the Federal Reserve system. The GMAC funding is under the newly minted Automotive Industry Finance Program, as opposed to the Capital Purchase Program used for allocating government funds to banks. (It is just me or are all of these programs starting to sound like something coming out of the Politburo?)

Like the financing for the auto companies themselves, the GMAC financing reflects tougher executive compensation provisions than those imposed in the Capital Purchase Program's bank financings. Not only is GMAC obligated to comply in all respects with Section 111(b) of the Emergency Economic Stabilization Act, the Term Sheet for the deal specifies that GMAC:

1. Shall not pay or accrue any bonus or incentive compensation to Senior Employees (i.e., the 25 most highly compensated employees including the Senior Officers), unless approved by Treasury;

2. Shall not adopt or maintain any compensation plan that would encourage manipulation of its reported earnings to enhance the compensation of any of its employees; and

3. Shall maintain all suspensions and other restrictions of contributions to benefit plans that are in place or initiated as of the closing date.

The Treasury also maintains the ability to claw back any bonuses or other compensation, including golden parachutes, paid to any Senior Employees in violation of any of the restrictions specified in the Term Sheet.

For more analysis of the executive compensation restrictions under the Automotive Industry Financing Program, check out this excellent blog by Mark Borges on If you don’t have a subscription to, please try a No Risk Trial for 2009. If you have a subscription, be sure to renew today so you can maintain your access to Mark’s blog and all of the other resources on in the critical months ahead.

Capital Purchase Program Progress

Speaking of the Capital Purchase Program, over the last couple of weeks Treasury has indicated that it has closed $4.7 billion of investments in 92 local banks. If you want to see where all of the $162 billion invested to date through the CPP has gone, check out these Transaction Reports. I think that the Treasury should upgrade these spreadsheets into a full blown prospectus, since what this is starting to look like is a big government-owned financial institutions mutual fund.

- Dave Lynn

December 29, 2008

Nasdaq Extends its Suspension of Price and Market Value Tests

Nasdaq has announced that it filed a rule change with the SEC extending - until April 20, 2009 - the exchange’s suspension of its continued listing standards which require a minimum $1 closing bid price and minimum market value. Nasdaq is seeking the extension now, given that there is little sign of a market turnaround that would provide relief to listed issuers with shares trading below $1 or with otherwise depressed market values. In its rule filing, Nasdaq notes that since the temporary suspension took effect back in October, the number of securities trading below $1 and between $1 and $2 has increased.

Nasdaq has also proposed to change the minimum bid price required for initial listing on the Nasdaq Global and Global Select Markets from $5 to $4. In its rule filing, Nasdaq indicates that it “believes that this change will permit the listing of more companies on Nasdaq, thereby enhancing investor protection by allowing these companies, and their investors, to benefit from Nasdaq’s liquid and transparent marketplace, supported by strong regulation including Nasdaq’s listing and market surveillance and FINRA’s independent regulation.” The proposed $4 price is also similar to the recently adopted requirement for initial listing on the New York Stock Exchange.

Don’t Forget to Watch those Reps and Warranties

This Sullivan & Cromwell memo notes how the Ninth Circuit Court of Appeals recently took an approach consistent with the SEC’s position expressed in the 21(a) report regarding The Titan Corporation, Exchange Act Release No. 51283 (March 1, 2005). In Glazer Capital Management v. Magistri, No. 06-16899 (9th Cir., Nov. 26, 2008), the Ninth Circuit rejected a company’s argument that a complaint alleging securities fraud should be dismissed because alleged misstatements were contained in an acquisition agreement included as an exhibit to an Exchange Act report, rather than as part of the disclosure included in the body of the report.

As 10-K season approaches, this recent decision serves as a good reminder to look at the totality of disclosure provided by the report and the exhibits, and to consider what additional explanatory language might be necessary to clearly describe the context in which representations and warranties in an agreement should be considered.

For more guidance, take a look at our “Disclosure” Practice Area on If you are not a member, check out a 2009 No-Risk Trial, and if you are already a member, be sure to renew now for 2009.

SEC Takes Steps to Create A CDS Exchange

You know that pesky Christmas gift that you received but did not necessarily want or need in the first place and don’t really know what to do with now that you have it? It seems that the SEC was going for that effect with its Christmas Eve “gift” for the credit default swap (CDS) market (or at least some part of the CDS market).

As I have noted before in the blog, the credit default swap market has been merrily chugging along with little or no oversight from the Federales for many years now, laying the foundation for the financial equivalent of "nuclear winter" all along the way. While many have gone out of their way to note the systemic risk that these instruments have created throughout the financial system, perhaps not surprisingly CDS have only received focused regulatory attention in the past three months or so - pretty much since the stuff has hit the fan. [Other than, perhaps, the SEC’s prescient decision in June 2007 to permit trading of credit default options on the CBOE – a great way to spread some credit default exposure to retail investors who didn’t have enough already through their money market and mutual funds.]

Now the SEC has announced that it has granted temporary exemptions to allow an organization named LCH.Clearnet Ltd. to operate as a central counterparty for CDS. Further, the SEC has established (by order) an automated trading system approach for any exchange created for the purpose of trading certain CDS. All well and good, except for the fact that market participants may not have thought that they needed any such exemptions given the question of whether in fact CDS are securities subject to SEC jurisdiction. Clearly, the philosophy at play here is: “If you build it, they will come”

The SEC’s current actions are also limited by the continuing effect of that brilliant legislative initiative from sunnier days otherwise known as the Gramm-Leach-Bliley Act, which specifically excludes both non-security-based and security-based swap agreements from the definition of security under Section 3(a)(10) of the Exchange Act. The SEC points out that this inconvenient provision will continue to apply, so the Commission’s actions will only apply to those CDS that are not swap agreements.

It seems more and more likely now that the question of how to deal with CDS and the broader question of what to do about the larger OTC derivatives market will be high on the legislative agenda as regulatory reform picks up steam in the coming months.

- Dave Lynn

December 23, 2008

Chris Cox: An Unusual "Admission"

Last Tuesday, the SEC issued this statement regarding the Bernie Madoff fraud. A number of folks have asked my opinion about the Chairman's admission in this third paragraph:

Since Commissioners were first informed of the Madoff investigation last week, the Commission has met multiple times on an emergency basis to seek answers to the question of how Mr. Madoff's vast scheme remained undetected by regulators and law enforcement for so long. Our initial findings have been deeply troubling. The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action. I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them. Moreover, a consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.

While some read the Chairman's remarks as candid and refreshing, I read them differently. I took them as not taking responsibility for the SEC's failures. In seeming to throw the Staff under the bus - on his way out of the agency's doors no less - the Chairman violates the "tone at the top" mantra as well as the one of "accountability" that the SEC is supposed to drum into our corporate leaders.

From the beginning, I didn't like it that a sitting Congressman was appointed as the head of an independent agency. The SEC was already being "politicized" before Cox arrived, but this trend accelerated on his watch. And some say that Cox cared more about how the media perceived him than how the Staff performed (one of his responses to the credit crunch was hiring two more PR guys). It has been written that he fought budget increases for the SEC (albeit with some urging from Commissioner Atkins), even when those in Congress responsible for the SEC's oversight urged him to seek more resources. Anyways, the SEC is in dire straights these days and a new Chair couldn't come at a better time.

CEOs and Boards: "We Didn't Do It"

Now, I'm certainly not blaming Chris Cox for this financial crisis (nor do I blame him for any failures in not catching Madoff - I just don't like the manner of his admission). The government isn't to blame for the greed that greased this wheel. What blows my mind is the "tone at the top" of our country's leaders in the aftermath of this crisis. President Bush recently has said that he's not to blame because all of the problems related to the crisis started before he got in office (somehow ignoring the fact that he is responsible to fix anything broken while he's in office; plus ignoring his role as outlined in this NY Times article). More importantly, the CEOs and boards of this country have shown no remorse for the pain that "Main Street" is now feeling due to their missteps.

This Washington Post article about General Motor's recent apology describes the cultural difference between corporate leaders in this country compared to others like Japan. In Japan, CEOs would be publicly apologetic if they were on the job during a time like this, offering up their resignations. In our country, there is no humilty, no true leadership. Rather, there is a rush to revise compensation arrangements to take advantage of a down market to reprice, etc.

Holding CEOs Accountable: Boards Last to See What's Wrong

In a WSJ editorial last week, Yale Professor Jonathan Macey wrote these interesting words to describe what has happened here:

The failure of the General Motors board of directors to fire CEO Richard Wagoner provides a rare glimpse into the inner-workings of big-time corporate boards of directors. The sight is not pretty.

When Mr. Wagoner took the helm eight years ago the stock was trading at around $60 per share. The stock had fallen to around $11 per share before the current financial crisis. It's now below $5 per share.

In 2007, Mr. Wagoner's compensation rose 64% to almost $16 million in a year when the company lost billions. The board has been a staunch backer of Mr. Wagoner despite consistent erosion of market share and losses of $10.4 billion in 2005 and $2 billion in 2006. In 2007 GM posted a loss of $68.45 a share, or $38.7 billion -- the biggest ever for any auto maker anywhere.

The GM board is now reportedly meeting several times a week. But beneath the appearance of activity, nothing is happening at GM other than the company's poorly articulated pleas for a government bailout and threats of dire consequences if GM is not bailed out.

When Connecticut's Sen. Chris Dodd mentioned that Mr. Wagoner might have to go, GM spokesman Steve Harris was quick to defend him: "GM employees, dealers, suppliers and the GM board of directors feel strongly that Rick is the right guy to lead GM through this incredibly difficult and challenging time."

The average pay for chief executives of large public companies in the United States is now well over $10 million a year. Top corporate executives in the United States get about three times more than their counterparts in Japan and more than twice as much as their counterparts in Western Europe. In my new book "Corporate Governance: Promises Made, Promises Broken," I argue that executive compensation is too high in the U.S. because the process by which executive compensation is determined has been corrupted by acquiescent, pandering and otherwise "captured" boards of directors.

Like parents unable to view their children objectively, boards reject statistical reality and almost always view their firms as above average. Because directors participate in corporate decision-making, they inevitably take ownership of the strategies that the corporation pursues. In doing so, directors become incapable of evaluating management and strategies in a detached manner.

As board tenure lengthens, it becomes increasingly less likely that boards will remain independent of the managers they are charged with monitoring. The capture problem is exacerbated by the incentives of managers to develop close personal ties with directors. Mr. Wagoner has had 10 years to cultivate his board. Of the 13 "independent" directors on the board, eight of them have served with Mr. Wagoner since 2003.

Once an opinion, such as the opinion that a CEO is doing a good job, becomes ingrained in the minds of a board of directors, the possibility of altering those beliefs decreases substantially. All too often, it is only when an outsider takes an objective look does anybody realize the obvious: That the directors of a company are generally the last people to recognize management failure.

We need to encourage market solutions -- not bureaucratic ones -- as the best strategy for addressing the corporate governance failures we face today. Hedge funds and activist investors like Carl Icahn are the solution, not the problem. The market for corporate control should be deregulated and the SEC's restrictions on all sorts of equity trading should be lifted at once.

Little if anything has changed at GM since dissident director H. Ross Perot dubbed his board colleagues "pet rocks" for their blind support of then CEO Roger Smith. The broader problem is that there are far too many pet rocks on the boards of other U.S. companies.

- Broc Romanek

December 22, 2008

SEC Closed on Friday, December 26th: Federal Holiday?

A few weeks ago, the White House issued an executive order making this Friday, the 26th, a day off for the US government. It's not uncommon for the day before - or after - Christmas to be declared a federal holiday by a Presidential executive order. [Added note - The SEC issued this related press release on Tuesday.]

1. Business Day for '34 Act Report Deadlines - Friday will not be considered a business day for Form 4 and other '34 Act deadlines. It's considered just like a federal holiday for deadline purposes (see Rule 0-3(a)).

2. Tender Offers - If you are counting your 20 business days for a tender offer, it is my understanding that the SEC staff takes the position that if the offer is ongoing, you can still count the unscheduled Friday holiday in the 20 days. But you shouldn't end the offer - or start it - on Friday.

3. Filing Deadline for Form SH - The Form SH weekly filing deadline is the last business day of the calendar week following a calendar week in which short sales are effected. Due to the Executive Order requiring the federal government to close on December 26th, the last business day of this calendar week is Wednesday, December 24th. Accordingly, Form SH filings disclosing this week's positions must be submitted by 5:30 pm Eastern on December 24th to be deemed timely filed. [Update - Different Staffers (ie. Corp Fin vs. IM) are saying different things about this one. So it's uncertain if they are due on the 24th or can wait until the 29th.]

FASB Adopts New Securitization Disclosures Effective This Year

Recently, FASB issued a new FSP FAS 140-4 - entitled "Accounting for Transfers of Financial Assets" - which increases disclosure requirements about transfers of financial assets and variable interest entities. This FSP is effective now since it's for reporting periods (interim and annual) that end after December 15, 2008.

The FSP is being adopted in connection with broader amendments that FASB proposed in September to Statement 140 and FIN 46(R). The two proposed amendments would significantly change accounting for transfers of financial assets, the criteria for determining whether to consolidate a variable interest, and associated disclosures. The amendments, if adopted, would be applicable for fiscal years beginning after November 15, 2009. We have posted memos analyzing these proposed amendments in our “Off-Balance Sheet” Practice Area.

FINRA: First Batch of "New" Rules

Recently, FINRA issued a Notice advising that the first group of consolidated FINRA rules were effective as of December 15th. In addition, FINRA has published this nifty rule conversion chart showing the conversation of NASD to FINRA rules (see links to two other conversion charts on the right side of the page). The conversion chart references the relevant rule filing number that is hyperlinked to each rule filing, which filings provide a statement of the purpose of the rule change and the text of the changes between the NASD or NYSE rules and FINRA rules (where applicable). FINRA will issue additional effective date notices every time they update the FINRA Manual until the process is complete.

- Broc Romanek

December 19, 2008

ABA's Blawg 100: We Finally Made It!

After repeatedly being passed up for any sort of blog awards (the blog is six and a half years old!), Dave and I finally made the "ABA Blawg 100" list. We are grateful for the recognition, particularly since we know that the corporate & securities law community does read our stuff (for some reason, the annual blog lists typically are dominated by law-marketing oriented blogs and solo practitioners).

Now, if we can only get Jesse Brill recognized in the "Directorship 100." The list purports to be about the 100 "most influential players in corporate governance" - but there are many on the list that have never expressed a public opinion about their governance views (and even a few who are not a friend of good governance).

Not only is Jesse not afraid to take a position that might not be popular with his corporate colleagues, he has developed practical tools and processes to effectuate change towards responsible executive pay practices. He pushed tally sheets until they became mainstream - and now he has pushed internal pay equity, wealth accumulation analyses and hold-through-retirement provisions so that they soon also will become the norm (many Johnny-come-lately organizations are rushing to issue papers about these now hot topics). Over the years, he has convinced some big name CEOs (egs. John Reed, Jamie Dimon) to speak at our annual Conference about responsible pay practices, a task much harder than you can imagine!

Being on any of these lists is certainly nice, but I would take them all with a grain of salt. That's why we have never created any sort of lists (despite the temptation to do so, as it generates a lot of media attention - we all sure do love our lists).

The FASB's "Alternative Model" for FAS 5 Loss Contingencies

On Monday, the FASB issued its long-awaited "alternative model" for disclosures of loss contingencies under FAS 5. Described in this handout from a meeting of the FASB Advisory Council, the model is characterized as "a collection of ideas that the staff would like to field test" - and is not intended to represent either the FASB Staff's or the Board's proposal for a final statement.

Her Majesty's Government: Corp Fin Grants Schedule 13D Relief for UK's Investment in the Banking Sector

From the Blog: Last week, Corp Fin issued this no-action letter entitled "Her Majesty's Government." Is that the coolest name for a government response or what? It's so "James Bond."

Corp Fin's relief allows the United Kingdom to file an "Alternative" Schedule 13D when the UK Treasury takes ownership interests in the UK banks that is taking place due to the recapitalization of the UK banking industry, a recap "scheme" blessed by the Bank of England and the UK Financial Services Authority. For example, the UK Treasury is acquiring a 57.9% interest in the Royal Bank of Scotland's holding company.

The "Alternative" Schedule 13D is intended to dovetail with the notification required to be filed with the FSA under DTR 5.1.2R (this is in Chapter 5 of the FSA's "Disclosure & Transparency Rules"). Under Corp Fin's relief, this alternative 13D will consist of a cover page, the UK notification and the 13D signature page. A form of the alternative Schedule 13D is attached as Annex I of the incoming letter of the no-action request - and here is the alternative Schedule 13D filed by the Royal Bank of Scotland.

Why Hasn't the US Treasury or Fed Filed Any Schedule 13Ds?

What about Schedule 13Ds filed by the US Treasury or the Federal Reserve for their investments in AIG, Fannie, Freddie, etc.? We looked pretty hard for Schedule 13Ds filed by the US government and didn’t find any. We aren't the only ones wondering where these filings are - Professor Davidoff mused about this also a while back.

Just like the Professor, at first, the only rationale I could think of was that the Treasury figures nobody is going to sue it for not meeting filing requirements. But then I remembered Section 3(c) of the Exchange Act, which provides an exemption from the provisions of the Exchange Act for “any executive department or independent establishment of the United States, or any lending agency which is wholly owned, directly or indirectly, by the United States, or any officer, agent, or employee of any such department, establishment, or agency, acting in the course of his official duty as such….” Depending on the nature of the entity making the investment, it may be able to rely on Section 3(c) to avoid filing beneficial ownership reports. So that may be what is being relied upon...

Congrats to Betsy Murphy, who was named the SEC's Secretary. Betsy has served in Corp Fin for many years, including as the head of rulemaking. She will get a great asset to the SEC in her new position!

- Broc Romanek

December 18, 2008

Obama Expected to Nominate Mary Schapiro as Next SEC Chair

Yesterday, it was widely reported that President-elect Obama intends to nominate Mary Schapiro as the next SEC Chair. If indeed nominated and confirmed by the Senate, Mary would be the first female SEC Chair. Mary's background in regulatory service can't be matched - SEC Commissioner at the age of 33, former head of the CFTC and she currently serves as the head of FINRA (with this move, she will be taking a huge pay cut - from $2 million to $158k). Not surprising, she was on the short list.

Here are some media articles about this development:

- Wall Street Journal

- NY Times

- Washington Post

- Marketwatch

SEC Mandates XBRL - and Its Website Goes "IDEA"

Yesterday, the SEC adopted mandatory XBRL as expected. Here is Corp Fin's statement - and here is a video of Chairman Cox's opening remarks. The proposed transition schedule got pushed back by six months, so that the first wave of companies required to use XBRL — those with over $5 billion in worldwide market cap — will be required to file XBRL for their first quarterly (or annual report for 20-F/40-F filers) for fiscal periods ending on - or after - June 15, 2009. About 500 companies will be in this first wave.

A year later, accelerated companies will be in the second wave (ie. first report after June 15, 2010) - and in two years, smaller companies and foreign companies that use IFRS will comprise the third wave (ie. first report after June 15, 2011).

The vote was 4-1 since Commissioner Aguilar dissented, on the grounds that sheltering companies when they first begin using XBRL from some liability is unacceptable. As adopted, machine readable XBRL data will not be subject to antifraud claims - ie. considered "furnished" - so long as the mistake was made with good faith. And as proposed, the human viewable stuff will be considered "filed" (traditional financial statements will still be required to be filed with the SEC and continue to be subject to the "normal" liability provisions). In a change from what was proposed, the limited liability provisions for XBRL will be phased-out over a two-year period for each company, with a blanket termination for all companies on October 31, 2014.

Until we see the adopting release and learn the nitty-gritty details, you can learn more about yesterday's meeting from FEI's "Financial Reporting Blog" and the "IR Web Report." Be careful what you read - particularly from XBRL vendors - as I'm already seeing misinformation about what happened at the meeting.

And the SEC has launched "IDEA," which is intended to eventually replace Edgar. Do a company search on the SEC's site and see how different it looks...

CSX Settles Section 16(b) Litigation Over Total Return Swaps

As noted in this Form 8-K filed yesterday by CSX Corporation, the company has settled its Section 16 lawsuit that involved issues related to two hedge funds being deemed beneficial owners, for purposes of Section 13(d), due to underlying cash-settled total return swaps they had entered into (Alan Dye covered this case recently in his " Blog"). The settlement is subject to approval by the US District Court - SDNY. If approved, CSX will receive $10 million from TCI and $1 million from 3G - and attorney’s fees and costs of up to $550,000, which will be paid from the settlement proceeds.

Alan Dye and Peter Romeo are wrapping up the next issue of "Section 16 Updates," which will provide practical analysis of this decision's implications. As all subscriptions are on a calendar-year basis, please renew your subscription to the "Romeo & Dye Section 16 Annual Service" to receive this newsletter when it's hot off the presses...

- Broc Romanek

December 17, 2008

Updated "Proxy Season" Practice Area, New D&O Questionnaires and More

As we do every year, we have updated our "Proxy Season" Practice Area (thanks to Julie Hoffman) - including posting these memos that raise considerations for this proxy season.

In addition, we have posted a new set of D&O questionnaires - as well as a new proxy statement compliance checklist and a mock-up proxy statement (which serves as an aid to help review already-existing drafts). As always, our sample documents come with a disclaimer that you need to make your own legal analysis.

Some Thoughts on RiskMetrics' 2009 Policy Updates

A few weeks ago, I noted that RiskMetrics had released its set of 2009 policies. In our "Proxy Advisors" Practice Area, we have posted a slew of memos analyzing the policy changes.

Tune in early next month to hear Pat McGurn of RiskMetrics' ISS Division discuss these new policies in the webcast: "Forecast for 2009 Proxy Season: Wild and Woolly." Note that the webcast date has been moved up to Monday, January 12th. Since all memberships expire at the end of this month, you will need to renew by January 7th to access any content on, including this webcast.

Doing IPOs in a Troubled Market

In this podcast, Steve Pidgeon and David Lewis of DLA Piper discuss the recent IPO for Grand Canyon Education, including:

- Why was Grand Canyon able to go public in this market?
- How long did it take the company to get to market? In other words, were there delays along the way?
- What sort of celebration ensued when the IPO finally happened?
- What words of wisdom do you have for other companies considering going public in a down market?

- Broc Romanek

December 16, 2008

How to Issue FDIC-Guaranteed Debt under the TLGP

To help you prepare for the wave of TLGP deals, tune in tomorrow for the webcast - "How to Issue FDIC-Guaranteed Debt under the TLGP" - featuring:

- Jeff Karpf, Partner, Cleary Gottlieb Steen & Hamilton
- Deanna Kirkpatrick, Partner, Davis Polk & Wardwell
- Mark Welshimer, Partner, Sullivan & Cromwell

If you're not a member of, try a '09 no-risk trial to access this webcast for free. If you are a member, please renew your membership today since all memberships are on a calendar-year basis.

Survey Results: CEO Succession Planning

We recently wrapped up our Quick Survey on CEO succession planning, an important and often overlooked area. Below are our results:

1. Our company:
- Has a written CEO succession plan in a formal document or policy - 21.4%
- Has a written CEO succession plan in the form of a board resolution or as part of the board minutes - 1.4%
- Has a CEO succession plan, but its not memorialized in writing - 42.8%
- Doesn't have a CEO succession plan - 34.3%

2. Our company:
- Reviews and updates the CEO succession plan at least annually - 44.3%
- Reviews and updates the CEO succession plan on occasion - 21.4%
- Doesn't reviews the CEO succession plan (but it does have one) - 1.4%
- Doesn't have a CEO succession plan - 32.9%

Please take a moment to participate in our new "Quick Survey on Advance Notice Bylaws."

"Food Fight": National Lampoon Loses a Battle

Take a gander at yesterday's "SEC News Digest" - National Lampoon's stock has been suspended from trading due to lack of current information (and the CEO has been charged with paying folks to buy stock in the company to make it appear there is a market for it; here's the SEC's litigation release). This is the first time I ever recognized one of the companies whose stock has been suspended. As one member emailed me, surely there is some pun or (ahem) lampoon that can be skewered here.

What happened to National Lampoon? The first time I took a date to the movies was to see "Animal House." A true classic. Now a review of their site revewals that their next movie will be "The Beach Party at the Threshold of Hell." Actually, the trailer for that movie doesn't look too bad...

Anyways, here is a poll to vote on your favorite quote from "Animal House":

- Broc Romanek

December 15, 2008

OCA Remarks at Last Week’s AICPA Conference

The SEC has posted speeches made by the Office of Chief Accountant's Staff at last week’s AICPA National Conference on Current SEC and PCAOB Developments (the Corp Fin Staff speeches have not yet been posted). OCA’s remarks cover a wide range of current accounting topics, including materiality, judgment, risk assessment, IFRS, impairment and, of course, fair value. In one of the speeches, Marc Panucci, Associate Chief Accountant in OCA, provided an interesting (and timely) discussion of how the current economic environment may impact management’s annual assessment and the external audit of the effectiveness of internal control over financial reporting, as well as management’s quarterly evaluation of disclosure controls and procedures. Here is the list of the speeches from the AICPA Conference posted so far:

- Adam Brown, Professional Accounting Fellow
- Muneera Carr, Professional Accounting Fellow
- Jeff Ellis, Professional Accounting Fellow
- Julie A. Erhardt, Deputy Chief Accountant
- Robert G. Fox III, Professional Accounting Fellow
- James L. Kroeker, Deputy Chief Accountant
- Mark Mahar, Associate Chief Accountant
- Robert B. Malhotra, Professional Accounting Fellow
- Liza McAndrew Moberg, Professional Accounting Fellow
- Marc Panucci, Associate Chief Accountant

Looking for an Exit

It is tough to argue with the sentiment expressed by SEC Chairman Cox in an op-ed piece that appeared in the Wall Street Journal last week (and by my count the sixth op-ed piece this year by Chairman Cox posted on He emphasized that now is the time to ponder exit strategies for the government’s investment in private enterprise, in order to ensure that, e.g., our newly nationalized banking system does not live forever in its current incarnation. In this regard, Cox notes “it is incumbent upon federal policy makers to ensure that the extraordinary actions of the past months are understood to be temporary, and constructed so that they are self-liquidating. Since government programs do not on their own go away, there has to be a deliberate design to eliminate them, and a relentless adherence to execution of that plan. Anything short of this will almost certainly guarantee eternal life for these vast new federal roles.”

Cox’s piece doesn’t actually make any suggestions as to how this suggested policy is to be implemented and ultimately accomplished. For the TARP/CPP money, there really doesn’t seem to be an exit strategy in place, other than a vague hope that values will stabilize and ultimately go up in order to provide the US Treasury with a decent return on its investment. There is no doubt that in the rush of getting money into the hands of the automakers (now apparently a task of the White House alone), a focus on the exits will not necessarily be among the highest of priorities.

Perhaps it is a good sign that the dialogue is beginning to focus on how to get out, as opposed to any more on rushing in. It definitely seems like time to stop violating the first law of holes – once you get in one, stop digging.

The Mother of All Ponzi Schemes: Another Bailout Candidate?

The extraordinary story of the alleged multi-billion dollar Ponzi scheme run by Bernard Madoff is fascinating to me – how could so many “sophisticated” investors be misled for so long and with respect to so much money? Well, the obvious answer is a lack of disclosure and oversight, coupled with the inevitable predisposition to not ask questions when returns are positive. Hopefully, Madoff won’t be the tip of an iceberg – I doubt that the economy could stand more well-heeled institutional and individual investors getting wiped out by other funds that they didn’t understand or ask the tough questions about. And there is probably not going to be any sympathy out there for a bailout of institutions that lost large sums of money in the scheme.

And of course the blame game begins - a Bloomberg story over the weekend noted that Madoff's operation had not been inspected by the SEC, even though Madoff had subjected his business to SEC oversight two years ago. But the SEC is all over Madoff now, and has directed all investor inquiries to the receiver appointed in this case, Lee Richards of Richards Kibbe & Orbe LLP.

Apparently the apparel choices of Madoff's auditor are to be construed (in retrospect) as a possible red flag. This Bloomberg story reports that the man who frequents the offices of Friehling & Horowitz, Madoff's auditor, "wears tight pants and tie-dyed shirts." Perhaps the person observing the Friehling & Horowitz office has never heard of "casual Friday?"

- Dave Lynn

December 12, 2008

Here Comes XBRL!

For those of you out there who were hoping that XBRL might just go away, your hopes have been dashed, because the SEC has announced that it will consider adoption of the interactive data proposals at an open meeting next Wednesday. The SEC received over 80 comment letters on the proposals.

Under the proposals that the SEC will consider adopting, interactive data would be required to be submitted in all Securities Act registrations statements (when financial statements are included directly in the registration statement), Forms 10-K and 10-Q, and in transition reports. The proposals would also require companies to provide the same interactive date on corporate websites. The SEC also solicited comment on whether there should be mandatory XBRL submission of executive compensation disclosure and financial information required in Form 8-K and Form 6-K.

One focus of commenters was on liability for XBRL documents, so that will likely be one significant area of consideration for the final rules. Another big concern for the final rules will be the implementation schedule. The proposals contemplated a two year phase-in, with all issuers required to make XBRL submissions beginning with reports for fiscal years ending on or after December 15, 2010. The first group to be phased in - large accelerated filers (foreign and domestic) that use U.S. GAAP and have a world-wide public float above $5 billion - would be required to include XBRL in their next 10-K under the proposed phase-in schedule, so it will be interesting to see if the SEC sticks to that tight schedule in light of the relatively late arrival of the final rules. Some commenters suggested that the SEC require initial XBRL submissions with a 10-Q rather than a 10-K, to ease the pain.

The final interactive data rules will be a nice holiday present for the financial printers, who are all ready to assist with your XBRL preparedness. I have found that despite the long ramp-up to XBRL, there is still a need for a lot of folks involved in the filing process to come up to speed in this area. For more information, please check out our “XBRL” Practice Area.

Internal Control Survey

The other day at John White’s farewell reception, I was speaking with my favorite SEC economist about the SEC’s internal control survey. The survey is now up and running and the SEC is actively seeking information regarding costs and benefits of the rules implementing Section 404 of the Sarbanes-Oxley Act. By using the web-based survey, the SEC's Office of Economic Analysis will obtain data on recent experiences of companies with Section 404 compliance. Once the data is collected, OEA will analyze the costs and benefits and the SEC will evaluate the effectiveness of its guidance to management on how to conduct an internal control evaluation and the PCAOB's Auditing Standard No. 5.

Holiday Remembrances

Beyond lighted trees and wreaths, one sure sign of the holiday season while I was at the SEC was the crush of shareholder proposal no-action requests flooding into the Office of Chief Counsel in the last couple of weeks of the year. A significant portion of the 400+ letters that the Staff gets every year all come in right around the same time, making it tough to process all of that correspondence. This is why the Staff always says to try to get your shareholder proposal no-action requests in as early as possible, so you can avoid the "holiday rush."

This year, there is at least some potential that the giant holiday stack of no-action letters won’t be piled up in OCC, thanks to the new dedicated electronic submission process. As Broc noted a few weeks back, Corp Fin has launched its new electronic interface, and as part of that you can e-mail your shareholder proposal no-action requests to

- Dave Lynn

December 11, 2008

Renewal Time

Since all our memberships expire at the end of this month, please renew today at our “Renewal Center” for:

- The Corporate Counsel print newsletter
- The Corporate Executive print newsletter
- Section 16 Annual Service
- Romeo & Dye's Section 16 Filer
- Compensation Standards print newsletter
- Deal Lawyers M&A print newsletter

Comprehensive Price List: Here is a PDF that is a universal order form with the 2009 prices for all of our publications and web sites.

Registered Direct Offerings: An Alternative to Underwritten Deals

As noted in this article, the unprecedented turmoil in the capital markets have caused many companies to consider alternatives to traditional underwritten public offerings. In this podcast, Lora Blum of Jones Day discusses registered direct offerings, including:

- What is a registered direct offering, and how is it different from a PIPE?
- Do you need an underwriter or placement agent to do a registered direct offering?
- Why might a company consider doing a registered direct offering?
- What kind of company could benefit from doing a registered direct offering, and what are the pitfalls a company considering such an offering should be aware of?

Delaware Court of Chancery Disapproves Class and Derivative Settlement

From Travis Laster: Opinions disapproving settlements are usually worth noting, since no one wants to work out a deal and then have it fail to pass muster. In a recent decision - Off v. Ross (Del. Ch. Ct.; 11/26/08) - Vice Chancellor Parsons disapproved a class and derivative settlement. Several factors led to settlement disapproval:

1. Timing - The case settled four days after the plaintiff moved for expedited proceedings. A blindingly fast settlement often raises questions. I once had a case that settled in a week, and it took us 3 hearings to get it approved.

2. Lack of confirmatory discovery - The plaintiffs did not take any discovery pre-settlement and, amazingly, did not take any confirmatory discovery after settling. In my experience, defendants are sometimes pleased when plaintiffs are willing to forgo confirmatory discovery, particularly the standard 1 or 2 confirmatory discovery depositions. This is penny wise and pound foolish, as it contributes significantly to the risk of disapproval.

3. Minimal consideration for seemingly strong claims - The plaintiffs settled claims that arguably invoked the entire fairness standard in return for an agreement that the company would proceed with a rights offering that the record strongly suggested was what the company planned to do all along. In other words, the value of the settlement was suspiciously weak. This is a recurring issue with disclosure-only settlements, when it's best to think at least twice.

4. Objectors to the settlement and a competing action in another jurisdiction -- The weaknesses of the settlement were laid bare by two objectors to the settlement, one of whom was a plaintiff in a competing action in another jurisdiction. Although the parties tried to carve out the other action from the release, the defendants reserved the right to seek dismissal of the action based on the settlement. The existence of motivated objectors always heightens the risk that a settlement will not be approved.

5. A significant attorneys fee of $800,000.

With this confluence of factors, this was a high risk settlement to present.

- Broc Romanek

December 10, 2008

Corp Fin Releases Updated Accounting Manual

Yesterday, the Staff of Corp Fin’s Office of Chief Accountant posted an updated version of the Accounting Disclosure Rules and Practices Manual, now renamed the Financial Reporting Manual. The Manual was last updated in 2000, so this has been a monumental effort on the part of the Staff. Even though the Manual is posted on the SEC’s website, it still bears that legend “For Division of Corporation Finance Staff Use Only” and includes a disclaimer about its informal nature as guidance.

Those who follow the Q&A Forum know that I have cited to the Manual often, because it has always been a great resource for understanding Staff positions on filing and financial statement matters. It might be a good idea to keep your old copy of the Staff Manual, because the new manual does not cover all of the same topics as the old one.

What is Your Auditor Thinking About This Year?

The current economic environment will not only influence disclosure decisions for your upcoming 10-K (as we discussed in the September-October 2008 issue of The Corporate Counsel), it will also influence auditors and how they look at companies during 2008 financial statement audits. If you want to get into the mind of your auditor for the upcoming audit season, check out the PCAOB’s recent Staff Audit Practice Alert on Audit Considerations In the Current Economic Environment. The Alert does a nice job of highlighting the most significant accounting and auditing issues that companies are now facing in light of the recession and the credit crisis, including:

- Overall audit considerations
- Auditing fair value measurements
- Auditing accounting estimates
- Auditing the adequacy of disclosures
- Auditor’s consideration of a company’s ability to continue as a going concern
- Additional audit considerations for selected reporting areas

The Audit Practice Alert points out that in planning and performing the audit, auditors need to be particularly sensitive to fraud risk considerations, which may include increased pressure to meet targets or other expectations of third parties, and even the extent to which the personal financial situations of members of management or the board are threatened by their companies’ performance. This may be an area that will receive more focus this year as compared to recent audits in periods of an economic upswing.

Auditors may also be paying more attention to disclosures this year, particularly the discussion in MD&A of liquidity, capital resources, results of operations, off-balance sheet arrangements and contractual obligations. The Staff Practice Alert notes that auditors need to read this and other information in the report and consider whether the information, or the manner of its presentation, is materially consistent with information, or the manner of presentation of information, appearing in the financial statements.

Inspection Retrospective

While on the topic of the PCAOB, it is hard to believe that the Board has been around so long that it is already putting out its “greatest hits.” Last week, the PCAOB published its Report on the PCAOB's 2004, 2005, 2006, and 2007 Inspections of Domestic Annually Inspected Firms. This report summarizes the inspection findings of the eight domestic accounting firms that were subject to annual inspections over the past four years (i.e., the biggest firms).

The press release announcing the report notes:

“The report describes deficiencies observed in these areas, as well as deficiencies in the following additional audit areas: identifying departures from generally accepted accounting principles (GAAP), auditing of management’s estimates, income taxes, and internal control, performing analytical procedures and audit sampling, using the work of specialists, and assessing materiality, audit scope and audit differences.

The report also includes information on changes in the quality control systems that firms have described in remediation plans submitted in response to the first years of inspection reports. These include changes to their structure, partner evaluation processes, internal inspection programs, procedures for using the work of foreign affiliates, and processes for compliance with independence requirements.”

Last month, the PCAOB proposed its 2009 budget, seeking a modest increase in spending with a budget of $157.6 million, compared to a budget of $144.6 million for 2008.

- Dave Lynn

December 9, 2008

SEC Tweaks Rules on Credit Ratings

Last week, the SEC adopted a number of changes to its credit rating rules that were originally proposed back in June. Here is the press release and Chairman Cox’s remarks.

This latest round of changes largely originated out of the SEC’s examination of the NRSRO rating practices for structured finance deals. At the open meeting last Wednesday, the SEC did not consider any of the proposed changes to its rules targeted at eliminating references to credit ratings, and it remains unclear whether those rule proposals will move forward. The SEC did not move forward on proposals to require a change in the symbols used by NRSROs for rating structured finance products.

The SEC adopted a number of new prohibited conflicts of interest for NRSROs and their personnel including: (1) making recommendations to an issuer about obtaining a credit rating; (2) having the same personnel discuss fees and ratings; (3) gifts from rated issuers in excess of $25. The rule changes also call for internet disclosure of ratings history when the NRSO follows an “issuer pays” model, and enhanced disclosure of performance measures, verification procedures and credit surveillance policies. Enhanced documentation will be required for model deviations, and credit rating agencies will need to retain complaints about credit analysts.

The SEC also reproposed rules concerning additional internet disclosure for “issuer pays” NRSROs and public disclosure of data underlying structured finance ratings.

From the AICPA Conference: Cox on the SEC’s Fair Value Study

The AICPA’s “National Conference on Current SEC and PCAOB Developments” kicked off in Washington yesterday, and Chairman Cox delivered a speech that covered a number of current accounting concerns at the SEC.

Among the things covered in Cox’s speech were some insights into the SEC’s EESA-mandated study on fair value accounting. His preliminary observations seemed to confirm what was reported in an article in yesterday’s WSJ, which noted that sources indicate that the SEC plans to keep fair value accounting in place, while seeking to refine its application.

Cox noted these preliminary findings from the study:

“First, for many financial institutions, investments marked-to-market through earnings on a quarterly basis represent a minority of their total investment portfolio. A larger portion of investment portfolios consists of available-for-sale securities or loans. As you know, investments in loans and available-for-sale securities are not marked-to-market through earnings each period. Rather, these securities are subject to (in some cases, difficult) judgments on other-than-temporary impairments.

Second, most investors, and many others, agree that fair value is a meaningful and transparent measure of an investment for financial reporting purposes. Financial reporting is intended to meet the needs of investors. While financial reporting may serve as a starting point for other users, such as prudential regulators, the information content provided to investors should not be compromised to meet other needs.

Third, accounting standards have served our capital markets well, but we must endeavor to continue to develop robust best practice guidance for auditors and preparers — particularly for fair value measurements of securities traded in inactive or illiquid markets. Education efforts and the development of application guidance must provide a path for auditors and preparers to reach a common ground on these difficult issues.”

I'll have more from the AICPA conference later this week.

TARP Update: Is There Progress?

Yesterday, Interim Assistant Secretary for Financial Stability Neel Kashkari delivered remarks at the OTS Annual National Housing Forum. In assessing the progress to date of the TARP program, Kashkari stated:

“People often ask: how do we know our program is working? First, we did not allow the financial system to collapse. That is the most direct, important information. Second, the system is fundamentally more stable than it was when Congress passed the legislation. While it is difficult to isolate one program's effects given policymakers' numerous actions, one indicator that points to reduced risk of default among financial institutions is the average credit default swap spread for the eight largest U.S. banks, which has declined more than 200 basis points since before Congress passed the EESA. Another key indicator of perceived risk is the spread between LIBOR and OIS: one-month and three-month LIBOR-OIS spreads have each declined about 100 basis points since the law was signed and about 180 basis points from their peak levels before the CPP was announced.“

I guess there is some good news in there.

- Dave Lynn

December 8, 2008

Action Items: Fall Issue of Compensation Standards Print Newsletter

With so many important action items impacting your proxy disclosures right now, you will want to read the Fall 2008 Issue of the Compensation Standards print newsletter that covers some key issues regarding proxy disclosures to consider now.

As a bonus, the issue includes a feature entitled “The Box” that provides an important “heads-up” regarding insiders’ margin accounts and a related D&O questionnaire pointer - which alone are examples of the invaluable, timely preventive guidance that this newsletter provides.

Since members of get a free subscription to the Compensation Standards print newsletter, we have posted the Fall issue online. If you're not a member, try a '09 no-risk trial and get this issue rushed to you today.

And since all memberships are on a calendar-year basis, members should renew for '09 today to continue getting this guidance.

Smaller Company Governance

Man, I've never seen so many good people get laid off in our field. One of them is Steve Shapiro, who has been in-house counsel for four companies. I recently caught up with Steve in this podcast to learn the corporate governance challenges that smaller companies face, including:

- What are the particular challenges of being a GC/CS at a smaller company?
- What could be easier?
- What resources are helpful?
- Are there differences in dealing with other executives? Boards? Outside advisors like accountants and counselors?

FINRA Issues Guidance on Broker/Dealer Obligations regarding SPACs

Recently, FINRA issued Regulatory Notice 08-54, which provides guidance on the structure, trends and broker/dealer conflicts of interest associated with SPACs. The Notice discusses broker/dealer suitability and disclosure obligations in connection with a SPACs' IPO, after-market trading and any subsequent acquisitions. The Notice also refers to compliance with NASD Rule 2720, the NASD conflict-of-interest rule, in connection with an acquisition by a SPAC.

- Broc Romanek

December 5, 2008

The SEC's Big Move: The "Restacking Project"

As noted in this recent Washington Post article, the SEC will be spending the next six months reshuffling the offices in its new building (price tag = $4.1 million). When the SEC moved into its new building a few years ago, someone in charge of such things had a not-so-brilliant idea - mix up Staffers from the various Divisions on each floor rather than maintain the Divisions on their own floors. End result of that: folks from the same Division communicated far less with each other because they rarely saw each other (and communication already had been reduced due to the popularity of working from home).

Some of the Corp Fin Operation groups are already moving - and this project likely will change the Mail Stops for some of them in the near future. This "restacking" is a great idea, but the timing of it puzzles me given that there is some likelihood of the SEC merging with the CFTC (or other agencies), but I'm sure they have their reasons.

The Latest Anti-Bribery/Anti-Corruption Trends

In this podcast, Mike Schwartz of KPMG discusses his firm's new "2008 Anti-Bribery and Anti-Corruption Survey," including:

- Why was this survey undertaken?
- What were the major findings of the Survey?
- Were any findings surprising?
- What advice do you have for companies in the wake of the Survey?

Nasdaq's New Process for SEC Filing Deficiencies

Recently, Nasdaq filed a proposed rule change which would provide more lenient treatment for companies that are delinquent in making periodic filings to the SEC. Under current Nasdaq rules, companies receive a delisting letter immediately upon missing a filing due date. Late filers are not given a compliance period in which to make a late filing - nor is the Nasdaq staff permitted to grant the delinquent companies additional time to comply with the filing requirements. Although the rule change has been filed as a proposed rule, Nasdaq has asked the SEC to waive the normal 30-day waiting period and approve the rule change to go effective immediately.

Under the modified rules, late filers would have 60 calendar days after receiving a Nasdaq notice of delinquency to submit a plan to regain compliance. The plan would have to address the reasons for the late filing, the likelihood of making the filing within the exception period, the company’s past compliance history, corporate events that might occur within the exception period, and disclosures to the market. After reviewing this (and other relevant information), the Nasdaq Staff may grant the company up to 180 calendar days from the date of the first missed filing to fulfill the filing requirement and regain compliance.

Nasdaq’s rationale for the proposed change is a recognition of the fact that, when a company delays a filing, the formal procedures required to investigate the underlying issues causing the delay and, if necessary, to restate its financial statements, can be a laborious time-consuming process. In these situations, companies often publish whatever financial information they can and inform investors of the reasons for the delay. Nasdaq believes that delisting a company that is taking all appropriate steps to regain compliance and file financial statements - while keeping the public informed - is not in the best interest of the company or its investors.

- Broc Romanek

December 4, 2008

Issuing FDIC-Guaranteed Debt under the TLGP

About ten days ago, the FDIC issued its Final Rule regarding its Temporary Liquidity Guarantee Program (known as "TLGP"), which includes the debt guarantee program under which the FDIC is guaranteeing the unsecured senior debt of eligible entities. The TLGP is an opt-out program with an opt-out deadline of December 5th.

In connection with the FDIC's final rule, Corp Fin has issued an interpretive letter clarifying that offerings of TLGP-guaranteed debt don't need to be registered under the '33 Act (since the guaranteed debt will be exempt under Section 3(a)(2)). We have posted memos regarding TLGP in our "Debt Financings" Practice Area.

The first offerings of debt guaranteed under the program have already been launched - and it has been estimated that as much as $300 billion of debt may ultimately be issued under the TLGP. To help you prepare for this wave, we have just announced a new webcast - "How to Issue FDIC-Guaranteed Debt under the TLGP" - to be held on December 17th. With all the big issues being hashed out right now, our panel of Wall Street lawyers will be able to give you the latest developments. This is a "biggie."

If you're not a member of, try a '09 no-risk trial to access this webcast for free. If you are a member, please renew your membership today since all memberships are on a calendar-year basis.

Yesterday, Mark Borges blogged about the GAO's preliminary assessment of the compliance with TARP so far, particularly as it relates to executive compensation. It's a great blog entry.

The NYSE Speaks '08: Latest Developments and Interpretations

We have posted the transcript from our recent webcast: "The NYSE Speaks '08: Latest Developments and Interpretations."

Financial Viability Exception: Nasdaq Issues New Staff Interpretive Letters

Recently, Nasdaq posted three new letters (2008-18, -19 and -20) written to companies seeking to utilize the financial viability exception in Rule 4350(i)(2), the rule that provides an exception to the shareholder approval rules for companies in financial distress. A company may not use this exception without obtaining specific approval from Nasdaq; the company must also comply with certain other requirements. But these new letters - and this series of FAQs on the financial viability exception - may help companies thinking about requesting the exception to understand the factors Nasdaq will consider in deciding whether to approve it.

- Broc Romanek

December 3, 2008

A Coming Wave of New-Age Repricings?

I know that a lot of companies are rethinking their executive compensation arrangements right now. We just sent the Nov-Dec ‘08 issue of The Corporate Executive to the printer. This issue contains the definitive guidance on repricings (and related compensation restructuring issues) and how to implement hold-through-retirement provisions that will help comply with Treasury’s “excessive risk” limitations.

Act Now: To receive a non-blurred version of this issue right away (and on a complimentary basis), enter a No-Risk Trial for ‘09 today.

Note that last week, the Council of Institutional Investors issued a statement warning companies not to reset the bar for CEO pay because of the market meltdown. We have posted this statement - and other memos regarding underwater options - in's "Stock Options" Practice Area. In addition, we have posted other memos about executive compensation restructuring in our "Rolling Back Compensation" Practice Area.

Believe It or Not: Sarbanes-Oxley Lawsuit Marches On

With the markets collapsing and a new appetite for regulatory reform, it was surprising to see this article that reports that the Free Enterprise Fund was dealt another setback in its attempt to find the Sarbanes-Oxley Act unconstitutional. By a 5-4 decision, the US Court of Appeals for Washington DC voted not to review the case recently. Apparently, the plaintiffs now plan to appeal to the US Supreme Court.

Even more surprising is the occasional mention in the process of Paulson's '07 "blueprint" to modernize the financial markets as a possible stepping stone for regulatory change. As you may recall, that was a blueprint to deregulate, not re-regulate. We'll be posting reform proposals in our "Regulatory Reform" Practice Area.

SEC's "IDEA" Not a Great Idea? Accusations of Trademark Infringement

As noted by Dominic Jones in his "IR Web Report" a while back, the SEC's plan to launch a new online database (dubbed "IDEA") may have hit a wall when a Canadian tech company - CaseWare International - claimed it already had been using the name for 20 years. The SEC filed a trademark application back in May with the US Patent and Trademark Office, while CaseWare claims it registered its trademark with the US PTO back in 2001. It will be interesting to see how this plays out...

- Broc Romanek

December 2, 2008

Doings at the ABA's Federal Regulation of Securities Committee Fall Meeting

Last week, Corp Fin updated its "'33 Act Sections" CD&Is. I'm sure that this is welcome news to Corp Fin Director John White, who had Chief Counsel Tom Kim and Deputy Director Brian Breheny stand up and affirm their intent to update the portions of the old Telephone Manual into CD&Is by the end of the year during the recent ABA Fall meeting of the Federal Regulation of Securities Committee.

During his last remarks as Corp Fin Director, John reviewed the numerous changes during his two-plus year tenure - including noting that now over 20,000 of the Staff's comment letters have been posted - and he identified big rulemakings that have been tee'd up for the near future, including:

- IFRS roadmap now proposed, along with proposed timetable
- Further implementation of certain CIFiR recommendations
- Proxy matters, including a reconsideration of shareholder access
- Technology, including XBRL and the "21st Century Disclosure Initiative"
- Beneficial ownership reporting regime, in the wake of the CSX decision and the SEC's short-selling efforts

In our "Conference Notes" Practice Area, we have posted notes from PLI's recent Securities Law Institute.

Mandatory XBRL Likely to Come Soon

Recently, I wondered in this blog whether SEC Chairman Cox would get across the finish line with mandatory XBRL before he left. Listening to John's remarks, I got the sense that the SEC would adopt mandatory XBRL before Cox departed (although John didn't mention what type of transitionary timetable would be adopted). Bolstering this effort, XBRL US announced last week that they have completed a new draft of the XBRL US GAAP Taxonomies - as well as the initiation of a public review.

Recently, I blogged that Broadridge was leading the way on proxy statement XBRL taxonomies. This changed last month when Broadridge donated its draft proxy taxonomies to XBRL US. However, XBRL US's new draft taxonomy doesn't include tags for proxy statements - thus making it highly unlikely the SEC would include executive compensation data in its initial adoption of mandatory XBRL.

Our December Eminders is Posted!

We have posted the December issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

- Broc Romanek

December 1, 2008

RiskMetrics Issues '09 Proxy Season Policies

In our "Proxy Advisors" Practice Area, we have posted RiskMetrics' new set of 2009 policies, which were released in the middle of last week. Tune in next month to hear Pat McGurn of RiskMetrics' ISS Division to discuss these new policies in this webcast: "Forecast for 2009 Proxy Season: Wild and Woolly."

RiskMetrics to Change CGQ?

Speaking of RiskMetrics, I have heard that they are contemplating an overhaul of their corporate rating service, the "Corporate Governance Quotient" (known as "CGQ"). Although their plans could change, I understand that there will not be a single numerical score as there is today. [You may recall that today, each company's CGQ score is available from their Yahoo! Finance page, among other places.]

Instead, there would be multiple scores for each company, each score dependent on a major area of governance (egs. board independence, board structure, compensation, auditing and financial integrity). The idea is to make the results less "black-and-white" and allow users to reach their own conclusions more readily.

I'm not sure if a change in methodology will make the CGQ more popular with investors - studies have shown they are not considered particularly relevant for investment decisions today - but I imagine some companies will welcome this development (particularly corporate secretaries who have directors that closely follow the scores - although I believe the number of those have dwindled over the years).

Bebchuk v. Electronic Arts: Transcript Posted

Recently, I blogged how Judge Hellerstein of US District Court (SDNY) dismissed Bebchuk v. Electronic Arts, Inc. (which involves Professor Lucian Bebchuk's attempt to use Rule 14a-8 to establish new "shareholder access" procedures). I mentioned that once we find a copy of the decision, we'd post it in our "Shareholder Proposals" Practice Area.

Apparently, the Judge didn't feel like writing a decision because he figured that the 2nd Circuit would handle that upon appeal - so we've posted his 1-page order as well as the transcript from the hearing.

- Broc Romanek