March 13, 2009

Mark-to-Market Accounting Now on the Regulatory Fast Track

Yesterday’s House hearing on mark-to-market issues seemed to light a fire under the SEC and FASB, prompting commitments from FASB Chairman Robert Herz and the SEC’s Acting Chief Accountant Jim Kroeker to provide guidance on fair value accounting within three weeks.

As Edith Orenstein notes in the FEI Financial Reporting Blog, the members of the Committee pressed for immediate action:

“Rep. Paul Kanjorski (D-PA), chair of the Capital Markets Subcommittee of the House Financial Services Committee, noted in his opening remarks, “Mark-to-market accounting did not create our economic crisis, and altering it will not end the crisis. But improving the application of a fundamentally sound principle that is having profound adverse implications in a time of global financial distress is imperative. Therefore, our hearing today is about getting Financial Accounting Standards Board and the Securities and Exchange Commission to do the jobs they are required to do.” He added, “Emergency situations require expeditious action, not academic treatises. They must act quickly.”

“There are three pieces of legislation presently pending in Congress,” noted Kanjorski, with respect to mark-to-market accounting or accounting standard-setting generally (e.g. HR 1349 co-sponsored by Rep. Ed Perlmutter (D-CO) and Rep. Frank Lucas (R-OK) which would create a Federal Accounting Oversight Board). Kanjorski added, “I guarantee you one of those pieces of legislation is going to become law before early April.

Rep. Gary Ackerman (D-NY) responded to FASB’s current timetable, ‘If you are going to act, you’ve got to do it real quick.’”

The FASB Chairman ultimately responded, “We could have the guidance in three weeks; whether it will fix things, I don’t know.”

Also on the fast track are efforts to reinstate the “uptick rule” applicable to short selling. As noted in this Business Week article, SEC Chairman Mary Schapiro indicated in her testimony before the House appropriations committee earlier this week that the SEC hopes to propose reinstatement of the uptick rule some time in April.

SEC Filing Fees Increase on Monday

With the signing of the fiscal 2009 appropriations bill earlier this week, the SEC announced that is now set to raise the fees due for Securities Act registration statements and other filings. On Monday, March 16th, the Section 6(b) fee rate applicable to Securities Act registration statements, the Section 13(e) fee rate applicable to the repurchase of securities, and the Section 14(g) fee rate applicable to proxy solicitations and statements in corporate control transactions all increase to $55.80 per million dollars. Filings that get in today by 5:30 p.m. eastern time (except for short-form Rule 462 registration statements which get until 10:00 p.m.) will pay the old fee of $39.30 per million dollars.

The Alaska Air Letter and Beneficial Ownership

As noted in this O’Melveny & Myers memo, a Rule 14a-8 no-action letter granted to Alaska Air Group by Corp Fin last week delved into the specific proxy authority granted with respect three shareholder proposals, and whether the breadth of that proxy actually caused the person designated as proxy to be a beneficial owner of all of the nominal proponents’ shares – and thus unable to submit more than one proposal under Rule 14a-8(c). The particular proxy language in question specified that the designee could “act on my behalf in all shareholder matters, including this Rule 14a-8 proposal for the forthcoming shareholder meeting before, during and after the forthcoming shareholder meeting.”

This language appears to differ from proxies in circulation among other shareholder proponents, which often are not as broad in that they don’t grant authority with respect to “all shareholder matters.” As is always the case, the Staff’s decisions on shareholder proposal no-action letters are based on the specific circumstances of each proposal and the arguments raised by issuers in seeking to exclude the proposal. Certainly, the result in the Alaska Air letter will focus attention – both for issuers and proponents – on the specific language used in granting proxy authority with respect to a proposal.

– Dave Lynn