I received quite a bit of member feedback on my recent blog regarding how Corp Fin has a challenging job analyzing the circumstances of each shareholder proposal before making an exclusion/inclusion determination. Some of the feedback was frustration with the way that the Staff sometimes splits hairs. Here is an example of one member’s frustration:
I liked your note about how companies, in trying to interpret the SEC’s no-action responses, can misinterpret the tea leaves. I have heard from some in-house counsel about a special meeting proposal that John Chevedden has submitted to almost two dozen companies. He has two versions (copied below), which differ only slightly in the wording – as noted by the bolded and underlined language:
1. RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call special shareowner meetings. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners but not to management and/or the board.
2. RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call special shareowner meetings. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners and meanwhile not apply to management and/or the board.
In fact, in three instances, John submitted both versions to the same company. In no-action responses to Bristol-Myers, Dow and Wyeth, the SEC Staff allowed exclusion of the “and meanwhile not” version under 14a-8(i)(3). On the other hand, the Staff inexplicably did not allow exclusion of the “but not to” version of the proposal (and rejected arguments made under (i)(2), (i)(3), and (i)(6)).
In each of the cases, it appears that the Staff’s determination hinged on whether the proposal contained the “and meanwhile not” wording or the “but not to” wording. It certainly is not clear why the result would turn on that wording. None of the companies made arguments that referred to that wording – and to my eyes, they mean the same thing. It seems that you make your arguments to the SEC Staff, they ruminate on your letters in silence for a few weeks, and their unexplained answer mysteriously appears on their website. I’m not happy.
Personally, my ten cents is that during those weeks of silence, the Corp Fin Staff is in fact researching precedent and often going through a healthy internal debate on where to draw the line. It is understandable that the line drawn often is not apparent to those on the outside since the Staff’s response letters don’t explain the rationale for the Staff’s decision – and we are not privy to the internal debate. And I note that the Staff simply doesn’t have the resources to add the rationale to their responses – so that is not the answer unless Congress ponies up more funding for the agency.
Fake SEC Filings: I Felt the Love
A while back, I asked whether anyone remembered a fake filing from a few years back. In response, a horde responded – reminding me of the fake Form F-1 filed by Apollo Publication Corporation in June 2005. I was embarrassed because I had blogged about that filing myself back then – not once, but twice! Clearly, I spaced when I did my homework.
Some interesting anecdotes about the Apollo fake filing:
- It was a Form F-1, not a Form S-1 or SB-2
- The directors of the alleged company included President Bush, Alan Greenspan, Jimmy Carter, Fidel Castro and a cast of thousands.
- The SEC issued a stop order in September ’05 (here is an article about that).
An Even Better Fake Filing: Vietnam War Style
One long-time member sent me this prospectus to allow investors to buy stock in the Vietnam War. I am told this was a big hit circa 1970. It is one of the true classics, particularly for those who were in the military during the Vietnam-era. Almost every sentence has a gem in it. Just check out the subtitle: “This offering involves a high degree of risk.” Ain’t that the truth…
As I’ve spoken at a number of conferences over the past year regarding last year’s “corporate use of website” guidance from the SEC, I thought a few words about creating barriers to entry on your IR web pages would be appropriate. And by “few words,” I mean: “don’t do it.”
There is nothing more antithetical to investor relations than requiring investors to jump through unnecessary hoops in order for them to access any of the content on your IR web pages. There is no practical reason for companies to impose click-through disclaimers on their IR content any more than requiring similar disclaimers for other content on their site. Can you imagine requiring a potential customer to click on a disclaimer to get product information? It’s against the general nature of the Web (ie. simple and fast navigation on the information highway) – and severely diminishes the value of your IR web pages as investors will likely go elsewhere to seek what they want.
Luckily, this is a position that the SEC appears to agree with – in its recent interpretive release, the SEC cautions that the use of disclaimers may not be effective. In particular, the SEC says that companies can’t require investors to waive protections under the federal securities laws as a condition to accessing content (at least in the blog and e-forum context).
In fact, the Corp Fin Staff seems to be issuing comments to companies that have click-through disclaimers. For example, in comment #3 of this letter to West Bancorp (as part of a Form 10-K review), the Staff asks the company how the disclaimer – which required investors to agree to a general release of liability – “accords with your responsibilities under the federal securities laws.”
Unfortunately, the company’s response was to add a statement to the disclaimer that the agreement is not intended to limit federal securities law liability. Check out this company’s IR home page – would you bother as an investor to go further? So much for having relations with investors. [Ironically, the disclaimer is all about "we provide this site 'as is' and stuff like that" - but when you click the "I Agree" button, you are told you are going to a third-party provider who hosts the company's IR web page.]
I strongly believe that the SEC needs to get into the business of imposing a few bare minimum “do’s” and “don’ts” for IR web pages since it’s much more likely that’s where investors will obtain information about an investment today compared to reviewing SEC-filed documents. In other words, the SEC needs to help save companies from themselves…
California Bylaw Provisions May Not Offend the Right to Buy Livestock
Here’s something to brighten your day from Keith Bishop: “As someone who enjoys fishing, I’ve been bemused by the fact I have a constitutional right to fish here in California (Art. I, Sec. 25 “The people shall have the right to fish upon and from the public lands of the State and in the waters thereof . . .”).
I’ve been practicing corporate law in California for more than two decades and I am ashamed to admit that I’ve been completely ignorant of the fact that this California statute specifically prohibits the directors or stockholders of a California corporation from adopting a bylaw that would prohibit any officer, stockholder or other person connected with the corporation from buying livestock in any market in California where livestock is bought and sold. This is definitely a statute to keep in mind when drafting bylaws – especially since any attempted enforcement of the proscribed bylaw would be a misdemeanor.”
First Drafts: On the Two Yard Line or Closer to Midfield?
Below is some good stuff that John Jenkins of Calfee Halter & Griswold recently blogged on the “DealLawyers.com Blog“:
A few months ago, our law firm had one of its periodic training sessions for our associate attorneys. The topic for this particular session was making the transition from junior associate to seasoned business lawyer, and the presenters were two investment bankers from one of our firm’s clients.
Lawyers have an obligation to zealously represent clients and protect their legal interests in a transaction, and that may cause lawyers to butt heads with bankers from time to time. But when bankers speak about the things lawyers do that drive them nuts or impress the heck out of them, it’s worth listening to them, because I think you can pretty much count on their position being consistent with that of the typical corporate client.
After all, when it comes to what an M&A client wants to accomplish – getting the deal done as quickly and efficiently as possible – there’s nobody in the transaction whose interests are more closely aligned with the client’s than its investment banker. That’s because bankers eat what they kill: they only get paid for their efforts if the deal closes.
The bankers who spoke to our associates shared a lot of insights about good and bad lawyering, and I’ll talk about more of them in later posts, but at the very top of their list of bad habits was something that anybody who has worked on a deal has experienced – namely, receiving a first draft of a purchase agreement that is so aggressively one-sided that it’s like starting a drive from your own two yard line.
They pointed out that this bit of grandstanding usually ingratiates you to absolutely nobody, including your own client. The first draft of a deal document sets the tone for the entire transaction. When you start out with one that’s burdensome and oppressive, the recipient’s legal and financial advisors immediately let their client know that the document is over the top. That means that not only does the draft usually get flyspecked, but each succeeding draft, along with just about every request made by the other side during the course of negotiations, gets looked at with a jaundiced eye.
Instead, the bankers suggested that a more balanced first draft is a much better way to approach a deal. If you start out with a document that puts the ball on the 35 yard line, you not only create an atmosphere that suggests your side wants to do business, but ironically, you’ll probably be more successful in your efforts to win on the handful of important deal points that you’ve drafted in your favor. When it comes to doing deals, it’s usually the reasonable people who can get away with murder.
From my perspective, I’ll concede that there are circumstances where it makes sense to be pretty aggressive in documentation. For example, if you’ve got a very hot commodity or a buyer that’s drooling all over the conference room table, then a little documentary boorishness is probably in order. But most deals don’t fall into that category, and most experienced business people don’t view an acquisition or a divestiture as a zero sum game. A first draft that suggests otherwise is usually a bad idea if your client’s primary objective is to get a deal done quickly and efficiently.
As we continue to post hordes of memos analyzing the SEC’s proxy access proposal in our “Proxy Access” Practice Area, we’re also are keeping an eye on the comment letters being submitted to the SEC. It’s very early – so most of the comment letters so far are from individuals, including this one from a disgruntled citizen who is mad about the SEC’s handling of Bernie Madoff and this one decrying the tyranny of the voting system (from Thomas Paine no less).
On a more serious note, Ning Chiu of Davis Polk notes: “One of the sleeper issues that has not been noted as much about proxy access is the impact on majority voting. If there’s a shareholder nominee, then majority voting provisions default back to a plurality standard since the definition of a contest is usually phrased as having more candidates than board seats. That limits the power of “vote no” campaigns and ISS “vote no” recommendations, which had an impact on compensation matters this year. It’s possible that activists and ISS would rather have threat of majority voting than a shareholder nominee on the ballot whose chances of getting elected may be slim.”
Just before the SEC posted its proxy access proposing release, I noted that the month wait for the proposal was heading towards a record. [Note that 11% correctly picked "sometime this week" in my poll of predicting when the release would be out; the release came out the day following when the poll went up.]
Former Staffer Scott Taub, now with Financial Reporting Advisors, wisely responded that it wasn’t even close to record “still waiting” territory. He points to the gap between the approval of the draft IFRS roadmap at an open Commission meeting (August 27th last year) and when that proposal was posted (November 14th). That wait will be hard to beat…
The Latest Compensation Disclosures: A Proxy Season Post-Mortem
We have posted the transcript from our recent CompensationStandards.com webcast: “The Latest Compensation Disclosures: A Proxy Season Post-Mortem.”
No, Michael Scott Does Not Work for Us
But I wish he did. For those of you that aren’t fans of the TV show – “The Office” – Michael Scott is a funny character played by Steve Carell. I do watch the show and it’s good, but the reason I have bothered to blog about him is that some of our members have decided to use the names of characters from the show when they leave anonymous questions/answers in our “Q&A Forum.” Here is one of the funnier notes:
I can sell you some paper, but cannot give it away. That would be stealing from my company. Instead, I’ll give you a pass for a free night stay at Schrute Farms.
My superior thanks you, Dwight Schrute, Assistant Regional Manager
I just love it. Just like I love the screen names that members have used for our “Blue Justice League.” My Top 5 there include: To Dye For; Tinkerbell; Clever Hans; moto moto and Professor Bertram.
As long as I’m blogging about TV shows, you need to see Tina Fey trying to get out of jury duty by pretending to be Princess Leia in this video.
As promised by Chair Schapiro earlier this month, the SEC has calendared an open Commission meeting for next Wednesday, July 1st, where it will consider proposals related to executive compensation disclosures, TARP’s say-on-pay and other corporate governance issues. It also will consider approving the NYSE’s “elimination of broker non-votes for director elections” proposal. This is a biggie.
There is one curious item on the SEC’s agenda – I have no idea what the second part of Item 3 relates to: “to clarify certain of the rules governing proxy solicitations.” I haven’t heard anything about problems with the proxy solicitation requirements. [Note: I now understand that this relates to codification of the Amylin letters (Eastbourne Capital/Carl Icahn) letters and other "housekeeping" rules.]
Early Bird Expires Tomorrow: With the SEC’s goal to have new executive compensation disclosure rules in place before next proxy season – combined with the real likelihood of say-on-pay legislation and the loss of broker nonvotes for director elections – our the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”) will be more important than ever. These Conferences will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9-10th.
Take advantage of reduced rates that will expire tomorrow, June 26th by registering now. These rates will not be extended – there will be no early bird discounts after Friday!
The SEC’s Quick Response to Insider Trading Allegations: A More Restrictive Compliance Program
As media accounts continue to dribble out that damage the SEC’s reputation (eg. see this recent Washington Post article regarding the Cox years), it appears that the furor over allegations over possible insider trading by SEC Staffers has died down.
One of the reasons may be the SEC’s quick response – it quickly announced a series of measures that will strengthen its internal compliance program as noted in this WSJ article. More specifically, as outlined in this SEC press release, the measures include:
- New set of new internal rules governing securities transactions for all SEC employees that will require preclearance of all trades
- Prohibition on trading in securities of companies under SEC investigation regardless of whether an employee has personal knowledge of the investigation
- Contracting with an outside firm to develop a computer compliance system to track, audit and oversee employee securities transactions and elicit financial disclosure in real time
- Consolidated responsibility for securities transactions and financial disclosure reporting oversight within the SEC’s Ethics Office
- Authorized the hiring of a new Chief Compliance Officer
Here is a noteworthy Washington Post article in which a SEC Staffer responds to complaints unrelated to the insider trading allegation, but which were included in the related SEC’s Inspector General report .
Alleged Insider Trading: Reactions from Our Community
Since our members are closer to what happens at the SEC compared to the general public, it’s worth noting some of their reactions to the insider trading allegations. I’ve already blogged my own thoughts in a piece entitled “My Ten Cents: What Does This Alleged Insider Trading Scandal Mean?”
And we have these poll results regarding “Should the IG’s Report Have Been Made Public So Soon?”:
- 54.6% said it shouldn’t have been made public yet
- 34% said it should have been made public when it was
- 14.4% said the report was too long to read
- 15.5% wanted to cry
- 7.2% wanted to laugh
Here some of the member reactions that I received:
- Perhaps the SEC should do what some of the more conservative law firms do and prohibit its employees from trading in anything except index funds and ETFs? That would reduce the workload for the clearance officer and virtually eliminate any appearance of conflict. Still, if either of these people is guilty, they’re just plain stupid since they of all people know how easy it is for the SEC to trace suspicious acvtivity.
- It is unclear whether the SEC Enforcement Attorneys traded on inside information or seriously violated SEC rules. However, the IG has been investigating for 15+ months and felt strong enough about the record to refer it to the US Attorney. Doesn’t sound good- especially the parts about trading in stocks with potential or current investigations. I do note that the IG’s last two reports to Congress mention the investigation and give identifying details.
- One person said that certain people who were familiar with the record found that the many of the questioned trades “didn’t make sense.” No one was happy with this reputational hit.
- These appear to be innocent (yet sloppy) transactions, not intentional fraud. One of the big problems at the SEC is that not many truly understand how the law and the financial markets work in a macro sense and how everything is connected to each other. Sure you have brillant people is specialized offices who know all about net capital rules, investment company communications or no action letters, etc… but not many who understand what really make investors, financial analyst and traders tick (can we say “Madoff”). This is not an easy thing as its takes a ton of work and reading to keep on top of things as you are aware. Thus you actually have to commend those who try to help others bridge the gap (this is how to invest in a stock, this is a bond) and who generally try to hone their skill sets.
- Didn’t the SEC say they wanted to hire more financial professionals, do they expect these people to put all of their money in T-bills when they join? Unfortunately, the careers of these lawyers are probably doomed regardless of their culpability since if you did that many trades eventually you will probably run into a SEC conflict at some point, especially if you are buying financial stocks. I remember trying to pre-screen trades at the SEC many years ago; itf was essentially a broken system, so I hope that is not the reason for their predicament. Bottomline: expect future risk taking, innovation, and morale at the SEC to take a further set back.
We just posted the “Summer ’09 Issue” of InvestorRelationships.com (we are maintaining this publication as complimentary thru ’09 as a “Thank You” to our loyal members in a down economy). The “Summer ’09″ issue includes articles on:
- How to Monitor Shareholder Activism in a Changing World
- The Art of Handling Director Resignations: Practice Pointers
- Parsing the SEC’s Proxy Access Proposal
- My Last ExxonMobil Annual Meeting
- Online Document Sharing Services: Legal and Reputation Concerns for IROs
If you’re not yet a member of InvestorRelationships.com, simply provide your contact information in this sign-up form and gain free and immediate access to the issue. If you signed up last year, your ID/password will continue to work – if you forgot what those are, you can get a reminder.
Survey Results: Schumer’s “Shareholder Bill of Rights” Unpopular with Executives
Recently, the NYSE conducted a poll of its listed companies regarding Senator Schumer’s “Shareholder Bill of Rights Act of 2009.” Here is a summary of the results:
- 87% oppose and 6% favor legislation that requires advisory votes on executive compensation
- 82% oppose and 7% favor legislation to require proxy access, while 76% oppose and 10% favor the proposed 1% ownership level threshold for proxy access (among those opposed, 49% oppose and 31% favor a 5% level for proxy access, 55% oppose and 27% favor a 10% level for proxy access)
- 76% oppose and 16% favor legislation that mandates separation of the CEO and Chair roles
- 90% oppose and 4% favor legislation that precludes the CEO or a former CEO from ever serving as Chairman, even after retirement as a company executive
- 63% oppose and 25% favor legislation to mandate that all directors stand for re-election each year
- 45% oppose and 43% favor legislation requiring that in uncontested elections, directors must receive a majority of votes cast
- 66% oppose and 19% favor legislation that requires companies to establish a risk committee
- 73% currently have independent directors as part of the audit committee responsible for the company’s risk management practices, while 10% have a separate committee
- 81% oppose and 4% favor the Shareholder Bill of Rights Act (51% indicated that the Act would “greatly” or “somewhat” impair the company’s position with respect to their international competitors, while 24% and 2% say it would have “no impact” or “enhance” their competitive position; 90% say the Shareholder Bill of Rights Act would “significantly” or “somewhat” increase their costs as a public company, with 3% citing no effect)
Your Vote: What are the Odds of Schumer’s Bill Being Passed?
Senator Charles Schumer’s “Shareholder Bill of Rights” is not the only legislation floating around the Hills these days seeking to reform corporate governance. Here are three others:
1. “Shareholder Empowerment Act” – As Dave recently blogged about, Rep. Gary Peters introduced the “Shareholder Empowerment Act.” Similar to Schumer’s bill – but going further – Peters’ bill would implement eight governance reforms that were highlighted in a Council of Institutional Investors letter to Congress late last year, including:
- Require majority voting for directors
- Allow long-term investors to have proxy access by nominating their own director candidates
- Eliminate uninstructed broker votes in uncontested director elections
- Require separation of board chairs and CEO positions
- Implement nonbinding annual shareholder approval of executive compensation
- Require independent compensation consultants
- Strengthen clawbacks of unearned incentive compensation
- Bar severance agreements for executives terminated for poor performance
2. “Excessive Pay Shareholder Approval Act” and “Excessive Pay Capped Deduction Act of 2009″ – In May, Senator Richard Durbin introduced two bills in May aimed at curbing “excessive” compensation: the “Excessive Pay Shareholder Approval Act” (Bill S. 1006) and the “Excessive Pay Capped Deduction Act of 2009″ (Bill S. 1007).
The “Excessive Pay Shareholder Approval Act” would require a supermajority vote (60%) to approve a compensation structure in which any employee is paid more than 100x more than the average employee of that company. In addition, in connection this vote, proxy disclosure would need to include:
- Compensation paid to its lowest paid employee
- Compensation paid to its highest paid employee
- Average compensation paid to all of its employees
- Number of employees who are paid more than 100x the average employee compensation
- Total compensation paid to employees who are paid more than 100x the average employee compensation
The “Excessive Pay Capped Deduction Act” would limit the federal income tax deduction for compensation paid to executives to 100x average employee compensation. Any amounts paid in excess of this cap would be considered “excessive compensation” and would be non-deductible.
In addition, any company that paid “excessive compensation” would be required to file a report with Treasury for such taxable year that included:
- Amount paid to the employee receiving the lowest amount of compensation during such year
- Amount paid to the employee receiving the highest amount of compensation during such year
- Average compensation of all of its employees during such year
- Number of employees receiving compensation that is more than 100x the average employee compensation during such year
- Amounts paid to the employees receiving compensation that is more than 100x the average employee compensation during such year
An Inspector General Report: The SEC’s “Restacking Project”
At the end of last year, I blogged about how the SEC was spending $4.1 million to shuffle its personnel around physically due to bad planning when the Staff first moved into its new building a few years ago. The SEC called this it’s “restacking project.”
Back in March, the SEC’s Inspector General, David Kotz, issued this report on how the restacking project fared. The IG initiated the review because of Staff complaints that the project was “not properly approved and initiated, did not serve a useful purpose, and was a waste of Commission resources.” The report claims that 81% of the Staffers surveyed by the IG felt that the reorganization was completely unnecessary. Then SEC Chair Cox ordered a cost-benefit analysis that was never completed for the project. Not a good story.
“Cool Deal Cube Contest”: We Have a Winner!
Recently, I announced a “cool deal cube contest” as part of our ongoing “Deal Cube Chronicles.” John Newell of Goodwin Procter takes the prize with this cube. John notes:
Here is an old JPMorgan advertisement from the late ’80s that explains this cube. In a nutshell, it is that the cube/tombstone from the “tombstone of the unknown deal.” I made a joke to a senior guy at Bowne of Boston after a public deal cratered and he made a couple of these babies.
Recently, I also received this story from a member:
During a drafting session for a follow-on offering in which we were underwriters’ counsel, we commented that the CFO was referred to in his bio as a certified pubic accountant. Company counsel expressed surprise because they had copied the language verbatim from the original IPO prospectus. There followed 1-1/2 seconds of uncomfortable silence, after which we flipped through a copy of the IPO prospectus and confirmed the worst.
There is some consolation in the fact that a search of the term “certified pubic” on EDGAR yields 142 hits (and counting).
Whew, the proxy season is over. And it’s now fair to ask: just how wild and crazy was this proxy season? Given all the coming reforms, probably not as crazy as next year’s proxy season will be – but it certainly was’t dull. You can read details about how the various proposals were supported in RiskMetrics’ new “Preliminary Postseason Report.”
Regarding one of the hottest topics, as of June 1, “say-on-pay” shareholder proposals averaged 46.7% support, representing an increase of over 5% from 2008. The 2009 figure is based on preliminary or final voting results for 50 of the 85 proposals voted so far this year. Meanwhile, RiskMetrics is tracking 18 majority votes in favor of the resolution as of June 1st, compared with 11 in all of 2008. Proposals at another five companies received between 49 and 49.9% support.
It’s Time to Weigh In: RiskMetrics Launches Annual Policy Formulation Process
Last week, RiskMetrics kicked off its annual global policy formulation process by inviting comments in its 2010 proxy voting policy survey. This year’s policy formulation process will include more outreach to investment industry groups as well as expanded outreach to the global corporate community.
Given that these comments could influence RiskMetrics’ views – and given that RiskMetrics’ views will be more important than ever given regulatory reform, say-on-pay, proxy access, etc. – you should take advantage of this opportunity. The survey period ends July 31st – and will be followed by an open comment period in October after RiskMetrics publishes its draft policies. Don’t wait for this 2nd comment period to weigh in – it’s better to influence the policies now before the train gets rolling…
CEO Pay: Big Changes Coming
With the SEC’s goal to have new executive compensation disclosure rules in place before next proxy season – combined with the real likelihood of say-on-pay legislation and the loss of broker nonvotes for director elections – our the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”) will be more important than ever. Here is the agenda.
Early Bird Expires This Friday: These Conferences will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9-10th. Take advantage of reduced rates that will expire this Friday, June 26th by registering now. These rates will not be extended – there will be no early bird discounts after Friday!
Good news. Peter and Alan just completed the 2009 edition of their popular “Section 16 Forms & Filings Handbook,” with numerous new – and critical – samples included among the thousands of pages of samples (remember that a new version of the Handbook comes along every 3 years or so – so those with the last edition have one that is dated). If you don’t try a ’09 no-risk trial to the “Romeo & Dye Section 16 Annual Service,” we will not be able to mail this invaluable resource to you in early July when it’s done being printed.
You can use this order form or order online. The Annual Service not only includes the “Forms & Filings Handbook,” it also includes the popular “Section 16 Deskbook” and the quarterly newsletter, “Section 16 Updates.” Get all three of these publications when you try a ‘09 no-risk trial to the “Romeo & Dye Section 16 Annual Service” now.
A Father’s Day Item: Becoming a “DAD”
From Keith Bishop: Are you, or would you like to become, a DAD? Pink OTC Markets provides an over-the-counter quotation system that is comprised of the OTCQX and Pink Sheets. These are not exchanges and the Pink OTC Markets is not a securities regulator or self regulatory organization.
A company that applies for admission to the OTCQX must have a “Designated Advisor for Disclosure” or otherwise known as “DAD.” A DAD may be either an attorney or an investment banking firm. According to the OTCQX rules: “The role of a DAD is to serve as a cautious and conscientious gatekeeper to prevent companies with inadequate questionable disclosure from joining OTCQX.” The OTCQX website currently lists a dozen attorney DADs.
By the way, I’ve heard that one investment banking firm was quoting a price of $90,000 to be a DAD. I must be living my life in reverse because all I do is write checks for my kids – no one is paying me to be a dad.
What Does a Spoofed Email Look Like?
Last week, Dave blogged about the email sent from a SEC attorney’s email account – even though she didn’t send the email (otherwise known as “spoofing”). As this episode illustrates, this fraudulent act isn’t like someone stealing your credit card. Spoofing is more than a mere hassle, it can injure your reputation even if uncovered. Here is a copy of the spoofed email so you can see how crazy it was.
I rehash this incident because spoofing isn’t limited to email, it now happens on Twitter and other new mediums. Companies need to be monitoring these new forms of media and not just stick their heads in the sand because they are new…
I play a lot of “old man” hoops (and I’m not that shabby), so I was excited to see this ESPN article about how President Obama has shaken up the love for basketball in the DC area.
For a short glossary of the 75+ acronyms in the White Paper, check out Mike O’Sullivan’s “Provided However” Blog.
Microsoft’s Legal Department Enters the Blogosphere
Several months ago, Microsoft launched a new blog – entitled “Microsoft On The Issues” – that includes the company’s “Law and Corporate Affairs” department among the contributors. The company uses the blog as a forum to communicate about issues important to it. For example, here’s a blog about how the company’s board recently recommended amendments to the company’s articles of incorporation that would give shareholders representing 25% or more of outstanding shares the right to call special shareholder meetings.
Hopefully this development will help nudge companies to be more outspoken, including submitting comments during the SEC’s rulemaking process – as well as draw outside counsel into the blogosphere. If in-house lawyers aren’t afraid to blog, I don’t see how law firms can continue to be so reluctant…
Survey Results: Compliance Committees
We recently wrapped up our Quick Survey on Compliance Committees practices. Below are our results:
1. Does your company have a Chief Compliance Officer:
- Yes, and with that title – 57.8%
- Yes, but not with that title – 26.7%
- No – 15.6%
2. Does your board have a Compliance Committee, with that or a similar title:
- Yes – 31.1%
- No – 68.9%
3. If the answer to #2 is “yes,” how old is the compliance committee:
- Less than one year – 14.3%
- 1-2 years – 28.6%
- 3-4 years – 35.7%
- More than 4 years – 21.4%
4. If the answer to #2 is “yes,” how often does the compliance committee meet:
- Once a year – 14.3%
- 2-3x per year – 50.0%
- More than 3x per year – 35.7%
- As needed – 0.0%
While the official announcement of the Administration’s proposals for financial reform is slated for later today, copies of a near-final draft of the white paper outlining the proposals have already been circulating to members of Congress and to the major news organizations. Many thanks to Marty Dunn of O’Melveny & Myers for pointing this document out to me last night.
The SEC would seem to fare well under the Administration’s proposals. The white paper indicates that the SEC and the CFTC would maintain their current authorities and responsibilities as market regulators, while the statutory and regulatory frameworks for futures and securities would be harmonized. As previously discussed, the SEC would oversee the registration of advisers of all hedge funds and other private capital pools. Regulation of securitizations and over-the-counter derivatives will be accomplished through a “coherent and coordinated” regulatory framework.
Further, the white paper calls for expanded authority for the SEC to promote transparency in investor disclosures, and states that the SEC should be provided with new tools to increase fairness for investors, through the establishment of a fiduciary duty for broker-dealers offering investment advice and harmonizing the regulation of investment advisers and broker-dealers.
Among the new regulators proposed are:
- a Financial Services Oversight Council (FSOC), chaired by the Treasury and composed of prudential regulators tasked with identifying emerging systemic risks (replacing the President’s Working Group on Financial Markets);
- a National Bank Supervisor with the authority to supervise all federally chartered banks;
- an Office of National Insurance within the Treasury Department; and
- a Consumer Financial Protection Agency, tasked with protecting consumers from “unfair, deceptive and abusive practices.”
The FSOC would also establish the Financial Consumer Coordinating Council, with membership including federal and state consumer protection agencies, and a permanent role for the SEC’s newly created Investor Advisory Committee.
Seemingly back “on the front burner” with the white paper proposals is the issue of IFRS, with the report recommending that accounting standard setters “make substantial progress by the end of 2009 toward development of a single set of high quality global accounting standards.”
As widely expected, the Federal Reserve would gain more authority under these proposals, including authority over “Tier 1 Financial Holding Companies” and oversight over the payment, clearing and settlement systems.
Whether any or all of these proposals move forward is tough to say at this point, but at least today we now have a much clearer picture of the complete package of reforms under consideration.
New FINRA Conflict of Interest Rules
Just in time for hopefully an uptick in offering activity, the SEC has approved changes to NASD Rule 2720, which governs underwriter conflicts of interest in public offerings. These changes are meant to modernize and simplify the conflict of interest requirements, and provide some additional flexibility in connection with public offerings. The amendments to Rule 2720 will be implemented within 30 days after FINRA issues a Regulatory Notice (which will be issued some time within 60 days of the SEC’s approval).
Monitoring Activist Activity
During this DealLawyers.com podcast, Mary Beth Kissane of Walek Associates analyzes how companies should be monitoring shareholder activist activity, including:
- How do hedge funds have such a solid activism record?
- What should companies do to prepare for an activist attack?
- Who within the company owns the “monitoring activists” task?
- Who within the company should be dealing with the financial press?
- Who is the “financial press” these days? Bloggers included? Social media?