June 30, 2010

The Dodd-Frank Act's "Needle in the Haystack": Resource Extraction Disclosure

Now that we are all wading through the 2,000 pages of the Dodd-Frank Act (here is a Subtitle E excerpt if you just want to read the 23 pages related to governance and executive compensation - with exceptions that Sections 971 (proxy access) and 972 (Chair-CEO split) are in Subtitle G), members are finding some items they didn't expect. For example, Rick Hansen of Chevron notes:

Evidently, late in the conference proceedings, Senator Lugar was successful in having language inserted into the bill regarding disclosure of payments by resource extraction issuers to the Federal Government and foreign governments.

Tucked in the back of the bill in "miscellaneous provisions," Section 1504 amends Section 13 of the '34 Exchange Act and requires that the SEC issue final rules that "require each resource extraction issuer to include in an annual report of the resource extraction issuer information relating to any payment made by the resource extraction issuer, a subsidiary of the resource extraction issuer, or an entity under the control of the resource extraction issuer to a foreign government or the [U.S.] Federal Government for the purpose of the commercial development of oil, natural gas, or minerals, including: (i) the type and total amount of such payments made for each project of the resource extraction issuer relating to the commercial development of oil, natural gas, or minerals; and (ii) the type and total amount of such payments made to each government."

The Act defines "commercial development of oil, natural gas, or minerals" to include "exploration, extraction, processing, export, and other significant actions relating to oil, natural gas, or minerals, or the acquisition of a license for any such activity, as determined by the ]SEC]."

The Act defines "payment" as any payment that is "made to further the commercial development of oil, natural gas, or minerals; and is not de minimis" and includes "taxes, royalties, fees (including license fees), production entitlements, bonuses, and other material benefits, that the Commission, consistent with the guidelines of the Extractive Industries Transparency Initiative (to the extent practicable) determines are part of the commonly recognized revenue stream for the commercial development of oil, natural gas or minerals."

If you find any other gems, send them along. And if you get a moment, take our new "Quick Survey on Director Education & Orientation."

Meanwhile, the House-Senate conferee gang got together yesterday to eliminate a special bank "tax" assessment from the bill it passed last Friday in an effort to win support from some key Senators in the wake of Senator Byrd's death.

Mailed: May-June Issue of The Corporate Counsel

The May-June issue of The Corporate Counsel was just sent to the printers and includes pieces on:

- Why the Media Often Doesn't Seem to Know Compensation Numbers Until the Annual Proxy Statement is Filed-- Are Form 8-K Item 5.02(e) Practices the Culprit?
- Reg FD for Directors: A Good Time to Revisit Your FD Policy
- Addressing an FD Violation--Does "Call the Staff" Go On the Checklist?
- The Asset-Backed Securities Offerings Proposing Release-- Implications Generally for 1933 Act Metaphysics (and Plumbing)?
- Other Private Placement Developments
- Client-Directed Voting--An Available Strategy to Increase Retail Voting in Director Elections?
- A Few 2010 Shareholder Proposal Season Post-Mortems
- The Staff's Response to the New Compensation Risk (Non-)Disclosure
- Pilot Staff Review of Rule 424 Filings
- Going Concern Qualifications--Nasdaq Acknowledges that SEC Filing is Sufficient Announcement
- Credit Agreements--Exhibit Filing of Schedules and Attachments
- How to Gear Up for Mandatory Say-on-Pay

Act Now: Get this issue on a complimentary basis when you try a "Rest of '10 for Half-Price" no-risk trial today.

Second Circuit Finally Delivers an Opinion on PSLRA's Forward-Looking Information Safe Harbor

Recently, the Second Circuit issued its first opinion analyzing the PSLRA's safe harbor for forward-looking statements in Slayton v. American Express, 15 years after the safe harbor was created. We are posting memos analyzing the opinion in our "Forward-Looking Information" Practice Area.

- Broc Romanek

June 29, 2010

SCOTUS Invalidates Part of Sarbanes-Oxley - But the PCAOB Lives!

My travel yesterday took a page from "Planes, Trains & Automobiles" - so it was humorous to first see a CNBC text that the stock market was up because the US Supreme Court had stricken the Sarbanes-Oxley Act, only to find out that the 5-4 decision in Free Enterprise Fund v. PCAOB was not so dramatic. [Recall that this is the case for whose oral arguments' "sights & sounds" I covered in this blog.]

Not surprisingly, the Supreme Court found that the provision of the Sarbanes-Oxley Act that only permitted the SEC to remove board members for cause violated the Constitution's separation of powers doctrine. But thankfully cooler heads prevailed and the majority limited the remedy by excising that limitation from the law with a fix that the SEC can remove PCAOB board members at will going forward.

So in finding this provision severable from the rest of Sarbanes-Oxley - including the other parts of Title I that provide the PCAOB with the authority to function - business will go on as usual at the PCAOB and Congress doesn't even need to legislate to provide a fix (as noted in this PCAOB press release; here is the SEC's statement).

The most immediate consequence of this decision could be the appointment of three PCAOB board members by the SEC, which has refraining from taking action until SCOTUS ruled (as noted in this Washington Post article). There could be other ramifications from the SCOTUS decision; this Gibson Dunn memo notes: "Although this comparatively narrow holding may raise other issues, such as whether the Board's prior actions are constitutionally valid and whether the Board will now be subject to federal budgetary control, it permits the Board to continue to function without further action by Congress or the SEC."

Yesterday was a big day for SCOTUS as it was Justice Stevens last day and many in the audience sported a bow-tie in his honor. In addition, Elana Kagan's confirmation hearing started in the Senate. Unfortunately, Justice Ginsburg's long-time husband passed away the day before. And the USA Today contained poll results that two-thirds of Americans can't name a single Supreme Court Justice...

In Love? SCOTUS Falls for Plenty of Securities Law Cases

Here is an excerpt from Kevin LaCroix's "D&O Diary" Blog:

There was a time when it was relatively rare for the Supreme Court to take up securities cases. Until recently, the Court basically went several years between cases filed under the securities laws. Those days are clearly over, as the Court has granted cert petitions in several securities cases in recent years, including the Merck and National Australia Bank cases this term.

The Court has now granted cert in a securities suit for next term as well. On June 14, 2010, the Supreme Court granted the petition for a writ of certiorari in the Matrixx Initiative case.

And yesterday, Kevin reports that SCOTUS granted yet another petition for writ of certiorari in a case - Janus Capital Group, Inc. v. First Derivative Traders - arising under the securities laws. Although the case arises out of the specific context of a mutual fund market timing case, it raises fundamental issues about who may be a "primary violator" under the securities laws. The Court seems poised to delve yet again into critical issues under the federal securities laws.

Critical FCPA Diligence in Deals Today

Tune in tomorrow for the DealLawyers.com webcast - "Critical FCPA Diligence in Deals Today" - to hear Brian Saulnier of K&L Gates, Soren Lindstrom of K&L Gates, Keith Hennessee of National Oilwell Varco and Susan Munro of Steptoe & Johnson discuss the latest in how diligence is being conducted and how reps & warranties related to FCPA violations are being negotiated.

- Broc Romanek

June 28, 2010

Now Available: The 2000-Page Dodd-Frank Act

With the Senate and House expected to vote upon the Dodd-Frank Act - formally known as the "Dodd-Frank Wall Street Reform and Consumer Protection Act" - within the next few days - with President Obama then signing it before the 4th of July - the 2000-pages of the Act have been posted. Note that the passing of Senator Byrd last night might delay adoption of the legislation, according to this WSJ article.

We have also posted an excerpt consisting of just Title IX (the investor protections of the Act), which consists of 362 pages (Subtitle E, which includes the governance and compensation provisions, begins on page 207). Finally, here is a 10-page summary - and the Conference Report. We have posted these, as well as memos and scorecards in our new "Dodd-Frank Act" Practice Area, which I'm sure will grow like wildfire over the next few weeks.

SCOTUS Rules on "Honest Services" Doctrine: Prosecutors Take a Hit

Last Thursday, the US Supreme Court issued two opinions in the cases of Enron's Jeffrey Skilling and Hollinger's Conrad Black that limit the scope of so-called "honest services" fraud charges. The honest services statute provides that for purposes of specified mail and wire fraud offenses, "the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services." Many practitioners thought that the statute was too broad and the Supreme Court agreed.

As noted by the multiple entries in "The Conglomerate Blog," these decisions may have serious implications for prosecutors who have used the "honest services" fraud statute as a powerful tool in the investigation and prosecution of alleged corporate malfeasance. We have started posting memos about these decisions in our "White Collar Crime" Practice Area.

Poll: The Acronym for the Dodd-Frank Act?

Back when the Sarbanes-Oxley Act was passed in '02, it took a while for "SOX" and "Sarbanes-Oxley" to become the common way that folks referred to the historic legislation. An early movement towards "SarBox" never took off - thankfully - although a few still use that term for some reason. So now we have a new piece of legislation to "name." I personally like the "DFA" - but doubt that will catch on. Please participate in this anonymous poll about how we should refer to the Dodd-Frank Act on a shorthand basis:


- Broc Romanek

June 25, 2010

The House-Senate Reconciliation Reaches the Finish Line: The "Proxy Access" & "SOP" Results Are In

Racing to an artificial deadline, the House-Senate conferees worked into the wee hours this morning (5:39 am!) to finalize numerous open provisions in the RAFSA (renamed "The Dodd/Frank Act"?) , much of it behind closed doors despite the decision to televise the negotiations on C-SPAN. Once again, thanks to Ted Allen of ISS who blogged along the way yesterday to give us the lowdown on the finalized corporate governance items that were still outstanding (we'll have to wait to see the final bill to fully realize what transpired, that likely will take a few days):

- Proxy access reverts back to the original formula, with the SEC given the authority to adopt proxy access and asked to consider minimum ownership thresholds and holding periods

- Mandatory say-on-pay moves to biannual or triennial at company's option; exemption from SOP for "small issuers"

- No majority vote standard required

On other open items, some answers are provided in this Washington Post article - and this Morrison & Foerster scorecard.

I got this from a member yesterday: In this late 2007 letter, a group of Senators lobbied then-SEC Chair Cox to head off the SEC from considering the use of a 5% shareholder ownership requirement because it would "...effectively bar most shareholders from ever filing such proposals...This threshold should be eliminated." Yet that exact same threshold is what some - but not all - of these same senators argued for this week over the objection of House conferees. Just another day in Washington.

More on "My Ten Cents: Say-on-Pay"

On "The Corporate Library Blog," Paul Hodgson blows off some steam about the decision to allow flexibility beyond one year for SOP. Although not having an annual SOP certainly means less work for our community of board advisors, is it really a good thing for Corporate America? During an "off-year" when SOP is not on the ballot, shareholders may well choose to vent frustration over a company's pay package by voting against re-election of the compensation committee (or the full board). Not a good result for them.

Plus my reaction is a bit different than Paul's because I still believe that say-on-pay has the potential to derail the progress towards responsible pay as boards at the numerous companies who inevitably will receive support from 90-plus percent of their shareholders will think that they are doing a great job in setting pay, even though some of their processes are still broken (eg. the heavy reliance on peer group benchmarking). I don't like SOP much at all.

In other words, most boards should be thanking their "lucky stars" for say-on-pay because it gives them cover, both reputationally and probably also from liability. Given that, I'll never understand the knee-jerk reaction from the corporate community to oppose SOP so vehemently as I've blogged before. On the other hand, maybe companies do have a reason to be scared of SOP since three companies failed to obtain majority support for their MSOPs over the past month...

Big News: SCOTUS Rules on "Foreign-Cubed" Securities Class Actions

Not only was Congress in action yesterday impacting our community, across the street, the US Supreme Court finally delivered its opinion over the "Foreign-Cubed" securities class actions the Morrison v. National Australia Bank case, issuing an opinion affirming dismissal. Among other things, the Supreme Court's opinion will limit securities claims by investors who bought their shares on foreign exchanges. As noted in the "D&O Diary Blog," this ruling could have a dramatic impact on many pending cases as well as on future filings.

We'll be posting the hordes of memos that will analyze this important decision in our "Securities Litigation" Practice Area (which frankly has grown so large over the years that it's essentially a website onto itself). Here is an excerpt from a Morrison & Foerster memo:

The Supreme Court yesterday handed down a sweeping victory for foreign businesses facing securities class actions in United States courts. In Morrison v. National Australia Bank, No. 08-1191, the Court ruled that "Foreign-Cubed" securities class actions--private actions brought on behalf of foreign purchasers of foreign companies' securities that were sold on foreign exchanges--may not be litigated in United States courts under Section 10(b) of the Securities Exchange Act.

The Court rejected the fact-intensive "conduct" test, which the Second Circuit had used to determine whether claims based on a foreign transaction could be litigated under the U.S. securities laws. Instead, the Court adopted a bright-line "transactional test"--"whether the purchase or sale is made in the United States, or involves a security listed on a domestic exchange."

- Broc Romanek

June 24, 2010

The SEC's Lone Blogger

A few months ago, the SEC hired Rick Bookstaber as Chief Policy Advisor to the Director of its new RiskFin Division. Interestingly, Rick has continued to maintain his own blog - albeit his entries are fairly infrequent. I imagine each of Rick's posts has to be run through the SEC's Ethics Office just like any other article written by a Staffer has to vetted there (when I served there, that vetting process took quite a while to complete - the process could be quite different nowadays).

Personally, I can't believe the SEC is permitting a RiskFin guy to issue opinions on some of the topics that Rick covers, such as this opinion that that there is a gold bubble. When I was there, the only articles that a Staffer was permitted to write had to be factual with no color commentary. Maybe I'm "old school" here because I am indeed old...

Mailed: May-June Issue of The Corporate Executive

The May-June Issue of The Corporate Executive includes pieces on:

1. Reporting Performance Awards in the Proxy Statement
- Taxes When Performance Awards Vest During a Blackout Period
- Where We Have Been--Negative Numbers and Other Reporting Problems
- Where We are Now--A Clearer Picture
2. The Box: Planning for Taxes Due Upon Vesting of Performance Awards
- Methods Available for Covering Taxes
- Alternative #1: Short-Term Deferral
- Alternative #2: Longer Deferrals
- Alternative #3: Rule 10b5-1 Plans
- Alternative #4: Deduct FICA from Employee Paychecks
- What Doesn't Work
- Planning Ahead is Key

Act Now: Get this issue rushed to you by trying a "Half Price for Rest of '10" No-Risk Trial today.

Large Severance Payments & Short-Tenured CEOs

In this CompensationStandards.com podcast, Greg Ruel of The Corporate Library discusses his recent report regarding the largest severance payments given to short-tenured CEOs, including:

- Why did you decide to conduct the severance payment study?
- What were the study's major findings?
- Did the findings surprise you? Did most of the companies with high severance payments to short-tenured CEOs have low ratings overall?

- Broc Romanek

June 23, 2010

House-Senate Reconciliation Continues: Shareholder Votes on Golden Parachutes Are "In"

Yesterday, negotiations over the regulatory reform bill resumed with a goal to wrap them up by this Thursday, to allow sufficient time for the President to sign the legislation by July 4th. The loose schedule for this week's House-Senate conferee consideration is noted at the end of this WSJ article (here's the latest on the Volcker Rule from the Washington Post).

In the ISS Blog, Ted Allen reported last night:

During negotiations on financial reform legislation on Tuesday, U.S. Senate conferees agreed to drop their opposition to a House provision to require public companies to hold separate shareholder votes on "golden parachute" payments, according to Dow Jones Newswires.

The conference committee's negotiations will continue on Wednesday. House and Senate lawmakers still have not reached an agreement on a Senate proposal to require investors to hold a 5 percent stake to nominate board candidates under the SEC's proposed proxy access rule, according to Dow Jones. House lawmakers and investor advocates argue that a 5 percent threshold would be too high.

Meanwhile, Steve Nieman - an employee-shareholder of Alaska Air Group - who has nominated director candidates in the past at his employer (remember VotePal.com) has filed a "Notice of Assertion of Right to Proxy Access" at Alaska Air ahead of next year's annual meeting. I believe the timing is intended to set up a potential lawsuit in the event that Congress does include a 5% ownership threshold in a proxy access provision.

2nd Quarter Issue Posted: "Proxy Disclosure Updates" Newsletter

We have posted the 2nd Quarter 2010 issue of the "Proxy Disclosure Updates" (which is part of the Lynn, Borges & Romanek's "Executive Compensation Annual Service") that includes a proxy season post-mortem from Mark Borges, complete with analysis of the latest proxy disclosures filed during the just-completed season.

Act Now: To gain access to the complete version of this issue immediately, try a No-Risk Trial to the Annual Service today.

Report: The SEC's Forum on Small Business Capital Formation

Recently, the SEC posted this 35-page report on its "2009 Government-Business Forum on Small Business Capital Formation." On page 14, there is a list of recommendations from the Forum participants.

- Broc Romanek

June 22, 2010

PCAOB Staff Issues FAQs for Audit Firm Annual Reports (Which Are Due Soon)

Last Friday, the PCAOB issued "Staff Questions and Answers" concerning a registered firm's obligation to file its annual report on Form 2. This guidance comes out pretty late given that all registered firms (those registered as of March 31st) are required to file their first annual reports by June 30th. These annual reports will include information about audit reports issued, disciplinary histories of new personnel, and certain information about fees billed to issuer audit clients for various categories of services.

How to Search the New Annual Reports Filed by Audit Firms: What Are Firms Saying About Their Clients?

The PCAOB will make each firm's annual report on Form 2 available to the public on this firm filing page promptly upon filing (this also applies to registration forms filed on Form 1 and special reports filed on Form 3).

The search tool that the PCAOB has built is interesting. There are a number of different ways to search the filing database - but each search field has a specific purpose. For example, there is a search field that allows you to search "Annual Reports indicating that the firm played a substantial role in the audit of a specific issuer." Companies should be curious about what their independent auditors are disclosing about them and regularly check their auditor's filings each year.

Note that there is no way to conduct an open-ended search as far as I can tell (so the functionality is quite different than the SEC's EDGAR). Maybe this functionality will be built into future generations of the search tool. Anyways, I will be curious to see how well the PCAOB's search functionality works once the Form 2s come rolling in - and I'll let you know what I find...

SIFMA Issues Recommendations on Reforming the Shareholder Communications System

Last week, as noted in this press release, SIFMA became the latest group to issue a report on the shareholder communications process in an effort to influence the SEC's proxy plumbing efforts. Given that we may well see a proxy plumbing concept release any day now from the SEC, it does come a bit late - but I imagine the report contains recommendations that it has shared with the SEC long ago...

- Broc Romanek

June 21, 2010

Course Materials: Nasdaq Speaks '10 - Latest Developments and Interpretations

Tune in tomorrow for the webcast - "Nasdaq Speaks '10: Latest Developments and Interpretations" - to hear the latest practical guidance from five senior Nasdaq Staffers and Suzanne Rothwell of Skadden Arps, who will be discussing everything from the latest rules changes to whom do you call to resolve an issue, and much more. Please print out these Course Materials before you tune in.

If you're not yet a member of TheCorporateCounsel.net, try a "Half Price for Rest of '10" No-Risk Trial today!

Nasdaq's New Requirement: Prompt Notification of Any Noncompliance with Governance Listing Standards

Recently, Nasdaq amended its corporate governance listing standards - specifically Nasdaq Stock Market Rule 5625 - to provide that, effective a week ago (ie. June 13th) companies listed on the Nasdaq Stock Market will be required to provide Nasdaq with prompt notification after an executive officer becomes aware of any noncompliance with Nasdaq's corporate governance requirements, not just "material" noncompliance. This change conforms to an identical change recently made to the NYSE rules. I'm sure the Nasdaq Staff will explain this change during tomorrow's webcast...

Senate Introduces Revised Carried Interest Taxation Bill

Here is news drawn from this Kirkland & Ellis memo:

Last Wednesday, the Chairman of the Senate Finance Committee introduced a revised carried interest bill that would raise the effective tax rate on net carried interest income in some cases and lower it in others. Under the revised Senate bill, 75% of an investment professional's carried interest net income would be treated as compensation ordinary income ("OI") beginning January 1, 2011. Previous House and Senate bills would have treated only 50% of carried interest net income as OI for 2011 and 2012, and a prior Senate bill would have treated only 65% as OI for 2013 and later years.

In a taxpayer-favorable change, the revised Senate bill would treat only 50% of an individual's net carried interest income as OI to the extent the income relates to an asset (e.g., stock in a portfolio company) held for at least 5 years. This reduced 50% OI recharacterization rate would also apply (subject to extremely opaque legislative language) to an individual's gain from sale of an interest in an investment services partnership/LLC (the so-called "enterprise tax") held by the selling partner for at least 5 years to the extent the gain is attributable (1) to an underlying partnership/LLC asset held for at least 5 years (or to all of the gain on such a sale if "substantially all" of the partnership/LLC assets have been held for at least 5 years) and (2) generally to goodwill of the partnership/LLC.

For carried interest income that otherwise would have been taxable as long term capital gain, this bill would produce an effective individual federal income tax rate (before taking into account any Medicare tax) of 34.7% for gain not qualifying for the 50%-5-year recharacterization rate (and hence subject to 75% recharacterization) and 29.8% for gain qualifying for the taxpayer-favorable 50%-5-year recharacterization rate.

- Broc Romanek

June 18, 2010

House-Senate Reconciliation: Proxy Access Goes Down the Rabbit Hole

As the House-Senate negotiations continue to heat up, they have gone off their proposed schedule and yesterday mainly was devoted to regulation of financial institutions (as noted in this NY Times article) as the Fed's role in bank audits grew. So there was not much new news in the governance space yesterday.

However, there was growing anger among advocates of a strong proxy access provision as it became clearer that the White House is playing a much larger role in the conferee negotiations than was imagined. As noted in this Huffington Post blog, Valerie Jarrett, a senior White House adviser - who is the administration liaison to the Business Roundtable - has been pulling a lot of strings behind the scenes and appears to be primarily responsible for the new proxy access restrictions requested by the Senate conferees (as I blogged about yesterday - with yesterday's developments provided in this ISS blog). So the CII and others have ramped up their lobbying to include Ms. Jarrett, as Jim McRitchie notes in his CorpGov.net blog.

I just find it curious that Congress has made this big deal about televising all of its negotiations - and promising not to cut deals in the bathroom - and then we find out that the White House is a major player and is off camera. You mean I've been watching C-SPAN and trying to ascertain the meaning of that furtive glance for no reason?

The Big Breakup: UK to Split FSA Into Three Agencies

On Wednesday, as noted in this article, the United Kingdom's new government unveiled a shake-up of the country's bank-regulatory system that will consolidate power within the Bank of England.
The Financial Services Authority - which currently is the primary supervisor of the U.K.'s banking and finance industry - will be splintered into three new agencies over the next two years.

Under the plan, the Bank of England will establish a new subsidiary dedicated to regulation, as well as a financial policy committee and an agency for consumer protection and the markets. The FSA's chief executive will assume new roles on the planned agencies, becoming a deputy governor of the central bank. The plan won't change how the UK banks are regulated as the European Union assumes a larger role,

Europe Commission's "Green Paper": More Governance Proposals for Financial Firms

A few weeks ago, the European Commission issued this "green paper" (scroll to 2nd page to see it) to propose new governance reforms that would include possible new duties for directors (including a look at the duties between boards and shareholders), executive compensation, enhanced risk reporting, the composition of boards generally, more authority for independent auditors, corporate social responsibility and other matters. In addition, the financial firms are having their corporate governance policies individually reviewed by the EC.

- Broc Romanek

June 17, 2010

A Lot of House-Senate Reconciliation Action on Governance Provisions: A Partial Skinny

Ted Allen of ISS does a great job of recapping the results of yesterday's marathon negotiations over the regulatory reform bill's governance provisions in this blog that he wrote at 12:30 am. Bravo to him on his stamina! The negotiations will continue today in this area and are still being televised on C-SPAN.

Here is a recap based on what Ted wrote and what others have written to me (note that it's hard to know for certain what is going on and it could all change):

- Mandatory majority voting has been dropped from the bill as Senate conferees have agreed to eliminate it; this was not in House bill

- Proxy access provision could become more detailed as Senate conferees agreed to impose a 5% ownership standard and a two-year holding period on shareholders who wish to nominate directors (under Base Text, details would have been left up to the SEC); uncertain if House conferees will accept this change

- Say-on-pay could be altered to allow companies to hold them on a biannual or triennial basis rather than be forced to do so annually; not certain whether this will be accepted by either Senate or House conferees

- Senate conferees accepted a House provision to permanently exempt small issuers from SOX's auditor attestation requirements - even though the Dodd bill didn't have this provision in it

- Senate conferees didn't accept House conferees' proposal to mandate votes on "golden parachute" packages

- Senate conferees accepted House conferees' proposal to require large institutional investment managers to disclose their say-on-pay votes

- Senate conferees accepted House conferees' proposal to ensure that the SEC's independence standards for compensation consultants are competitively neutral

- House conferees voted to add a new provision to permit private rights of action for aiding and abetting (overturning Stoneridge and Central Bank) even though there was no similar provision in Base Text (but this provision did exist in an older version of a House bill from last December); not likely that Senate conferees will accept this

- House conferees accepted SEC self-funding, as well as creation of new SEC offices for whistleblowers and ombudsman; Senate had already approved this in Dodd bill - but now some Senators are trying to strip the SEC's self-funding. Proving my note at the beginning about how this all could change...

It's interesting how some blogs have sprung to assist folks in contacting members of Congress to pressure them on these negotiations even as they happen - see this blog as an example. And it's also interesting to note that even regulators are willing to express their view on the future of the reform bill, check out this "thumbs up and down" chart from NASAA...

SEC's 'Revolving Door' Under Review

Yesterday, the WSJ ran this article - entitled "SEC 'Revolving Door' Under Review" - that describes how Senator Grassley sent a letter to the SEC's Inspector General on Monday seeking a review of the recent departure of a top Market Reg Staffer who took a job with a prominent high-frequency trading firm. This comes on the heels of a similar WSJ article in April (see my somewhat related blog).

Meanwhile, the "Project on Government Oversight" Blog has the latest on the SEC's Inspector General's findings of whistleblower retaliation in the SEC's Fort Worth office.

How NOT to Engage in Illegal Insider Trading

Thanks to Usha Rodrigues over on the Conglomerate Blog for the comical blog entry that I repeat below:

OK, I'm throwing in the towel-the Disney insider trading is just too good. Here's the letter sent to various hedge fund managers:

Hi, I have access to Disney's (DIS) quarterly earnings report before its release on 05/03/10 [sic]. I am willing to share this information for a fee that we can determine later. I am sorry but I can't disclose my identity for confidentiality reasons but we can correspond by email if you would like to discuss it. My email is eilatcap@gmail.com. I count on your discretion as you can count on mine. Thank you and I look forward to talking to you.

- Broc Romanek

June 16, 2010

Let Her Rip: Conference Committee Debates Investor Protection & Executive Compensation Provisions Today!

Yesterday, I blogged about the progress of the House-Senate conference committee deliberations and the release of the "Conference Base Text." Later on, Rep. Barney Frank issued this press release stating that debate over the investor protection and executive compensation provisions will begin at 11 am today.

The press release contains a long list of changes to the base text that the House Democrats seek. As noted in the ISS Blog, among other changes sought by these House Democrats are these:

- Require separate shareholder votes on "golden parachute" retirement payouts when companies seek approval for mergers, consolidations, or other transactions. This provision was in the House bill, but not the Senate measure.

- Add a House provision on enhanced compensation oversight for the financial industry. The House members seek to require "all federal financial regulators to issue and enforce joint compensation rules specifically applicable to all financial institutions with a federal regulator."

- Add a House provision that SEC apply independence standards to compensation committee consultants that are competitively neutral and treat large and small consultants equally.

- Add a House provision to direct the SEC to require large institutional investment managers (i.e., those subject to Section 13(f) requirements) to disclose their proxy voting on advisory votes and golden parachute matters.

This Washington Post article describes how the rare "made-for-TV" reconciliation process feels like...

Conference Committee Reconciliation: Rating Agency Overhaul Bites the Dust (For Now)

As noted in this WSJ article, yesterday's House-Senate conference committee negotiations resulted in the removal of new conflict-of-interest rules for credit rating agencies from the reform bill. The conferees agreed that something needs to be done to reform the rating agency process - but thought it was too complicated to tackle in this bill. So in essence, the reform was tabled for now - with a promise that something would be done later as noted in this NY Times article.

The Latest Compensation Disclosures: A Proxy Season Post-Mortem

Always a popular program, tune in tomorrow for the CompensationStandards.com webcast - "The Latest Compensation Disclosures: A Proxy Season Post-Mortem" - to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was disclosed (and what was not disclosed) during the proxy season.

If you're not yet a member of CompensationStandards.com, try our "Rest of '10 for Half Price" No-Risk Trial to catch this program.

- Broc Romanek

June 15, 2010

The Bill Reconciliation: The "Conference Base Text"

As part of the Senate-House reconciliation process, the House-Senate conference committee has released nearly 2000 pages of the "Conference Base Text" - these are the provisions that the conference committee is working off of - all of the governance provisions from the final Senate bill made it into the base text.

In the alternative, there is this 3-page press release from Rep. Barney Frank. Note that the House now has named all of its conferees (and here's what is being negotiated today - this article notes some activity in the rating agency area).

Survey Results: Investor Perception of Independent Auditor's Work

Below are the key findings of a recent survey by the CFA Institute regarding audit reports (see related info in our "Audit Process" Practice Area). This survey is notable because it provides a "customer" viewpoint on what the independent auditors provide. For starters, 72% of respondents said the audit report is "important" in their analysis and use of financial reports in the investment decisionmaking process, while 46% indicated it is "very important." Here are more survey stats:

Report Language Describing the Nature of an Audit & Respective Roles of Auditor and Management (Pages 7 and 9)

- 73% agree that the auditor report's language on the nature of an audit and respective roles of auditor and management could help reduce or manage the expectations gap that exists regarding the financial statement audit.

- Furthermore, 69% think it is important to provide these communications within the auditor's report, with 33% indicating it is very important.

Disclosure on Roles of Auditors and Method of Determining Materiality

- An overwhelming 91% agree that in cases where there is more than one auditor, the identities and specific roles of other auditors should be disclosed.

- 82% agree that the method by which the auditor determines/assesses materiality should be disclosed.

Information about the Audit Process & Matters Related to the Audited Financial Statements

- 60% of respondents believe the auditor's report should contain more information about the audit process itself and matters related to the audited financial statements. The findings show also that 37% of respondents believe the auditor's report contains the right amount of information about the audit process itself and matters related to the audited financial statements.

Information on the Audited Entity (Page 18)

- 57% think the auditor's report should contain more information on the audited entity. 40% think the auditor's report contains the appropriate amount of information.
Additional Information in the Auditor's Report (Page 20)

- 94% of respondents would like to see additional information in the auditor's report

- 77% would like to see information about "audit materiality".

- 72% would like to see information on circumstances or relationships that might bear on the auditor's independence.

- 66% would like to see the level of assurance actually achieved in the audit.

More on "The Mentor Blog"

We continue to post new items daily on our blog - "The Mentor Blog" - for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- Was That a Yes or a No? Depositions in the YouTube Era
- Second Circuit Provides Guidance as to When a Cautionary Statement Is Not Meaningful
- Trading of Private Company Stock: Issues to Consider
- Why is the Choice of Forum Important?
- Internal Controls Study: Fraud in Non-Accelerated Filer Companies

- Broc Romanek

June 14, 2010

Help Wanted? Job Opportunities at the SEC

Recently, I blogged about how Staffer pay levels at the SEC have increased substantially since I left a dozen years ago. In her recent testimony before a subcommittee of the Senate's Appropriations Committee, SEC Chair Schapiro indicated that she is looking to hire many more Staffers as part of her request for a big jump in the SEC's budget. Here's an excerpt from that testimony:

Managing Agency Growth: While the budget request anticipates significant growth in the size of the SEC, the agency is properly positioned to implement this spending plan. To accomplish the hiring of hundreds of new staff during the course of FY 2011, the SEC is enhancing its human resources staff and, consistent with its current authorities, streamlining its hiring process. Improvements include simplifying the application process and maintaining a searchable database of applicants, so that it is possible to interview for a vacancy as soon as it appears rather than having to go through the lengthy posting process each time. Being able to better tailor, target and speed recruiting will enhance the quality of applicants and help the agency acquire the necessary talent to perform effectively in an increasingly complex financial environment.

Perhaps to gear up for all this hiring, I understand that the SEC has retained a recruiter - Futurestep, a Korn/Ferry Company - to help "provide strategic talent acquisition solutions to help the agency address its continuing talent needs." I don't recall the SEC using a third party to help find candidates before - although I admit it's something that I haven't paid much attention to and it easily could be fairly routine...

Recently, SEC Commissioner Luis Aguilar delivered this speech entitled, "Recruiting the Best and the Brightest Means Striving for a Diverse Applicant Pool." When I last worked at the SEC, then SEC Chair Arthur Levitt pushed hard for Wall Street to diversify. It's a topic that certainly deserves greater attention as not much has changed.

Wanted: CLO for the SEC's "SEC University"

One of the more interesting jobs that has recently opened up down at the SEC is the one for a "CLO" (no, not a "chief legal officer"). Below is the job description (note the opening just closed so the job isn't listed online anymore):

The Chief Learning/Knowledge Officer (CLO) of the Securities & Exchange Commission is responsible for the management of SEC University and coordination of all SEC education investments providing executive leadership, policy direction, functional management, and successful coordination of Agency-wide training and development program and activities.

The CLO is responsible for ensuring that SEC's learning and development programs and investments are linked directly to the Agency's strategic goals by managing and implementing synergies among learning and development programs, SEC University and mission Division technical training units to meet the critical training goals of the Agency. These strategic plans/goals include assessing Agency-wide knowledge gaps technical and management competencies, developing strategies to close knowledge gaps, creating external partnerships designed to ensure leading edge training and development programs, and managing technology to deliver learning and knowledge programs across the Agency to ensure investment in employee knowledge development are optimally managed.

Getting Hired by the SEC

Last Fall - in response to a request from a Professor who had several students applying for an entry-level job at the SEC - I posted this 5-minute video on YouTube giving my ten cents on what it's like to work for the SEC and what the hiring process is like.

It's not a recruitment video (nor a parody). The SEC has been flooded with resumes over the past year - but I often get asked the question about how one gets hired there so I thought this might help those that may be curious. I slapped this together real quick so beware of low production values. I pointed the Flip at myself and shot...

- Broc Romanek

June 11, 2010

Monitor Use in Prosecution Agreements: DOJ Adds to Morford Memo Guidance

On May 25th, the DOJ's Acting Deputy Attorney General, Gary Grindler, sent around this memo requesting that federal prosecutors to be more clear on what help they can offer companies having issues with corporate monitors assigned to them under federal prosecution agreements. The memo states that if a company considers a monitor recommendation "unduly burdensome, impractical, unduly expensive, or otherwise inadvisable," it need not adopt the recommendation immediately. In addition, if the company and monitor disagree on the recommendation, "the views of both shall promptly be brought to the attention of the department."

The SEC as a Republican Target: Potshots Galore

Last month, House Oversight and Government Reform Committee Ranking Member Darrell Issa (R-Ca) released a 33-page report which recommends a number of SEC reforms not included in the financial reform legislation being considered by Congress (see pages 29-31). Given the tight timeline that Congress has for bill reconciliation, I doubt this report will have much influence. But the bulk of the report is not pretty for the SEC as it consists of a series of potshots taken at the SEC - in fact, the report's title is "The SEC: Designed for Failure."

In a way, the rebuttal would be that the SEC hasn't had adequate resources for it's massive tasks - and that Congress has been the one holding it back. See Lynn Turner's excellent entry on our "The Mentor Blog" entitled "A Self-Funded SEC: Making the Case" from earlier this week...

The US Citizenship Ceremony: An Emotional Experience

I thought I'd share my recent experience of attending the US citizenship ceremony for my good friend Deng Juac. Deng is a 22-year whom the United Nations brought over here about six years ago from a Kenyan refugee camp (after his dad carried him on his back across a desert from Sudan to save his life when he was 11). My family has been involved in sheltering Deng and helping him through school for the past few years. He truly is a gentle soul.

Recently, Deng received his naturalization certificate and became a US citizen. As you can imagine, this is a big deal for immigrants. At the risk of being verbose, here is a play-by-play of Deng's citizenship ceremony - some of it was quite emotional despite its bureaucratic nature:

1. Security at the federal immigration building is much tighter than any other federal building I have been in. There is a long line out the door at all times - and security is tight within as well. No wandering the halls.

2. After Deng turned in his green card (which had an incorrect name that they gave him when he arrived 6 years ago, "Juac Juac"), we waited as 10 folks at a time were brought upstairs. After some explanatory remarks, there was a rollcall of countries represented by the folks to be sworn in. It was quite a diverse group including Afghanistan, Pakistan and Somalia. Here is a video of that.

3. We listened to a recording of the Star-Spangled Banner and then we sang the Pledge of Allegiance.

4. Then came the swearing-in ceremony which officially gets you into the "club" - here is the first-half video and here is the second half.

5. We then watched a "welcome" video from President Obama that was great (my dad says he has attended citizen ceremonies in the past and the sitting President didn't bother to do this). This was followed by a short presentation that showed past ceremonies.

6. Then came the presentation of the naturalization certificates - the photo-op that took a while as each new citizen got their photo taken with the Section Head of the immigration office we were in. Here is a video of a Iranian who need a translator - we're talking "old country" here. And here is a video of Deng with one of his priceless smiles.

- Broc Romanek

June 10, 2010

Manhattan District Attorney: New Written Guidelines for When Prosecutors Charge Businesses

Here is news excerpted from this Sullivan & Cromwell memo (similar memos are posted in our "White Collar" Practice Area):

On May 27th, the New York County District Attorney's Office ("DANY") issued written guidelines for determining whether to bring criminal charges against business organizations. The District Attorney's guidelines identify a number of factors prosecutors must consider before deciding to charge or not to charge an organization for violating New York State criminal laws.

Most of the factors to be considered closely follow the principles used by the U.S. Department of Justice for prosecuting business organizations. There are, however, important distinctions between the two sets of principles. As summarized in the attached, the DANY corporate charging guidelines incorporate additional factors to be considered, including (i) whether a corporation complied with the District Attorney's request to waive attorney-client privilege and work product protections; (ii) the potential impact of a charging decision on the public's confidence in the fairness of prosecutors' decisions; (iii) the views of victims of misconduct; and (iv) the feasibility of prosecuting responsible individuals.

Because the DANY Guidelines establish a uniform framework for criminal charges against organizations, and incorporate considerations not found in the analogous federal guidelines, companies doing business in New York County should familiarize themselves with these new provisions and consider whether to modify their business practices or compliance programs in light of the new guidelines.

Timeframe for SEC Adopting Proxy Access Rules? Still Gunning for '11 Proxy Season

On Tuesday, SEC Chair Schapiro delivered this speech and noted this about proxy access:

I can confirm that I am committed to bringing a proposal back to the Commission to consider final adoption, within a timeframe that would put the rules into effect for the 2011 proxy season.

As I blogged earlier this week, don't forget that Congressional negotiations over the reform bill get televised starting today on C-SPAN...

Summer Issue of Compensation Standards Print Newsletter

We have posted the Summer Issue of our Compensation Standards print newsletter, which provides some examples of CEOs who have taken a stand on executive pay including their guidelines and motivations. We have posted this issue free to encourage others to become more responsible.

If you're not yet a member of CompensationStandards.com, try our "Rest of '10 for half price" no-risk trial to catch issues of this Compensation Standards newsletter. A membership gets you online access to this newsletter, including one hard copy of the newsletter.

Congrats to the Chicago Blackhawks, my childhood hockey team. They hadn't won the Stanley Cup since the year I was born. Stan Mikita and I share a birthday...

- Broc Romanek

June 9, 2010

Corp Fin Issues 17 New CDIs (& Revises One and Withdraws Another)

On Friday, Corp Fin issued seventeen new Compliance and Disclosure Interpretations, revised another CDI and withdrew one. These are those changes:

- Section 121A - Item 5.07 of Form 8-K - New Question 121A.02
- Section 108 - Rule 0-11- New Question 108.01
- Section 108 - Rule 0-11 - New Question 108.02
- Section 111 - '33 Act, Section 2(a)(11) - New Question 111.01
- Section 125 - '33 Act, Section 3(a)(9) - New Question 125.11
- Section 139 - '33 Act, Section 5 - New Question 139.31
- Section 132 - Rule 144(d) - New Question 132.17
- Section 164 - Rule 165 - New Question 164.01
- Section 165 - Rule 166 - New Question 165.01
- Section 212 - Rule 415 - Revised Question 212.21
- Section 212 - Rule 415 - New Question 212.30
- Section 212 - Rule 415 - New Question 212.31
- Section 271 - Rule 701 - New Question 271.16
- Section 115 - Form S-3 - New Question 115.16
- Section 115 - Form S-3 - New Question 115.17
- Section 115 - Form S-3 - Withdrawn Question 215.04
- Section 101 - Reg FD Rule 100 - New Question 101.11
- Section 117 - Item 402(a) - New Question 117.06
- Section 119 - Item 402(c) - New Question 119.27

Does Reg FD Prohibit Directors from Speaking Privately with Shareholders?

One area that continues to generate a slew of misinformation from some practitioners is Reg FD. So I was happy to see Corp Fin issue this new CDI:

Question 101.11

Question: Does Regulation FD prohibit directors from speaking privately with a shareholder or groups of shareholders?

Answer: No. Regulation FD prohibits a company or a person acting on its behalf -- such as directors, executive officers and investor relations personnel -- from selectively disclosing material, non-public information to a shareholder under circumstances in which it is reasonably foreseeable that the shareholder will purchase or sell the company's securities on the basis of that information. If a company's directors are authorized to speak on behalf of the company and plan on speaking privately with a shareholder or group of shareholders, then the company should consider implementing policies and procedures intended to help avoid Regulation FD violations, such as pre-clearing discussion topics with the shareholder or having company counsel participate in the meeting.

In addition, because Regulation FD does not apply to disclosures made to a person who expressly agrees to maintain the disclosed information in confidence, a private communication between an independent director and a shareholder would not present Regulation FD issues if the shareholder provided such an express agreement.

FINRA Proposals: Conflicts of Interest and Fixed Price Offering Rules

As part of its initiative to incorporate the NASD's rules into the FINRA Rulebook, FINRA recently issued two proposals. In this proposal, FINRA proposes to incorporate its conflict of interest rule - NASD Rule 2720 - into the Rulebook as Rule 5121 without change except for references to other rules.

And in this rule filing with the SEC, FINRA proposes to codify what are known as the "Papilsky" or "fixed priced offering" rules (NASD Rules 2730, 2740 and 2750) into the Rulebook as new Rule 5141. This proposal includes numbers of changes to the prior rules.

- Broc Romanek

June 8, 2010

The Results of Prudential's Innovative Voting Campaign

In this follow-up podcast, Prudential's Peggy Foran and Ed Ballo explain how their company's novel initiative that tied its environmental/sustainability program to bringing in the vote for its annual shareholders meeting fared (here is their earlier podcast from before the meeting), including:

- What were the results of Pru's experiment to engage registered holders?
- Where there any surprises?
- For other companies considering doing this type of program, what issues would you tell them to consider?

Closed Deal: RiskMetrics Acquired by MSCI - Will ISS Be Sold Again?

As noted in this press release, MSCI closed its purchase of RiskMetrics last week. I blogged about the deal when it was first announced. The word on the street is that MSCI will be selling off the ISS unit and keeping the remainder of the RiskMetrics assets. We'll see if that comes to pass. Meanwhile, we can all go back to calling it "ISS" and drop the RiskMetrics label...

More on "The Mentor Blog"

We continue to post new items daily on our blog - "The Mentor Blog" - for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- Whether Earnings Calls Transcripts Are Worth Producing?
- No Surprise: Wires Bashing Google's Recognized Channel Approach
- More on "The Problem with IFRS: Little Independence for the IASB"
- What Boards Need to Know About SEC Comment Letters
- Canada Proposes Its Own E-Proxy Rules

- Broc Romanek

June 7, 2010

The RAFSA: A Detailed Timeline & List of Processes to Pass the Bill

Thanks to Michele Kulerman of Hogans Lovell for this rundown on how the timeline and processes of passing Congress' financial reform bill - the "Restoring American Financial Stability Act of 2010" - goes from here:

The Congress returns to Washington this week, anticipating an intense month of negotiations to complete consideration of sweeping financial services regulatory reform. Because each chamber must pass identical bills before the President can sign reform into law, an ad hoc "conference committee" will be named to work through the differences between the House and Senate bills.

Members of the conference committee are selected independently by House and Senate leaders from both parties, and drawn from senior members of the House Financial Services Committee and the Senate Banking Committee. They are expected to be named Tuesday, June 8th. Party ratios in the conference reflect the parties' ratio in each chamber. The conference on this bill will be chaired by the House, so Barney Frank (D-MA), who chairs the House Financial Services Committee will preside.

The first public meeting of the conference will take place Thursday, June 10 and this session and all subsequent meetings will likely be broadcast live via C-SPAN. The opening session will be devoted to member statements and may provide insight into possible avenues of compromise on open issues.

Staffers have been working for the past two weeks on the text which the conferees will use. The Senate amendment to the House bill, HR 4173, will serve as the base text, with added House-approved language related to mortgage reform and the hiring of minorities and women by the regulatory agencies. In addition, a side-by-side comparison of provisions in both bills is usually prepared. Both documents should be publicly available sometime next week.

The conferees will meet again June 15-17 and June 22-23 in open session to rewrite the text. Obviously, a lot of the work will take place behind the scenes, and the public meetings are as likely to highlight political differences in an election year as they are to debate differences in a spirit of compromise.

The conferees hope to conclude their work by the 24th by filing the conference report that day. The report - the text of the compromise bill - is usually accompanied by a Statement of Managers which reviews the need for the legislation, details the differences between the two versions, and explains the agreed-upon compromise.

The plan is for the House to act first, starting June 28th, and for the Senate to act in time to send the bill to the President by the end of the week.

Trends in Audit Fees and Non-Audit Fees

Recently, Audit Analytics released its annual "Audit Fees and Non-Audit Fees" report, a seven-year analysis focusing on fiscal years 2002 through 2008. The report examines the fees paid by 2,924 accelerated filers that disclosed fees in each year covered by the study, with the findings including:

- After 4 years of steady decline from 2002 to 2006, non-audit fees as a percentage of total fees have leveled off in 2007 and 2008.
- For the third year in a row, non-audit fees represented only about 21% of the total fees paid by accelerated filers, down from 51% in 2002.
- While the total audit fees increased steadily over the period examined, audit fees as a percentage of revenue decreased since 2005 and now stand at $556 per million dollars of revenue.

Navigating Corp Fin's Comment Process

We have posted the transcript of our recent webcast: "Navigating Corp Fin's Comment Process."

- Broc Romanek

June 4, 2010

The SEC Clawbacks Compensation from Former Diebold CEO - But No Fraud Alleged (Again)

On Wednesday, the SEC announced it had charged Diebold and three former finance officers for engaging in a fraudulent accounting scheme to inflate the company's earnings. The SEC separately settled an enforcement action (here's the litigation release - and here's the complaint) against Diebold's former CEO Walden O'Dell, obtaining reimbursement of certain financial benefits that he received while Diebold was committing the accounting fraud. The SEC used the clawback provision under Section 304 of Sarbanes-Oxley to get the former CEO to agree to reimburse the company $470,016 in cash bonuses, 30,000 shares of Diebold stock and stock options for 85,000 shares of Diebold stock.

Notably, the SEC didn't allege that the former CEO engaged in the fraud (or any other violation of the securities laws) - something the SEC did last year in an action against the former CEO of CSK Auto Corp. (ie. Maynard Jenkins), who pushed back in a motion to dismiss last September as I noted in this blog. Jenkins' motion has not yet been ruled upon (oral arguments were heard on April 30th; here's the transcript from that hearing posted in CompensationStandards.com's "Clawback Policies" Practice Area) - but a ruling is expected soon...

Smaller Company Proxy Disclosures: The Latest Developments

We have posted the transcript from the recent CompensationStandards.com webcast: "Smaller Company Proxy Disclosures: The Latest Developments."

More on "Picking Kentucky Derby Winners Based on the Economy"

A few weeks ago, I noted how Mark Coller successfully picks his Derby winners based on current events. Another member took the ball and ran with it as we head into the Belmont leg of the Triple Crown. This member has made up some horse names to fit the times:

- Banker Bailout - this horse is so last year
- Public Malaise - this one has a shot, the horse is so well-aligned with the American psyche, I don't see how he can be overlooked
- Shop and Spend - with a name like this filly, it looks unbeatable
- Rational Investment- not a chance in a million
- Retire Rich - see Rational Investment
- Trusted Advisor - are you serious?
- Conservative Banker - might have had a chance during Glass-Steagall
- Greedy Banker - ding, ding, ding this one has to be a lock, the surest shot in the history of the sport, cash in your 401k because this horse is the only way to retire rich and don't forget to include Churn and Burn for the exacta

I don't know why, but this video that features a lip-syncing of Carol Channing and Liza Minnelli spliced together on a Larry King episode cracks me up (here is the original video).

- Broc Romanek

June 3, 2010

All You Need to Know about RAFSA (But Were Afraid to Read About)

In this 11-minute podcast, Ning Chiu of Davis Polk does a great job of boiling down the corporate governance and executive compensation provisions that apply to all US public listed companies in the recently passed Senate reform bill, the "Restoring American Financial Stability Act of 2010."

Not only does Ning compare the differences between the Senate and House bills, but she identifies which provisions aren't all that clear - and she notes which provisions are more likely to sail through and which may be altered before Congress reconciles the two bills. Finally, Ning notes the practical consequences for companies of these provisions.

Timing News about IFRS and GAAP Convergence Project

Here is news from Tom White of WilmerHale:

Yesterday, the IASB and FASB issued a joint statement about the status of their project to converge US GAAP and IFRS. As noted in the statement, in November 2009, the two standard setters set June 2011 as the target date to complete all major convergence projects. Stakeholders expressed concerns about their ability to provide input on the large number of exposure drafts of standards that are planned for publication in the second quarter of this year. The standard setters therefore are developing a modified strategy to prioritize projects and stagger the publication of exposure drafts. The result is that completion of some projects will be extended past June 2011.

Shortly afterward, SEC Chair Schapiro issued a statement. She indicated that she did not believe these modifications to the timetable for the convergence project will impact the SEC Staff's ability to execute its work plan issued in February 2010. She also stated that these developments would not affect the SEC's ability to make a determination in 2011 about whether to incorporate IFRS into the financial reporting system for US issuers.

More on our "Proxy Season Blog"

With the proxy season wrapping up, we are winding down our "Proxy Season Blog" for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

- Notes From Google's Annual Meeting: Good Food!
- Will Google Sidewiki Change IROs' E-Communication Patterns?
- SEC Not Swayed by Companies' Post-Apache Arguments
- Study: Electing Directors
- More on "Surfing Champion Surfaces in a Proxy Filing"
- A New Site for Shareholders: Lemonjuice.biz

- Broc Romanek

June 2, 2010

Analysis of Google's Potential Recognized Channel

A few months ago, I blogged about how Google may have taken the first step towards creating a "recognized channel" under the SEC's 2008 Regulation FD guidance. In this podcast, David Calusdian of Sharon Merrill Associates analyzes this, including:

- What did Google recently do?
- For those that might consider doing something similar, what issues should they analyze?
- Do you foresee other companies following Google's lead?

The Rise of Web Disclosure: Thomson Reuters and Nasdaq OMX Set to Launch

Recently, I blogged about concerns regarding how the traditional business wires might unevenly distribute the news. Over the past week or so, Dominic Jones has been conducting experiments to illustrate a different point - the potential ineffectiveness of traditional PR wire distribution.

Earlier this morning, Dominic blogged about a development that has "the potential to substantially streamline and reshape disclosure practices at thousands of US companies." Thomson Reuters and Nasdaq OMX are set to launch platforms to help companies use web disclosure more extensively - which may dramatically reduce the use of PR newswires. Thomson Reuters and Nasdaq OMX provide IR webpage hosting services for about 2700 and 1078 companies, respectively - and intend to charge a flat annual fee (in comparison to the standard PR newswire practice of charging by the word).

Thomson Reuters has posted a fact sheet and white paper about its upcoming product offering - and here's Nasdaq's press release on its new DIY service.

PCAOB: New FAQs for Non-US Auditors Due to EU's Directive on Statutory Auditors

Yesterday, the PCAOB issued staff guidance - in the form of FAQs - related to the registration process for applicants from non-U.S. jurisdictions where the PCAOB is prevented from inspecting PCAOB-registered firms. The affected jurisdictions currently are the 30 European countries that are required to follow the European Union's Directive on Statutory Auditors, China, Hong Kong, and Switzerland.

- Broc Romanek

June 1, 2010

SEC Brings Action for Failure to Disclose Disclosure Controls Effectiveness

Maybe these are more common than I realize - but the SEC announced a while back this settled C&D order against ECO2 Plastics, a Pink Sheet company for not disclosing effective disclosure controls as well as the lack of effective internal controls. The order states that the company failed to comply with Item 307 of Regulation S-K in its '08 and '07 annual reports and Item 308T of Regulation S-B in '07.

I can't recall seeing a case where lack of disclosure controls disclosure was the primary charge alleged; usually it is a tack-on to some other charges. The order doesn't provide much in the way of details, so I can't quite figure out how egregious were the circumstances that led to these charges. In September '09, the company filed an amended Form 10-K for 2008 (after it had already filed a prior amended Form 10-K in August) to include the Item 9A disclosure control disclosures that it omitted from the company's 2008 Form 10-K (and it omitted the Item 8A disclosures in its 2007 Form 10-KSB). This new 9A disclosure includes a paragraph describing how the company couldn't perform an adequate assessment of internal controls in '07.

Based on all this, I think the case is predicated on failing to provide the required disclosure control disclosures for two years and failing to have effective internal controls in one. So lesson learned...

Lawyers as Actors

In this podcast, Howard Kline discusses his new acting activities, including:

- What new hobby have you picked up over the last few years?
- What led you to try something new?
- Do you think being a lawyer helped you in your acting career?
- And vice versa, does acting help your lawyering?

Our June Eminders is Posted!

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

- Broc Romanek