September 30, 2010

Business Roundtable and Chamber of Commerce File Proxy Access Lawsuit

Yesterday, the Business Roundtable and US Chamber of Commerce filed this petition for review in the US Court of Appeals for the DC Circuit against the SEC to invalidate the recently adopted proxy access rules. Among others, the plaintiffs allege that the rules are arbitrary and capricious; violate the Administrative Procedure Act; that they violate companies' rights under the Constitution's 1st and 5th Amendments; and that the SEC failed to properly assess the rule's effects on "efficiency, competition and capital formation" as required by law. Note that I believe the plaintiffs are just challenging the SEC's adoption of Rule 14a-11 - but not the changes to Rule 14a-8 (ie. the shareholder proposal rule) that the SEC recently adopted.

The Business Roundtable and Chamber of Commerce also filed a motion (see pg. 4 of the PDF) that the SEC stay implementation of the rules - including the November 15th effective date - until the DC Circuit has ruled on the challenge. The motion seeks a response from the SEC by next Tuesday, October 5th. If the SEC denies that request, then the plaintiffs plan to file a similar motion with the DC Circuit. Here's the related press release.

In response, the SEC released this statement: "We believe that the Commission's proxy access rules are both lawful and in the best interests of the public and shareholders. The Commission will, of course, carefully consider and timely respond to the motion for a stay."

As an interesting sidenote, I have yet to see a single law firm push out any information about this lawsuit (other than this exception in the form of a blog). In contrast, every firm under the sun sent out an immediate notice when the SEC adopted the access rules. Not that it matters an iota, but I just thought this was an interesting factoid...

Dodd-Frank: SEC Removes Rating Agency Exemption from Reg FD

Here's one of those "would be" mini-Dodd-Frank sleepers. Section 939B of Dodd-Frank directs the SEC to amend Regulation FD within 90 days of the law's enactment to remove the exemption for rating agencies that is contained in FD (Rule 100(b)(2)(iii)). Yesterday, the SEC issued this adopting release taking that action. The SEC adopted a final rule change without proposing it first because the legislative mandate meant its action "does not involve the exercise of Commission discretion or policy judgments." The amendment will become effective immediately upon its publication in the Federal Register.

Note the general exemption for confidentiality agreements remains in Reg FD (Rule 100(b)(2)(ii)), which would seem to negate the impact of the exemption removal because most agreements between rating agencies and rated companies contain confidentiality provisions (and if they don't, a simple work-around is for a rating agency and a company to execute a stand-alone confidentiality agreement now).

But upon closer inspection, I'm not sure this change is that significant as Reg FD applies to communications to certain market participants, including investment advisers. Although at one point, most rating agencies were investment advisers registered with the SEC and subject to Reg FD, the major credit rating agencies more recently have terminated their registration as investment advisers and qualified instead as nationally recognized statistical rating organizations (NRSROs). As a result, they are no longer among the enumerated persons that trigger FD violations. That means that the exception for credit rating agencies no longer was necessary and that elimination of the exception has no real impact at this point. Hence, this likely is the purpose of this Dodd-Frank provision - we don't know for sure as it has no discernible legislative history (note the purpose of the provision was not touched upon in the SEC's adopting release).

Companies will still need to think about entering into confidentiality agreements with rating agencies since there could be a Rule 10b-5 issue when material nonpublic information is shared. Perhaps there is one argument that can be made regarding Reg FD - that a Regulation FD obligation may be triggered if a rating agency were deemed to be acting as an agent of the issuer. Perhaps that's a stretch but under the right facts and circumstances, a possibility. Thanks to Nancy Wojtas of Cooley for her analysis of this subject!

SEC Dealt Setback by Second Circuit in Galleon Insider Trading Case

Here's an excerpt from this NY Times article:

A federal appeals court on Wednesday ruled against the Securities and Exchange Commission in its effort to get wiretaps from the criminal prosecution of Raj Rajaratnam, the founder of the Galleon Group hedge fund. The United States Court of Appeals for the Second Circuit overturned an order from Judge Jed Rakoff, of Federal District Court in Manhattan, that would have compelled Mr. Rajaratnam and a co-defendant, Danielle Chiesi, to give the commission the wiretapped recordings of hundreds of their conversations. Prosecutors in the criminal case provided the recordings to Mr. Rajaratnam and Ms. Chiesi during discovery proceedings, and the SEC had wanted to use them as evidence in its civil insider-trading case.

Three judges on the appeals court sent the case back to Judge Rakoff, who is overseeing the civil case, saying he should have waited on a ruling in the criminal case on whether the government's wiretaps were legal. The federal judge in the criminal case, Richard Holwell, has not yet ruled on whether the wiretaps were legally obtained. Judge Holwell plans to hold a hearing on Monday to consider whether prosecutors provided enough information about the need for the wiretaps.

- Broc Romanek

September 29, 2010

The Proxy Access Lookback Test: March 15th of 2010 is the D-Day

I've seen too many people report that proxy access doesn't apply to companies that mail their proxy materials before March 15th, 2011 - that is an incorrect statement of how the SEC's transitional rules work. As noted earlier in this blog, since the SEC's adopting release was published in the Federal Register on September 16th, the new access rules will become effective on November 15th - which would mean that companies who mailed their 2010 proxy statement prior to March 15, 2010 would have a window period that fully pre-dated the effective date of the rules for this proxy season - thus meaning that these companies would not be subject to proxy access for the 2011 proxy season.

Below is the excerpt from the adopting release that lays out the transition period:

Rule 14a-11 contains a window period for submission of shareholder nominees for inclusion in company proxy materials of no earlier than 150 calendar days, and no later than 120 calendar days, before the anniversary of the date that the company mailed its proxy materials for the prior year's annual meeting.671 Shareholders seeking to use new Rule 14a-11 would be able to do so if the window period for submitting nominees for a particular company is open after the effective date of the rules. For some companies, the window period may open and close before the effective date of the new rules. In those cases, shareholders would not be permitted to submit nominees pursuant to Rule 14a-11 for inclusion in the company's proxy materials for the 2011 proxy season. For other companies, the window period may open before the effective date of the rules, but close after the effective date. In those cases, shareholders would be able to submit a nominee between the effective date and the close of the window period.

I know this excerpt can be challenging to understand - but during the SEC's open Commission meeting adopting the rules, Staffers did explain in plain language how it works in practice and what I have blogged from the beginning is correct.

If you're trying to figure out what your "mailing date" was for this past season, I imagine the SEC will look for that date the way it does under Rule 14a-8 (as that issue is not clearly addressed in the access adopting release). So the date of the proxy statement likely controls (although if your affidavit of mailing has a different date, that might control - the date on the affidavit hopefully would not be earlier than the date on the proxy statement since definitive proxy materials need to be filed with the SEC before delivery commences.

Join us on October 20th for the webcast - "The 'Former' Corp Fin Staff Speaks on Proxy Access & Dodd-Frank" - to hear former Senior Staffers Marty Dunn of O'Melveny & Myers; John Huber of Latham & Watkins; Brian Lane of Gibson Dunn and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster weigh in on the open issues related to the new proxy access rules plus all the latest from Corp Fin on other matters.

SEC Approves Nasdaq's (and NYSE's) Rule Change on Broker Nonvotes and Executive Pay

Yesterday, the SEC approved a Nasdaq rule change on an accelerated basis that amends its proxy voting rule - Rule 2251 - to prohibit broker-dealers from voting on the election of directors, executive compensation, or any other significant matter, as determined by the SEC, unless instructed by the beneficial owner of the shares.The amendment was required to comply with Section 957 of Dodd-Frank.

A few weeks ago, the SEC approved a change to the NYSE's Rule 452 that prohibits broker-dealers from voting uninstructed shares if the matter to be voted on relates to executive compensation. The change expressly provides that "executive compensation matters" include the three Say-onPay votes created under new Section 14A of the Exchange Act (as added by Section 951 of Dodd-Frank).

Dissecting the Modern Poison Pill

Tune in tomorrow for the DealLawyers.com webcast - "Dissecting the Modern Poison Pill" - to hear Rick Alexander of Morris Nichols, David Katz of Wachtell Lipton and Cliff Neimeth of Greenberg Traurig examine the use of poison pills and how they are constructed in the wake of Selectica, Yucaipa and Barnes & Noble, including factors you should consider when devising a pill. If you are not yet a member, try a 2011 no-risk trial and get the rest of 2010 for free (including access to this program).

- Broc Romanek

September 28, 2010

The Growing Protest in the Wake of Symantec's All-Virtual Meeting

Since there didn't seem to be much of a backlash to last year's slate of companies that conducted virtual-only annual meetings, I was beginning to think that the objections expressed a decade ago had dissipated. But as laid out by Jim McRitchie in his blog, many of the biggest active holders did object to Symantec's recent virtual meeting - including CII, CalSTRS and CalPERS. Symantec is the first Fortune 500 company to conduct an all-electronic meeting.

Among other concerns, some of Symantec's shareholders who attended electronically were not happy that they didn't have their submitted question answered by management during the meeting (nor did 3 of the company's 11 directors attend online), as laid out in this NY Times column. Suddenly, there has been a lot of negative press surrounding virtual-only meetings as here is yet another piece from Reuters that was published a few days before the NY Times piece...

Congrats to Keir Gumbs - a former Corp Fin Staffer, who has to rate among the most beloved in the history of the Division - for making Partner at his firm...

Pension Games Threaten Market

Since it doesn't neatly fit into what most of our members deal with in their practice, I've been trying to resist blogging about the ongoing madness with state and local municipalities and how they may be the next domino that topple our markets. But this Bloomberg article with commentary from former SEC Chair Arthur Levitt and former SEC Chief Accountant Lynn Turner provides a great description of what is taking place there...

Catch-Up Now: "5th Annual Proxy Disclosure Conference"

The video archive of last weeks' pair of Conferences - the "5th Annual Proxy Disclosure Conference" & "7th Annual Executive Compensation Conference" - are posted. Hopefully, you've talked to some of the many that attended this event and heard how much practical guidance was imparted. Our panels really delivered this year - and it's not too late to watch them as you can still register and watch the panels now or when you are gearing up to draft your proxy materials.

- Broc Romanek

September 27, 2010

Fifth Circuit Reinstates SEC's Insider Trading Case Against Mark Cuban

The memo below from Wayne Carlin and David Anders of Wachtell Lipton describes the latest in the Mark Cuban insider trading saga:

On September 21, 2010, the Fifth Circuit Court of Appeals reversed the holding of the lower court and reinstated the SEC's insider trading charges against entrepreneur Mark Cuban. This decision serves as an important reminder of the fact-intensive nature of insider trading inquiries and the perils of treading too close to the line when trading while in possession of non-public information.

Here, the SEC's essential allegation is that Cuban violated the misappropriation theory of insider trading when, after receiving confidential information from the CEO of Mamma.com that the company was going to make a private investment of public equity (PIPE) offering, he sold his stake in the company in an effort to avoid losses from the expected fall in Mamma.com's share price when the PIPE was announced. The district court found that the SEC's complaint sufficiently alleged that Cuban had agreed to keep confidential information he received from the CEO, but that it had not alleged that Cuban agreed not to trade. Without that further agreement, the district court held, Cuban had not breached a duty, as required for insider trading liability. The district court therefore dismissed the case. On appeal, the Fifth Circuit disagreed, holding that it was at least plausible to conclude from the allegations in the complaint that, under the circumstances, Cuban was obligated not to trade. The appellate court therefore vacated the decision of the lower court and remanded the case to allow the SEC the opportunity to fully develop the factual record through discovery.

Although the appellate court opinion did not set forth any new legal principles, several important conclusions can be drawn from the decision. First, commentators who warned against reading the lower court decision as a change in the law of insider trading were correct: the Fifth Circuit decision makes clear that the bar for proving insider trading has not been raised. Second, the court made clear that insider trading cases are heavily fact-specific. Therefore, once the specter of insider trading is raised, it is difficult to avoid a detailed investigation into the facts. Third, even where the trial court was willing to decide the case at the motion-to-dismiss stage as a matter of law, the appellate court found that was erroneous in the presence of debatable issues of the interpretation and legal significance of certain facts.

This case is thus a reminder to proceed with caution and to seek guidance before trading while in possession of information that may be confidential. Careful analysis is essential before concluding that trading is permissible. If the circumstances surrounding a trade are likely to draw government scrutiny, there is every reason to expect the result to be a lengthy investigation (or litigation) with an uncertain eventual outcome.

SEC Issues Transitional Guidance for Broker Audits

On Friday, the SEC issued this 4-page interpretive release to provide transitional guidance on which auditing standards should be used by broker-dealers now that the PCAOB has authority to set auditing standards under Dodd-Frank. Since the SEC's rules and the PCAOB's standards have not yet been updated for this new legislation, the SEC's guidance is that references in the SEC rules to auditing literature (ie. GAAS) should continue to be understood to mean auditing standards generally accepted in the US, plus any applicable SEC rules. This transitional guidance will be revisited when a rulemaking project is undertaken.

Financial Stability Oversight Council to Hold First Meeting

Last week, Treasury Secretary Tim Geithner, in his capacity as Chair of the Financial Stability Oversight Council, announced that the Council will hold its first meeting on October 1st. This press release lists all of the Council's members.

- Broc Romanek

September 24, 2010

NYSE Commission on Corporate Governance Issues Final Report

Yesterday, the NYSE Commission on Corporate Governance issued its final report that identifies 10 core governance principles covering such topics as the fundamental objectives of the board, management's responsibility for governance, and the relationship between shareholders' trading activities, voting decisions and governance. The report is timely given the SEC's proxy plumbing concept release was recently put out for comment.

While the the report formally concludes the work of the NYSE Commission on Corporate Governance, the NYSE announced that the group would, from time to time, continue to provide constructive input on corporate governance and the proxy reform process.

The SEC Inspector General's Take on Goldman Sachs Enforcement Action: Not Favorable

Yesterday, I woke up at our Conference to a front-page WSJ article entitled "SEC Blasted on Goldman," describing a Senate Banking Hearing where the SEC's inspector general testified that the SEC's fraud lawsuit against Goldman was "suspicious," suggesting agency officials tried to distract attention from a report criticizing the SEC for failing to detect an alleged Ponzi scheme. The article included interesting Enforcement stats drawn from testimony provided by the SEC at the hearing - here is an excerpt of that:

According to a tally by the SEC, the agency has filed 634 civil cases since its fiscal year began last October, extracted $968 million in penalties and distributed nearly $2 billion to investors. Those figures "don't capture the breadth and complexity of cases we've filed," said Mr. Khuzami, who is shaking up the unit. The Justice Department said nearly 3,000 defendants were sent to prison between October and June for financial fraud. The number of criminal mortgage-fraud cases filed by the agency has more than doubled so far this year compared with 2007, while new corporate-fraud cases also have surged. Still, few criminal charges have been filed against high-ranking executives often blamed for the crisis.

And here is a telling excerpt as to why future cases might not be so forthcoming:

One reason for the small number of criminal cases so far, according to current and former regulators: Many of the highest-profile disasters of the crisis look increasingly like they were caused by too much risk-taking and bad decisions--not criminal behavior. "One of the challenges in this environment is there were such broad systemic failures that identifying the one or two people or the six enterprises that are quote responsible, which is what we see a broader appetite for, I don't think that's doable," William McLucas, a former SEC enforcement chief, said in an interview. "There may be cases where the rules were broken. Are they all cases where you can or should put people in jail? Probably not, but that doesn't satisfy the lust for accountability."

Our Week of Conferences: Sights & Sounds

Here are three short videos from our week of Conferences this week - this first one shows the sheer size of our plenary session on Tuesday (1900 attendees in person and many more online):

Our exhibitors like to make the Conferences fun - check out this pig race from Radford in our Exhibit Hall (attendees placed their business card on which pig they thought would win - and if your pig won, you earned a prize):

On Tuesday night, I sat in the right field bleachers of the Cubs game - behind me were a row of rooftops rented out by different exhibitors for various attendees of the Conferences (if you haven't seen this phenomenon in person, this rooftop directory gives you an indication of its popularity):


- Broc Romanek

September 22, 2010

Dodd-Frank: Not-So-Easy Come, Not-So-Easy Gone?

Yesterday, Reuters ran the article below (entitled "US senator wants to reopen Wall St bill") indicating that there is sentiment from some Republicans to revisit some of Dodd-Frank if they make gains in Congress during the mid-term elections:

Republicans will reopen the broad Wall Street reform law and overhaul the newly created consumer protection bureau if they regain control of Congress after the November elections, a leading lawmaker said on Monday. Richard Shelby, the top Republican on the powerful Senate Banking Committee, said lawmakers must revisit the legislation enacted this summer, which is the broadest overhaul of financial rules since the Great Depression. "The bill is so sweeping and such a game changer in many ways that it's incumbent upon us to revisit it," Shelby told the Reuters Washington Summit. The bill, one of the Obama administration's legislative victories, will impose new restrictions on every aspect of Wall Street.

But lawmakers are already trying to change the bill, even though it was only signed into law in July. And that's before the November midterm elections, which could see Republicans gaining further influence, if not control, over Congress. The House Financial Services Committee, which oversees financial regulators, is now considering tweaks to one of the bill's provisions related to the Securities and Exchange Commission.

If Democrats lose control of Congress, Republicans may try to tear apart the contentious legislation they mostly all opposed. "The consumer agency bothers me the most," said Shelby, who failed to reach a compromise with Democrats and voted against the bill. "I thought the creation of it and the way it was created was a mistake," he said.

Under the Dodd-Frank bill, banking regulators are stripped of their consumer supervisory duties and the new Consumer Financial Protection Bureau gains the power to write and enforce rules for mortgages, credit cards and other financial products. "I don't believe it's good for business, it's not good for the financial sector and ultimately I don't believe it's going to be good for credit for a lot of people who need it. It's gonna cost," Shelby said. But Sheila Bair, chairman of the Federal Deposit Insurance Corp, warned against Congress reopening the law, saying banks already face enough regulatory uncertainty.

"I think to go back and completely reopen it now with a whole other set of question marks and uncertainties about what people are supposed to be doing ... I hope people would think hard about that," Bair told the Reuters Washington Summit. Christopher Dodd, the chairman of the Senate Banking Committee and one of the bill's main authors, said it may be hard for Republicans to rollback the bill or water down the consumer bureau as the Treasury Department has already begun to put it together.

"I think if they (Treasury) do it and it gets going then I think the job that Richard Shelby and others have in mind of undermining and gutting (the bureau) will be difficult," Dodd told the Reuters summit. Dodd added that Republicans would likely target the bureau's budget and "gut it financially." Republicans despise the consumer bureau and have long argued that consumer protections should not trump the safety and soundness of banks. They fear that the bureau would hurt the availability of credit by burdening banks with piles of new regulations.

They were also upset with the appointment of Wall Street critic Elizabeth Warren, a Harvard professor, to help set up the consumer watchdog. "I believe she's got a big ax to grind and she's sharpening that ax," said Shelby. "I don't think that you need somebody in a position like that with all these preconceived ideas and I believe she has a lot of them."

Nugget #1: Conduct Board Committee Evaluations Before Board Evaluations

I tend to get nostalgic as we get into our week of Conferences as I think back on our jam-packed year. It got me thinking about the series of "50 Nuggets in 50 Minutes" webcasts that Alan Dye and I used to hold when I first started with this organization nearly nine years ago. There was some good stuff in those programs and most of those nuggets still hold value today - so I thought I would begin blogging a number of them. Here is the first one:

Committee Evaluations - Conduct committee evaluations before board evaluations - Although many companies conduct both their board and committee evaluations at the same time for convenience, we like the idea of separating them by a few months - with committee evaluations being conducted first. This should help to provide time for directors to focus on each distinct group dynamic and more importantly, the results of committee evaluations can be considered as part of the subsequent board evaluation.

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:

- Study: Corporate Governance of the 100 Largest US Companies
- Director Searches: What Can You Tell a Recruiter
- The SEC Departs from an Important Safeguard
- SAS 70 and Internal Control Issues
- Dress Code for Delaware Courts

- Broc Romanek

September 21, 2010

Today: "7th Annual Executive Compensation Conference"

Today is the "7th Annual Executive Compensation Conference"; yesterday was the "5th Annual Proxy Disclosure Conference" and the video archive of that Conference is already posted. Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.

- How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it's shown live). A prominent link called "Enter Today's Conference" on the home pages of those sites will take you directly to today's Conference.

Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today's Conference Agenda; times are Central.

- How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online - and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic "prompts" all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few (but hours for each state vary; see the CLE list for each Conference in the FAQs).

Corp Fin Issues Five New XBRL CDIs

On Friday, Corp Fin issued five new CDIs regarding interactive data (ie. XBRL) - three of them related to Regulation S-K and two related to Regulation S-T. It also withdrew two '34 Act Form CDIs because they related to XBRL phase-in and were outdated (we are now through two phase-in periods with one more taking place next summer). Here are the new CDIs:

- New Question 146.14
- New Question 146.15
- New Question 146.16
- New Question 130.10
- New Question 131.01

Poll: Should the CEO Be a Team Job?

I saw this article from Fortune about whether the CEO title could be held by multiple persons at once. I'll keep my opinion to myself and let you weigh in instead in this anonymous poll:


- Broc Romanek

September 20, 2010

Dodd-Frank: SEC Releases Tentative Rulemaking Schedule

As noted by Mark Borges in his CompensationStandards.com "Proxy Disclosure Blog" on Saturday:

One of the more challenging aspects of analyzing the executive compensation provisions of the Dodd-Frank Act has been trying to predict how the SEC would approach its rulemaking obligations. As we know, many of the provisions are to become effective only upon the completion of SEC (and, in some cases, national securities exchange) rulemaking. While I've always expected that the SEC's rulemaking activities would stretch into 2011 and, possibly, beyond, in the absence of any formal announcement I've had to caution clients that it was possible some of the rules would be in place for the 2011 proxy season.

Well, the SEC has just posted a tentative schedule for its Dodd-Frank Act rulemaking and, as I suspected, most of the executive compensation-related rules won't be ready until next year. Here's the schedule by provision:

1. Section 951 - Shareholder Approval of Executive Compensation

- Proposed rules: October - December 2010
- Final rules: January - March 2011

2. Section 952 - Compensation Committee Independence

- Proposed rules: October - December 2010
- Final rules: April - July 2011

3. Section 953 - Executive Compensation Disclosure

- Proposed rules: April - July 2011

4. Section 954 - Recovery of Erroneously Awarded Compensation

- Proposed rules: April - July 2011

5. Section 955 - Disclosure Regarding Employee and Director Hedging

- Proposed rules: April - July 2011

6. Section 957 - Voting by Brokers

- Proposed rules: April - July 2011

Mark includes preliminary observations at the bottom of his blog, which I'm sure he'll discuss today during the "How the Dodd-Frank Developments Impact You: All the Latest" panel that opens our "5th Annual Proxy Disclosure Conference."

Today: "Tackling Your 2011 Compensation Disclosures: The 5th Annual Proxy Disclosure Conference"

Today is the "Tackling Your 2011 Compensation Disclosures: The 5th Annual Proxy Disclosure Conference"; tomorrow is the "7th Annual Executive Compensation Conference." Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.

- How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it's shown live). A prominent link called "Enter Today's Conference" on the home pages of those sites will take you directly to today's Conference.

Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today's Conference Agenda; times are Central.

- How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online - and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic "prompts" all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few - but hours for each state vary; see the CLE list for each Conference in the FAQs.

Short-Term Borrowings: SEC Proposes Rules and Issues Interpretive Guidance

On Friday, the SEC proposed new rules to elicit disclosures for short-term borrowings (here's Chair Schapiro's remarks).

In addition, the SEC issued an interpretive release providing guidance on existing MD&A requirements for liquidity and funding disclosures. Since this interpretive release will become effective immediately upon publication in the Federal Register, companies will need to review it now as it will apply to their next periodic filing. The interpretive release:

- Reiterates long-standing MD&A principles as they apply to disclosure of critical liquidity matters, so that MD&A disclosure keeps pace with the increasingly diverse and complex financing alternatives available to companies.

- Make clears that a registrant cannot use financing structures (whether "on-balance sheet" or "off-balance sheet") designed to mask the registrant's reported financial condition - transparent disclosure is required.

- Emphasizes that leverage ratios and other financial measures included in filings with the SEC must be calculated and presented in a way that does not obscure the company's leverage profile or reported results.

- Addresses divergent practices that have arisen in the context of tabular disclosure of contractual obligations, to focus companies on providing informative and meaningful disclosure about their future payment obligations.

- Broc Romanek

September 17, 2010

Last Minute Registrations Accepted: Monday's "5th Annual Proxy Disclosure Conference"

Even at this late date, people are still registering for our Conferences that begin this Monday, September 20th. You can either register for the three days of the "18th Annual NASPP Conference" (in Chicago) - or the two days of the "5th Annual Proxy Disclosure Conference" & "7th Annual Executive Compensation Conference" (in Chicago or by video webcast) or a combination of both.

If you don't register today with our HQ, you can still walk-up in Chicago and register by bringing a check or credit card to pay the applicable amount when you arrive. In addition, you can register online with a credit card as late as you want and get an ID/password sent to you automatically to enter the Conference and watch (in fact, you can even do so after Monday as the video of the panels will be archived for nine months - so you can watch them anytime if you have a conflict with the Conference schedule or whenever you want a refresher). Register Now.

Updated: "Printable Set of Course Materials"

For the most relevant of our voluminous set of Course Materials, we have created a single PDF of "Printable Set of Course Materials." This set was updated today as we just received two last sets of charts that will be referred to during Tuesday's Conference. [Note that these will be handed out in Chicago - no need to print and lug if you don't want to.] If you have already printed off this set, these are the two new additions that you can print rather than printing the entire set again:

- for the 1:45 internal pay equity panel, this set of charts from Don Delves

- for the 2:20 inadvertent gains panel, this set of charts from George Paulin

If you are registered for the combo of the "5th Annual Proxy Disclosure Conference" and "7th Annual Executive Compensation," the full set of course materials can be obtained now by clicking each link in this sentence (note there is a different set of materials for each Conference).

Felix the SEC's Cat

A lot of members emailed me about Wednesday's proxy access poll, mostly wondering about the SEC's cat. The story goes that there has been a male cat named Felix that has roamed the SEC's halls since the silent movie era (yes, Felix moved anytime the SEC changed the location of its HQ). Staffers are always trying to steal Felix's magic bag. And I've heard that Felix is quite a ladies man...

More Blog Honors: LexisNexis Top 25 Business Law Blogs

We are proud to say that both this blog and our DealLawyers.com Blog has been nominated for LexisNexis' Top 25 Business Law Blogs. Having already won the ABA Law Journal's "Blawg 100" voting contest this year, I am not encouraging you to comment on the list of the LexisNexis nominees as once is enough. But if you are so inclined, here is the info that LexisNexis gave me:

We are inviting the business law community to comment on our list of nominees. If you'd like to request that readers support your nomination, please ask them to comment on the announcement post at: Top 25 Business Law Blogs 2010 - Corporate & Securities Law Community.

To submit a comment, log on to your free web center account. If you haven't previously registered, you can do so on the Corporate & Securities Law Community. Registration is free and does not result in sales contacts. The comment box is at the very bottom of the page. The comment period for nominations ends on October 8th.

- Broc Romanek

September 16, 2010

Proxy Access: Today It's Published in the Federal Register - March 15th is D-Day

Too funny. No sooner did I blog yesterday about the lengthy wait for the SEC's proxy access rules to get published in the Federal Register, but the preview of today's FR revealed that today would be the big day. Here is today's FR with the access adopting release.

So since the adopting release was published in the Federal Register on September 16th, the new access rules will become effective on November 15th - which would mean that companies who mailed their 2010 proxy statement prior to March 15, 2010 would have a window period that fully pre-dated the effective date of the rules for this proxy season - thus meaning that these companies would not be subject to proxy access for the 2011 proxy season. The ides of March...

Dodd-Frank: SEC Adopts Internal Controls Amendments to Exclude Smaller Companies

Yesterday, the SEC posted this adopting release with amendments to its internal controls rules and regulations to conform them to Section 404(c) of Sarbanes-Oxley, as modified by Section 989G of Dodd-Frank, to state that 404(c) doesn't apply to companies that are neither an accelerated filer nor a large accelerated filer.

SEC Receives PCAOB's Proposed Changes to Risk Assessment Standards

Yesterday, the PCAOB filed proposed changes to eight auditing standards related to an auditor's assessment of risk with the SEC. The proposed standards were approved by the PCAOB back in August and, if approved by the SEC, will become effective for audits of fiscal periods beginning on or after December 15, 2010.

- Broc Romanek

September 15, 2010

Proxy Access: Not Yet Published in the Federal Register - Many Are Counting the Days...

I've received too many emails to count from members wondering if the SEC's proxy access adopting release has been published in the Federal Register yet given that the SEC approved the adopting release at an open Commission meeting three weeks ago (answer: it has not). Even more folks have asked why it hasn't yet, given that it seemed like the SEC was in a rush to do so so that the clock would start ticking towards when access would apply during the proxy season (answer: I don't know, but the delay is unusual).

This email from a member gives the explanation of the math involved, tied to the final rules being published in the Federal Register:

As you are aware, the final proxy access rules indicate (pages 224-225) that if the window period for 14a-11 nominations has elapsed prior to the effective date of the rules (60 days following publication in the Federal Register), then shareholders of this company won't be able to make 14a-11 nominations for the 2011 proxy season).

So, given the 120-150 day window period, by my math, if the rules were published in the Federal Register, say on September 15th, the rules would be effective on November 14th, which would mean that companies who mailed their 2010 proxy statement prior to March 14, 2010 would have a window period that fully pre-dated the effective date of the rules for this proxy season - thus meaning that these companies would not be subject to proxy access for the 2011 proxy season (this would include a fair number of calendar year-end companies, increasing by the day). While I don't think the rules are ambiguous in their application, I find it surprising that the final rules have not yet been published, given the Commission's previous stated desire that proxy access rules be in effect for the 2011 proxy season.

By the way, I do know that the access rules won't be published in the Federal Register today because a preview of the following day's content is made available each day on this site and it wasn't listed yesterday...

Poll: Why Do You Think the Proxy Access Rules Haven't Been Published Yet?

Please participate in this anonymous poll:


- Broc Romanek

September 14, 2010

The Risks of Holding a Virtual-Only Annual Meeting

It looks like more companies are willing to take the risk of negative press - and shareholder anger - and hold virtual-only annual meetings. For example, check out this letter writing campaign against Symantec for planning to hold such a meeting, spearheaded by the "United States Proxy Exchange." Here is Symantec's proxy statement, which explains how it's annual meeting will work (eg. questions will be permitted to submitted in 'real time').

Remember to tune in today for our webcast - "Holding the Virtual Annual Meeting: Factors to Consider and Practice Pointers" - featuring experts who are the pioneers that have been through the virtual or hybrid experience already.

The Big Four and Their Growing Consulting Practices: Deja Vu in Europe?

For those of us practicing more than a few years, you will recall how the largest auditing firms spun off their consulting practices in '02 (post-Enron thing) since the risks of conflict of interests was too great when it came to the auditors doing their audit work (eg. see this article). According to this article in The Guardian, the Big Four has grown its consulting groups in Europe to the point where the revenue from these groups constitutes as much as a quarter of the firm's revenue stream. Not a good thing...

PCAOB Extends "Communications with Audit Committees" Comment Period

Not only has the PCAOB extended its "communications with audit committee" comment period, it has calendared a roundtable for September 21st on the topic - and posted this briefing paper.

- Broc Romanek

September 13, 2010

Course Materials Now Available: "5th Annual Proxy Disclosure" and "7th Annual Executive Compensation"

We have posted the Course Materials for our week of big Conferences coming up in one week - the huge set related to each Conference is here: "5th Annual Proxy Disclosure Conference" and "7th Annual Executive Compensation Conference."

For those seeking CLE credit, here's a list of states in which credit is available for watching the Conferences live in Chicago and by video webcast. Note that the list is broken out for each of the Conferences - and note that a few states are listed as "pending" (check back to determine if the Conferences are approved in those states as we will be updating the list).

Act Now: As happens so often, there is now a mad rush for folks to register for these Conferences that begin on Monday, September 20th. With an aggregate of over 50 panels (including the "18th Annual NASPP Conference"), if these Conferences don't help get you prepared for the upcoming proxy season of change, nothing will. You can either register for the three days of the "18th Annual NASPP Conference" (in Chicago) - or the two days of the "5th Annual Proxy Disclosure Conference" & "7th Annual Executive Compensation Conference" (in Chicago or by video webcast) or a combination of both. Note that we just extended the length of the last panel of the" 5th Annual Proxy Disclosure Conference" to cover proxy access in more depth. Register Now.

SEC to Propose Rules Requiring More Short-Term Debt Disclosure

Coming up on Friday, the SEC will hold an open Commission meeting to consider proposing new rules that would requires companies to disclose more about their short-term borrowings. This is not a Dodd-Frank rulemaking; rather, it's a rulemaking driven by Lehman and general financial crisis concerns around companies incurring significant indebtedness through short-term borrowings that are ultimately not reflected in period-end balances.

Holding the Virtual Annual Meeting: Factors to Consider and Practice Pointers

Tune in tomorrow for our webcast - "Holding the Virtual Annual Meeting: Factors to Consider and Practice Pointers" - featuring these experts who are the pioneers that have been through the virtual or hybrid experience already:

- Cathy Conlon, Vice President, Strategic Development, Broadridge
- Carl Hagberg, Independent Inspector of Elections and Editor of The Shareholder Service Optimizer
- Lisa Beth Lentini, Senior Corporate Counsel, Best Buy
- Scott McMillen, Vice President & Senior Corporate Counsel, The Charles Schwab Corporation
- Doug Stewart, Senior Attorney, Intel Corp.

If you're not yet a member of TheCorporateCounsel.net, get the rest of 2010 for free when you try a 2011 no-risk trial.

- Broc Romanek

September 10, 2010

Dave & Marty on Concerts, Rule 14a-8, Comments and Proxy Plumbing

In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance, and pop culture. Topics include:

- Marty's favorite concerts in 2010
- What to expect in the 2011 shareholder proposal season
- The latest SEC Staff comment trends
- Key areas for comment on the proxy plumbing concept release

Top 10 Concerns for Directors: Executive Compensation #1

In this recent survey conducted by Corporate Board Member and FTI Consulting, executive compensation topped the list with 41% of the respondents listing it as a major concern (all the more reason to attend our upcoming week of executive pay conferences). Here is the list:

1. Executive Pay - 41%
2. Governance & compliance - 38%
3. M&A - 34%
4. Investor relations - 33%
5. Operational risk -33%
6. Liquidity - 31%
7. Internal controls - 29%
8. Managing media & company reputation - 28%
9. Managing outside legal fees -23%
10. Proxy and election of director issues - 22%

It's interesting that proxy access is listed at the bottom, somewhat confirming my belief that those who view access as an apocalyptic event may be overreacting...

Last Chance to Correct for Section 409A

On CompensationStandards.com's "Melbinger's Compensation Blog," Mike Melbinger gives us this warning:

I cannot overemphasize how important it is for every employer in America with non-qualified deferred compensation plans or employment, severance or change in control agreements that are subject to Code Sec. 409A (which includes just about all of them) to review its compliance with 409A one more time before December 31, 2010. This is because the IRS has given us one last chance to correct drafting issues in compensation plan documents and agreements that are subject to 409A, without penalty, under Notice 2010-6.

That is the good news. The bad news is that Notice 2010-6 does much more than just offer correction methods. It contains numerous examples of situations that the 409A final regulations did not clearly address - and provides for significant penalties for many plan provisions that a normal person might view as a foot fault. Therefore, even if you (and your counsel) thought your plans and agreements fully complied with 409A by the previous December 31, 2008 deadline, changes made by Notice 2010-6 may require you to take another look.

Revising plans and agreements to comply with Notice 2010-6 should be easy. What employers have found more troubling are the notice requirements of the Notice. If the necessary plan revision rises to the level of a "document failure" under the Notice, the employer that makes a "correction" must attach a statement to its original federal income tax return for the taxable year in which it makes the correction, which includes the name and taxpayer identification number of each employee affected by the document failure, the name of the plan or agreement with respect to which the failure occurred and four other specific items of information. If an employee is required to include an amount in income during a subsequent year to be eligible for the relief under the Notice, the employer also must attach this statement to its federal income tax return for the subsequent to the taxable year as well.

The employer must provide a similar statement to each affected employee, by the date it is required to provide Form W-2 or 1099 to the employee, which the employee must attach to his or her income tax return.

Therefore, employers may want to think hard about whether any revisions they make to plans and agreements are substantive corrections of document failures or mere clarifications.

- Broc Romanek

September 9, 2010

Proxy Access: First Shareholder Announces Intent to Use New Rules

Yesterday, Ted Allen blogged the following in the ISS "Insight" Blog":

The SEC's new proxy access rule won't take effect until November, but an investor, Discovery Equity Partners, already has announced its intent to use the rule to nominate two board candidates at Tier Technologies in this amended Schedule 13D. In a Sept. 7 letter to the company's board, Michael Murphy, a managing partner at Discovery, said it intended to use SEC Rule 14a-11 to nominate up to two board candidates at the company's 2011 meeting.

Reston, Virginia-based Tier Technologies provides transaction-processing services and software to federal, state, and local agencies. Given its current market capitalization, the company presumably would not be exempt from the new access rule. As of Sept. 8, the company had a $90.6 million market cap; the new SEC rule has a three-year phase-in period for companies with less than $75 million in public float.

Chicago-based Discovery and affiliates, which have a 13.5 percent stake, has been active at Tier Technologies in the past. In 2009, Discovery waged a proxy contest to elect two candidates. Management nominated just seven candidates for the nine open seats, so the dissident's two nominees were elected.

In January 2010, Discovery said it would nominate three candidates, but the company announced an agreement with the investor in March. Under that settlement, the company reduced its board to seven directors, separated the roles of chairman and CEO, and provided reimbursement to Discovery for the 2009 proxy fight. In exchange, Discovery agreed not to nominate any candidates at the 2010 meeting and to support management. In August, the company named a new CEO, Alex Hart, to replace former CEO Ronald Rossetti, who stepped down in June.

Proxy Access: The Latest Reactions to the New Rules

Ted Allen also does a good job in this blog illustrating some of the views on both sides of the debate over whether proxy access is a good thing and whether its adopted formula will work. In addition, this Agenda article also touches on these points, including some of the math involved as noted in this excerpt:

Shareholder advocates had mixed reactions to the rule. While they were largely disappointed with the 3%-for-three-years restriction, they were happy to even be granted proxy access at all. It will be challenging for activist investors such as public pension funds to meet the threshold requirement, explains Amy Borrus, deputy director at the Council of Institutional Investors. However, she says she doesn't think it will be impossible. Ricardo Duran, a spokesman at Calstrs, says that while it will be difficult to meet the 3% holding for three years in the large-cap segment of its portfolio, "Calstrs officials feel that it can be achieved."

In an Aug. 12 letter to the SEC, several state pension funds illustrate the difficulties of meeting the 3% threshold, particularly with large-cap companies. The funds claim it would take 20 of the largest public pension funds that have stock in Goldman Sachs Group to hold in aggregate 2.88% of the company's securities. What's more, Calpers has released prior data showing the 10 largest public pension funds together hold less than a 2.5% stake at Bank of America, Microsoft, IBM and Exxon Mobil.

Poll: How Many Shareholders Will Try Proxy Access During the Next Year?

Please take a moment to participate in this anonymous poll regarding how many shareholders will try to use proxy access over the next year:


- Broc Romanek

September 8, 2010

Proxy Access: Will There Be a Court Fight?

This is a question that has been asked long before the SEC's recent adoption of proxy access. Media articles for quite some time have intimated that reporters were told that a court fight was inevitable if the SEC adopted access. Other recent articles have included denials that anything litigious would be in the works from the trade associations that tend to sue the SEC. This Reuters article from last week once again gives the impression that a court fight is inevitable. We shall see...

The SEC and A Very Unfortunate Leak

Here is something from Professor Jay Brown's "Race to the Bottom" Blog a little while back:

The WSJ has reported that the decision to accept the settlement in the Goldman case was only approved by a 3-2 vote. This is an outrageous leak, to the extent true. This type of information is highly confidential and ought not to leak to the press. When there were leaks that the Goldman case had been authorized by a 3-2 vote, we criticized the leak and recommended that the Commission rely more often on executive sessions. The article in the WSJ noted that the 3-2 vote occurred in a "30-minute closed-door session," an apparent reference to an executive session.

Executive sessions are closed to most of the staff and typically open only to those who are in a must know situation. Despite the precaution, the leak occurred. Given the smaller number of officials aware of what transpired at the meeting, the Agency should conduct an investigation and attempt to identify the source of the leak. Indeed, we think that is an appropriate function for the Inspector General and a better use of his time than investigating whether whether the Goldman case was politically timed.

Leaks from the SEC have become fairly common this decade for some reason. Perhaps it's a byproduct of the Internet, which makes it so much harder to lock down information. Perhaps it's because the mainstream media - as well as a slew of social media "reporters" - actively follow the SEC these days. But it is notable that the key proxy access thresholds were not leaked before that rulemaking's open Commission meeting. Pretty hard to do considering how much advance interest there was in that rulemaking...

Mailed: September-October Issue of The Corporate Executive

The September-October Issue of The Corporate Executive includes pieces on:

- A Legacy of the Bush Administration Comes to an End: Planning Now for 2011 Tax Rate Increases
- Which Tax Rates Are Really Changing (and for Whom)?
- Paying 2011 Bonuses in 2010?
- Accelerating Vesting for Restricted Stock and Unit Awards
- Section 83(b) Elections for Restricted Stock
- Possible Actions for Non-Qualified Stock Options
- Internal Pay Equity--Getting a Head Start
- Institutions and Proxy Advisors Will be Focused on Internal Pay Equity
- Respected CEOs Weighing In
- How Should Internal Pay Equity be Used by a Compensation Committee?
- What Is the Right Ratio - Why the Historical Analysis Is So Important
- Your Upcoming Proxy Disclosure - An Opportunity for the Company to Tell Its Own Story
- How to Make the Calculations - How to Craft the Proxy Disclosures

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

- Broc Romanek

September 7, 2010

FINRA Implements Electronic Process to Facilitate Timing of Corporate Financing Review

Last week, FINRA's Corporate Financing Department issued a notice that establishes a voluntary process for public offerings filed under FINRA Rule 5110 that uses a new appointment scheduling feature of their calendar program. This will enable the law firm that filed the offering on behalf of the underwriters to place the date of the anticipated pricing of an offering on the Department's calendar and to subsequently modify that information as often as necessary. This is an optional process that enhances the COBRADesk filing framework.

The process is intended to help Department Staff complete its review process and issue their "no objections" letter in a manner that meets the timing needs of each particular offering, as it is not unusual for sudden - and multiple - delays or accelerations of a pricing date. In addition, the process should facilitate communications between those making filings and the Staff rather than rely on a constant game of voicemail tag as this new process can immediately inform the Staff of any changes in the timing of an offering.

Note that once the process is first used to enter an anticipated pricing date onto the Department's calendar for an offering ("create a new pricing date notification"), any change to that date must be made using the "modification" functionality. If the modified information is entered as if it were a new pricing date notification, there will be two pricing dates on FINRA's calendar for the offering and Staff will not know which one is the latest.

CII's White Paper: Client-Directed Voting

Last week, as noted in this press release, CII posted this white paper on client-directed voting. The white paper - written by Cleary Gottlieb's Alan Beller, Janet Fisher and Rebecca Tabb "will inform the comment letter that the Council plans to submit to the SEC" on proxy plumbing - but it's an independent study and does not necessarily reflect CII's views.

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:

- One Reason to Keep Your Bar Membership Active...
- Nokia Cuts PR Wire Earnings Release to 41 Words!
- An IPO Field Guide
- Law Firms as Investment Managers? No Thanks
- What Drives Analysts Crazy? Ten Best and Worst IR Practices for Working with Sell-Side Analysts

- Broc Romanek

September 2, 2010

Federal Agency Workplace Survey: SEC's Rank Drops from 11th to 24th

The SEC's status took a hit recently in the "Best Places to Work" rankings, a survey that evaluates job satisfaction among 263,000 federal agency employees - dropping from 11th place last year to 24th this year (note the agency was 5th in '07). Here is last year's rankings; here's this year's rankings.

Here's an excerpt from yesterday's front-page Washington Post article about the new survey results:

The SEC plummeted from 11th last year to 24th. Management said frontline lawyers, accountants and examiners are still recovering from a restructuring that started last year with the appointment of Chairwoman Mary Schapiro; the replacement of about a dozen senior managers; and a turnaround in culture.

"We would have liked to see different numbers," said Jeffrey Risinger, SEC's chief human capital officer. "But we've been through a lot in the last 18 months. When you go through those kinds of efforts, communication is challenging. There are times when you don't have clear answers to communicate."

The restructuring also exposed long-standing morale problems that predated the financial crisis, including complaints about how the agency promotes and evaluates workers, said Greg Gilman, president of Chapter 293 of the National Treasury Employees Union, which represents 2,700 SEC staffers. "These issues have reached back years," Gilman said. "We feel we're now in a position to actually be able to address them."

The SEC's Union Wins Battle for Business Casual in the Field (Sometimes)

As this Washington Post article notes, the SEC's union appears to have won a months-long battle to allow Staffers in the Office of Compliance Inspections and Examinations to wear informal attire when they were in the field reviewing the operations of financial firms - so long as the attire matches that of the folks working for the firm under review (as noted in the union's newsletter, a MOU settled the union's grievance). To me, this makes sense in this day and age of comfortable living.

It's been over a decade since the SEC's employees became unionized. SEC Staffers can join if they are eligible (most supervisors are not eligible) and if they also desire to be in the union. Note it does cost something to be in the union but all employees can benefit from the union's activities. I've read the union represents 2700 employees - but I'm not sure that is the number that have actually joined the union. Here's the SEC's union site. A number of other federal agencies also have unions (in fact, the SEC's union is just a chapter in the Treasury's union).

Poll: Am I a Securities Law Geek?

Normal people spend Labor Day not laboring if they can avoid it. Unfortunately, most securities lawyers don't fall into the "normal" category, as they have been molded first by the law school experience and then the law firm culture to work as many hours as humanly possible. Take this anonymous poll to express yourself:


- Broc Romanek

September 1, 2010

A Section 21(a) Report History Lesson: SEC Issues New One Cautioning Rating Agencies

Yesterday, the SEC's Enforcement Division issued this Section 21(a) report cautioning credit rating agencies about deceptive ratings conduct and the importance of sufficient internal controls over the policies, procedures, and methodologies the firms use to determine credit ratings. Here is the related press release.

- What is a Section 21(a) Report? - The SEC uses these reports as a vehicle to signal how it views a particular problematic area or set of practices - so they are essentially policy statements. Perhaps more important, they put people on notice that going forward the SEC and it's Enforcement Division will consider similar conduct to be fair game for more conventional enforcement action.

Note that Section 21(a) reports are reports of the Commission, not its Enforcement Division. They typically follow a process similar to that of a settled administrative proceeding -- i.e., the Division recommends resolving the investigation with a 21(a) report rather than an enforcement action, and the Commission accepts or rejects the recommendation. If it accepts, it issues the report - typically drafted by Enforcement - as a Commission document.

- How often does the SEC issue a Section 21(a) Report? - The SEC doesn't issue Section 21(a) reports often (here's a list of them on the agency's site). Besides this muni pay-to-play one from this March, the Division issued this one back in 2008 to emphasize the responsibilities of all investment professionals - including large public retirement systems and other public entities - and to highlight the risks they undertake when they operate without a compliance program.

And then before that there was this Titan one in 2005 that had implications for M&A deals - and then this Motorola report in 2002, which was one of the initial foursome that kicked off a series of Reg FD actions. And then finally, this 2001 Seaboard report that outlined how companies could get credit for cooperating during investigations (a report that has since been replaced by updated Enforcement policies).

So including this new rating agency one, that's just six reports in a decade - and notably, there's been two of those just this year. And I believe this decade has produced the most Section 21(a) reports of any decade since the SEC was born...

The Challenges in Coordinating the SEC's Regional Offices

Even though the bulk of the SEC's Staff resides at its headquarters in Washington, there are 11 regional offices that carry out enforcement tasks. As noted in this Washington Post article, there appear to be problems at the SEC's Fort Worth regional office. Oversight of far-flung offices from DC definitely can pose challenges, just like any other large organization. But Senator Grassley is not happy with the SEC's response to this story, as noted in this Washington Post article yesterday.

Our September Eminders is Posted!

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

- Broc Romanek