TheCorporateCounsel.net

April 4, 2005

404 Grouchiness?

As I dig out from under after 4 days at the ABA’s Spring Meeting in Nashville, I chuckled at the WSJ article on Friday which noted this excerpt from Monarch Casino’s 10-K (emphasis added by me):

“There has been no change in our internal controls over financial reporting during the year ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reports.

We are in the process of our compliance efforts mandated by Section 404 of the Sarbanes-Oxley Act of 2002. As we have done our due diligence in trying to understand the requirements and corresponding work necessary to successfully document our system of internal controls to the standards and satisfaction of third parties, we have encountered egregious estimates of time, dollars, outside consultant fees, and volumes of paperwork. As our implementation has progressed, we have yet to realize any control, operations or governance improvements or benefits. Additionally, and most importantly, the estimated potential cost to our shareholders in relation to the benefits, or even potential benefits, is unconscionable. We believe that these additional costs and expenses will merely confirm the existence of an already effective and functioning control system that already conforms with a recognized system of internal controls.

Although we intend to diligently pursue implementation and compliance with the Section 404 requirements, we do not believe it is in our shareholders’ best interests to incur unnecessary outsized costs in this effort. As we are a single location company with an extremely involved, hands-on senior management group in a highly regulated industry with significant insider ownership, the potential benefits to be derived from the Section 404 requirements are believed to be minimal. Consequently, we will make every effort internally to comply with the Section 404 requirements but will minimize what we believe to be the unreasonable and unnecessary expense of retaining outside third parties to assist in this effort.

As a result of this cautioned approach and the complexity of compliance, there is a risk that, notwithstanding the best efforts of our management group, we may fail to adopt sufficient internal controls over financial reporting that are in compliance with the Section 404 requirements.”

Wonder if these issues will be addressed at the SEC’s 404 Roundtable next week…

Corp Fin Updates “Current Accounting and Disclosure Issues” Outline

Even though dated March 4th, Corp Fin posted last week an updated version of its “Current Accounting and Disclosure Issues” outline. Note that its Table of Contents – pages 1-4 – indicate which sections are “Revised” and which are “New.”

AFSCME Loses Lawsuit Against AIG Over Proxy Access

As reported by ISS, the American Federation of State, County and Municipal Employees (known as “ASFCME”) sued AIG on February 25th in a New York City federal court after the SEC Staff advised AIG on February 14th that it could omit a binding shareholder proposal that seeks to amend the company’s bylaws to allow shareholders to nominate directors. Here is ASFCME’s press release on the lawsuit.

On March 22nd, ISS reported that the federal judge had dismissed the lawsuit. As you might recall, before this AIG no-action response, Corp Fin had already permitted the exclusion of similar proposals at Walt Disney, Halliburton, Qwest Communications and Verizon over the past two proxy seasons. It’s pretty rare for lawsuits to be filed over Rule 14a-8 actions by the SEC.