TheCorporateCounsel.net

Marty Dunn, the Deputy Director (Legal) of Corp Fin, has deservedly been named Acting Director to head up Corp Fin now that Alan Beller has left and before John White assumes the directorship on March 20th. Marty has been with Corp Fin since 1988.

Notes from the SEC’s Small Business Advisory Committee Meeting

I blogged last week briefly about the SEC’s Small Business Advisory Committee latest meeting. Here are more extensive notes about the meeting from FEI’s “Section 404 Blog,” which are partially repeated below:

“The SEC Advisory Committee on Smaller Public Companies (SEC ACSPC) voted unamimously at its public meeting to release for public comment its Exposure Draft (ED) of what will ultimately be its “Final Report” to the SEC. The ED contains over 30 recommendations regarding improving regulation of smaller public companies, and and is expected to be formally released for public comment by Feb. 24 or shortly therafter. There will be a 30 day comment period on the ED. A summary of what is expected to be in the ED, based on a “draft of the ED” posted on the SEC’s website for informational purposes as of Feb. 14, 2006, is available here.

Among the most controversial, if not the most controversial, of the SEC ACSPC’s recommendations, concerns its recommendation to exempt microcaps and smallcaps from certain provisions of Section 404. The size threshholds the SEC ACSPC proposes to use to define “microcap” and “smallcap” companies generally are :

– under $128 million market cap for microcaps, and
– between $128 million and $787 million for “smallcaps”.

For puposes of the Section 404 exemptions specifically, the SEC ACSPC adds an additonal metric relating to revenue to determine which companies would be exempted under Section 404:

– microcaps (as defined above) with less than $125 million revenue, and
– smallcaps (as defined above) with less than $10 million revenue.

Additionally, smallcaps (as defined above) with more than $10 million in revenue, but less than $250 million in revenue, would be exempt from the auditor attestation portion of Section 404 only [Section 404(b)] but not from the management report requirment under Section 404 [Section 404(a)].

Further, the SEC ACSPC recommends that if the SEC decides not to offer such exemptions, that the SEC ask the PCAOB to issue a more “cost-effective” version of an auditing standard, referred to generically as “ASX,” which the SEC ACSPC recommends to be scoped more narrowly than the current auditing standard (AS2). ASX is proposed to encompass: “an audit of the design and implementation of internal control over financial reporting.”

Also, the SEC ACSPC recommends that the SEC and PCAOB provide additional guidance “to help clarify and encourage greater cost-effectiveness in the implementation of AS2.”

Although the SEC ACSPC voted unanimously to release the ED for public comment, some dissenting views were voiced, particularly with respect to the Section 404 related recommendations, and dissenting views submited by SEC ACSPC members prior to Feb. 23 will be included in the ED, said SEC ACSPC co-chair Herb Wander at the Feb. 21 meeting. Among those expressing dissenting views on the Section 404 exemptions were Mark Jensen of Deloitte, John Veihmeyer of KPMG, and Kurt Schacht of CFA Institute. (Info on members of the SEC ACSPC is available here.)

One SEC ACSPC member from a smaller bank expressed frustration at the dissent of the members of Big 4 accounting firms, noting the perception that Big 4 firms had abandoned smaller companies under the pressure to complete 404 audits for larger companies, noting some referred to the Sarbanes-Oxley Act as the ‘full employment act for auditors.'”

The “Sith Lord” Analyst Conference Call

I’m just loosely following the battle between Overstock.com’s CEO Patrick Byrne and those that he alleges are conspiring against the company (a short-selling hedge fund, an independent research firm and others – here are the pleadings in that lawsuit), but I found this Joe Nocera column in Saturday’s NY Times about the “Sith Lord” analyst conference call to be quite amusing (you need to provide your email address to access an archive of that call). Here is an excerpt from that column:

“If you know anything about Patrick Byrne, it’s probably his famous “Sith Lord” conference call. Held last summer, it was an hourlong monologue during which Mr. Byrne laid out a vast, overarching conspiracy, made up of dozens of Wall Street players — including the New York attorney general, Eliot Spitzer! — all under the thumb of an mysterious puppet master, whom Mr. Byrne labeled the Sith Lord. He titled the conspiracy “The Miscreants’ Ball,” an obvious reference to Michael Milken’s old Predators’ Ball.

Although Mr. Byrne told me that his Sith Lord speech ranked among “the 10 proudest moments of my life,” most people, including me, thought it was loony beyond belief. Roddy Boyd of The New York Post recalled hearing about it from someone on Wall Street. “When he described it, I thought he was embellishing,” Mr. Boyd said. But when he listened to the replay, ‘my jaw dropped — you cannot make up what occurred on that phone call.'”