On Thursday, a final interagency advisory was collectively issued – by the Treasury Department, Fed Reserve, FDIC, OTS, OCC and NCUA – to inform financial institutions’ boards and senior managers that they should not execute agreements that incorporate unsafe and unsound limitation of liability provisions in their engagements with independent auditors, including:
– The final advisory applies to all audits of financial institutions, regardless of their size, whether they are public or not, and whether the audits are required or voluntary.
– Limitation of liability provisions may weaken an external auditor’s objectivity, impartiality and performance and, thus, reduce the regulatory agencies’ ability to rely on the external audit.
– Limitation of liability provisions may not be consistent with the auditor independence standards of the SEC, PCAOB, and AICPA.
– The inclusion of limitation of liability provisions in external audit engagement letters and other agreements that are inconsistent with the final advisory will generally be considered an unsafe and unsound practice.
Coincidentally, this advisory came out on the same day that the PCAOB Standing Advisory Group debated this topic. I missed the PCAOB’s meeting (and just don’t have the stamina to listen to the meeting’s audio archive after hosting so many webcasts myself over the past few weeks). If you listened, can you let me know if any interesting tidbits came out of it?
Perhaps Exxon Really Needs Stock Options
For a relatively unique view on the state of stock options – at least unique at this point in time – check out Floyd Norris’ column in Friday’s NY Times. Floyd does a great job of making his point that moving away from options and blindly granting restricted stock for well-established companies might be a mistake.
I also liked this quote: “The lesson here may be that while it is a good idea to keep executives from taking the money and running, it is also a good idea to assure they really care whether the stock rises.” The bottom line is that each company has its own circumstances to consider and all companies should not seek to move as a herd. Performance-based options are one of the many choices to go forward with, and given that most of Western Europe would rarely think of using anything else, it is probably time that US practices caught up.
Want to Know What Your House is Worth?
If you are sitting in a pile of snow like me and looking for a lighter moment, go to Zillow.com to review a scary amount of data about your home. It was freaky to see an aerial view of my house pop up instantly on the site – but this beta site also produced an error of over 400% regarding my property taxes. All in all, a solid reminder of just how little privacy we have left…
From Saturday’s NY Times comes this blurb below illustrating why care should be taken to disclose all executive compensation in your proxy disclosures (as the SEC Staff has been urging since Corp Fin Director Alan Beller’s speech at our 1st Annual Executive Compensation Conference). The point being – what will be your board’s reaction to your disclosure being criticized in the media?
“In a federal filing last week, Wachovia disclosed what Wallace D. Malone Jr., the former chief executive of SouthTrust Bank — which Wachovia bought in November 2004 — would receive now that he is retired. At first glance, the payout appeared to be worth some $135 million.
Omitted from the filing were two figures that bring that number up considerably. The first is about $54 million worth of Wachovia shares held in a 401(k) for Mr. Malone; the company put them in a paragraph headed ‘miscellaneous.’ And $8.5 million in accelerated stock options granted in 2005 were disclosed in similarly vague terms.
Mary Eshet, a spokeswoman, said the 401(k) benefit, which the company contributed to, was ‘personal retirement savings — the same benefit available to all employees — and it is not customary to disclose that type of benefit in a filing.’ She said the $8.5 million was not disclosed because it was immaterial.
Brian Foley, a compensation specialist in White Plains who uncovered these omissions, found them intriguing. ‘In whose world,’ he asked, ‘are an ex-executive’s $54 million 401(k) benefit and $8.5 million in options not worth quantifying?'”
If the SEC’s proposals are adopted, we can assume that Mr. Malone will show up next year as one of the departed NEOs for whom disclosure will be required – because his severance will go into the “All Other Compensation Column” and on a total compensation comparison, would put him in the top five. If adopted as proposed, the new rules nearly guarantee that any executive – not just the CEO – who leaves during the year with a large severance package is going to wind up in the following year’s “Summary Compensation Table.”
Transcript Posted: Underwriting Agreements/Opinions After the ’33 Act Reform
We have posted the transcript for last week’s popular webcast: “Underwriting Agreements and Legal Opinions After the ’33 Act Reform.”
Pardon the Johnny Carson reference (I’m reading a new Ed McMahon book) – but it seems appropriate given the exciting news that Chairman Cox has lured Cravath Partner John White to serve as the next Director for the SEC’s Division of Corporation Finance.
That is quite a “catch” as John has over 30 years of Wall Street experience and is respected so much by the bar (and is quite well-versed in accounting issues). John starts work on March 20th. Here is the related press release.
Applicability of SOX’s Whistleblower Law Overseas
Following up on Monday’s blog, in this podcast, Carrie Wofford and Tom White of Wilmer Cutler Pickering Hale and Dorr, address an important decision – in Carnero v. Boston Scientific Corp. – about the Sarbanes-Oxley whistleblower laws, including:
– Tell us about the new decision on Sarbanes-Oxley whistleblowers? Why is this issue such a hot one?
– Does this decision mean that companies’ overseas offices can relax?
– Does this decision mean that U.S. regulators cannot now reach companies that retaliate against whistleblowers in foreign offices?
– Is this ruling likely to be reiterated by other circuits and DOL judges?
– Does the ruling create problems for companies in term of compliance training if foreign-based workers don’t have the same protections that domestic workers get?
California Fairness Hearings and Reverse Mergers with Shell Companies
I’ve never been able to figure out why an operating company would want to engage in a reverse merger with a shell company. It always seems that the operating company gets all of the costs, headaches and liability of being public, without gaining a truly liquid market for its securities.
Nonetheless, the shell company industry somehow seems to continue, if not thrive – even though the regulators don’t like it. Last summer, the SEC adopted rules regarding the use of Form S-8 by shell companies and Form 8-K in transactions in which shell companies cease to be shell companies.
Now, the California Commissioner of Corporations has followed up with a release that essentially closes the door on the use of fairness hearings in California for shell company reverse mergers. California is one of the few states that authorizes fairness hearings (ie. in Cal. Corp. Code Section 25142). The main attraction of the fairness hearing process is the availability of the exemption under Section 3(a)(10) of the Securities Act (for the SEC Staff’s views on Section 3(a)(10), see Staff Legal Bulletin 3R).
Lately, the fairness hearing process has been widely used by public companies to acquire privately-held companies. Companies that have used the fairness hearing process include Cisco Systems, E-Bay and Boston Scientific. By using the fairness hearing process, a company can save hundreds of thousands of dollars. The California Department of Corporations reports that the market value of the securities covered by fairness hearing applications totaled over $40 billion for the period covering the 1998-2005 fiscal years. In the most recently completed fiscal year, the market value was over $3 billion.
Yesterday, the SEC posted a release with technical amendments to its ’33 Act reform. The release contains four corrections, including applying the Item 512(h) indemnification statement to automatically effective shelfs (as had been previously noted over a month ago in our Q&A Forum). Look for some big Corp Fin news today…
SEC Approves PCAOB Auditing Standard No. 4
Yesterday, the PCAOB posted the SEC order approving Auditing Standard No. 4 regarding reporting on whether a previously-reported material weakness continues to exist. This PCAOB proposal had been languishing since last Spring.
On page 4 of the order, the PCAOB is directed to publish a “clear and concise outline of the affirmative audit steps set forth in the standard” within 90 days. So more to come here.
Sarbanes-Oxley Under Attack
Yesterday, the Free Enterprise Fund and and Beckstead & Watts filed a federal lawsuit in Washington DC against the Public Company Accounting Oversight Board and the four Board members in their official capacity. The lawsuit challenges Sections 101-109 of Sarbanes-Oxley, with the central argument being that the mere existence of the PCAOB – and the manner in which Board members are appointed and the PCAOB exercises its authority and is overseen by the SEC – violates the Appointments Clause of the U.S. Constitution (ie. Article II, Section 2). Another argument made is that these circumstances cause a violation of the “separation of powers” doctrine in the Constitution.
Since Sarbanes-Oxley lacks a “severability” clause, the entire law could be held unconstitutional if even one part of the Act is found to be a violation. Here is a copy of the complaint and a related white paper.
Congress could step in and pass a technical amendment to fix the alleged appointments violation – but there are many clamoring for a repeal/modification of other sections of Sarbanes-Oxley that might cause Congress to take a deeper look. This is what is urged by today’s opinion column in the WSJ.
I think a more realistic expectation is reflected by the statement in this other WSJ article: “With members of Congress facing re-election in 10 months, it is unlikely that Republican lawmakers will try to gut legislation designed to restore consumer confidence in Wall Street.”
How to Trade Restricted Securities
Last October, I blogged about a new network that allows for trading in restricted securities. In this podcast, Brad Monks, President of Restricted Stock Partners, explains how the Restricted Stock Trading Network operates, including:
– What is the RST Network?
– Who is using the Network so far?
– From a legal perspective, what’s the applicable ’33 Act exemption (Section 4(1 1/2)?) that users rely on?
– In your experience so far, do transfer agents require a legal opinion for each trade since the shares will be legended?
– What other questions are people asking?
According to this article, the Bush administration is requesting $906 million for 2007, or about 2% more for the SEC compared to last year. Believe it or not, this is one of the largest increases for a federal agency in a tight budget year. Here are the SEC’s budget request highlights:
– $328 million for Enforcement, a 2% increase
– $101 million for Corp Fin, a 1% increase
– $50 million for Market Reg, flat from last year
– $54 million for Investment Management, a 1% decrease
– $215 million for OCIE, a 1.5% increase (can you believe that OCIE didn’t exist 10 years ago? now it is bigger than Corp Fin, Market Reg and IM combined!)
– An extra $15.3 million to improve technology (eg. implement XBRL and a new case-tracking system)
If you are looking for a job at the SEC, be prepared to be disappointed as this year’s budget is extremely tight, mainly due to last year’s overruns – and next year’s budget envisions a shrinking workforce, providing for a total of 3,685 employees (a decrease of 79 from this year).
The Challenges of EDGAR Searches (and Labeling)
As many of you know, it can be quite challenging to conduct a search on EDGAR. This might start changing; as of yesterday, the SEC now requires each mutual fund to have its own distinct alphanumeric identification, which will help investors searching for information about funds on Edgar (as noted in yesterday’s WSJ article).
Now that the SEC has acknowledged that investors should look to the Web to access corporate information – and in light of the SEC’s e-proxy proposal – I say it’s “high” time that searches be simplified for operating company information too. It is frustrating to input a company’s name into the Edgar search tool and get a result of dozens (tip – using a ticker symbol is the only way to go).
But more importantly, from an investor’s perspective, we need to get away from the legal mumbo jumbo. Can we really expect retail investors to recognize a proxy statement when they see “DEF 14A”? Why not call a “10-Q” a quarterly report instead? Using plain English for labeling is a concept whose time has come.
The Bankers Speak: What to Expect in 2006
Tune in tomorrow for a DealLawyers.com webcast – “The Bankers Speak: What to Expect in 2006” – and hear a panel of bankers riff about the latest trends and developments. Please print off these course materials before the webcast starts. Try a no-risk trial to DealLawyers.com to catch this important program!
Trends of Private Companies
In this podcast, Michael Petrecca, a Partner of PricewaterhouseCoopers’ Private Company Services Group, provides some insight into what trends private companies are facing (see the results of this PwC survey), including:
– What are some of the benefits to be gained by a private company in adopting certain provisions of Sarbanes-Oxley?
– According to PwC’s “Barometer Trends” survey, adopters tend to be from larger businesses, likely as a means to better position themselves for an IPO or to be acquired by a public company. Does this mean that only larger companies should take the time and incur the cost of adopting Sarbanes-Oxley principles?
– Surveyed CEOs also reported that their companies are affected in numerous ways by regulations, with the majority saying the cost of complying with federal and state regulations has increased over the past two years. Do you believe there will be a reversal in this trend in the near future?
– How do private companies determine if the benefits of adopting the principles of Sarbanes-Oxley outweigh the costs?
– Are banks and other financial institutions—typically the primary readers of the private company financial statements—forcing their clients to assume some SOX procedures?
In her NY Times column yesterday, Gretchen Morgenson tackled the topic of pay-for-performance and how Exxon Mobil’s record earnings will undoubtably produce nice bonus windfalls for senior managers at that company.
Gretchen’s last paragraph sums up her message: “It has long been a stock market axiom that a rising tide lifts all boats. But today’s sea, alas, has become two-tiered. While a rising tide does lift shareowners’ boats, those of the me-first managers float far higher.”
For those that have watched our two Executive Compensation Conferences, you likely will be aware that we have been a little leery of the growing mantra of “pay-for-performance”; not based on principle, but because it is so difficult to establish performance measures that can’t be gamed or that directly relate to an executive’s performance.
Obviously, getting beyond a short-term stock price focus is the first step. But we have been unable to find a compensation expert that has expressed a simple-to-understand (and practical) methodology that adequately captures what investors truly are looking for – let us know if you do!
One yardstick that seems to work to address situations like Exxon-Mobil’s is to apply a consistent internal pay equity ratio—as a “governor” to address unforeseen situations. Read more about the challenges of pay-for-performance and how to implement internal pay methodologies in the summary of the “2nd Annual Executive Compensation Conference.”
Court Says SOX Whistleblower Law Doesn’t Extend Outside U.S.
On the whistleblower front, the U.S. Court of Appeals in the First Circuit recently decided – in Carnero v. Boston Scientific Corp. – that Section 806 of Sarbanes-Oxley doesn’t have “extraterritorial” effect. In so doing, the 1st Circuit became the first appellate court to weigh in on SOX’s whistleblower protections by holding that Section 806 does not extend to foreign workers employed by overseas subsidiaries of U.S. companies. We have posted a copy of the decision (and firm memos) in our “Whistleblowers” Practice Area.
This decision raises one of the more interesting statutory interpretation issues that pervades Sarbanes-Oxley. As with other sections, the 1st Circuit applies pretty well-established interpretative principles regarding Congressional intent to a statute as to which intent is often far from obvious. The extraterritoriality decision also raises issues as to where the water’s edge is located. I will be conducting a podcast about this important development soon…
Should We Merge or IPO?
If you do any venture capital work, you might be interested in the transcript from the recent DealLawyers.com webcast: “Should We Merge or IPO?”
Latest Developments on Parallel SEC and DOJ Investigations
Way back on January 25th, the WSJ ran this article on two recent cases where federal judges have taken the SEC and DOJ to task for using what the judges deemed an unfair one-two-punch approach in criminal cases. Here is an excerpt from that article:
“In Oregon this month, a judge dismissed criminal charges against three corporate executives, saying the Justice Department unconstitutionally pursued a stealth criminal investigation under the cloak of a less-threatening civil proceeding by the SEC. And in Alabama last year, a judge dismissed charges that former HealthSouth Corp. Chief Executive Richard Scrushy lied to the SEC, ruling that he should have been warned that the Justice Department already had opened a criminal investigation when the SEC questioned him. In both cases, the judges found the line between the agencies’ roles had become improperly blurred.”
This development will be discussed by four former SEC Enforcement Staffers (and one who just left the DOJ) in the March 7th webcast: “How to Handle a SEC Enforcement Inquiry Today.”
According to this Form 8-K filed yesterday, Dell has adopted the same majority vote standard as Intel (contrary to media reports that Dell took it one step further and adopted a standard under which nominees must receive favorable votes from holders of a majority of the shares entitled to vote, rather than from those that actually vote). If you read the Form 8-K – which includes Dell’s restated bylaws – you can rest assured that Dell’s standard is the same as Intel’s (except that Intel solves the holdover problem in their restated bylaws; Dell accomplishes that in its corporate governance guidelines).
This Chicago Tribune article (and a few other media pieces) got the explanation of the standard mixed up after Dell’s initial press release jumbled the operative language. By the way, an in-house lawyer from Dell will serve on the panel for the upcoming webcast on how to implement these standards (I should be able to post the flyer for this program in the next day or so).
[Speaking of corrections: According to members more obsessed with Seinfeld than me, Kramer’s friend’s name was not Bob Sacramento as I blogged yesterday; it was “Bob Saccomanno.” Translated into Italian: “Bob Handbag.” This can be verified from the episode during which George mistakenly believes he is having a heart attack and Kramer says: “Oh yeah? My friend, Bob Saccomanno, he came in here for a hernia operation.. Oh yeah, routine surgery.. now he’s sittin’ around in a chair by a window going, “My name is Bob” .. George, whatever you do, don’t let ’em cut you. Don’t let ’em cut you.”]
SIA’s Underwriting Agreement Guidance
A number of those members that caught yesterday’s superb webcast on the latest deal conveyance, underwriting agreement and legal opinion practices have asked for a copy of the Securities Industry Association’s guidance that Jack Bostelman mentioned. We have posted those two SIA documents in the “Securities Act Reform” Practice Area. If you missed the program, the panelists had great chemistry and it was one of the best webcasts I have heard (and I have heard many) – the audio archive is now available.
Shareholders Blast Sovereign Bill Approval
As I run off this morning to teach my first governance class of the semester at George Mason, I see the title of this Associated Press article and immediately think, “how am I going to explain this to the students?”
Without knowing a whole lot about what the situation myself, the article claims that the Pennsylvania legislature is in cahoots with this year’s governance posterchild, Sovereign Bancorp, when it passed a bill on Wednesday that would forbid the removal of company directors without cause and weaken an anti-takeover law by changing rules to determine which shares count toward the 20% threshold (the Pa. Governor hasn’t yet signed the bill). Remember that the NYSE is pondering dumping the treasury stock exception due to Sovereign’s actions.
If true, so much for state regulation as noted by Peter Langerman, CEO of Franklin Mutual Advisers, Sovereign’s second-largest shareholder: “This is an extraordinary abuse of the legislative process” – and I would say that it’s ironic that this type of behavior occurs during the high-profile Enron trials.
Coming Soon: Fair Valuations Galore and Lease Accounting Overhaul
“Burger King announced today that it plans to file an IPO registration statement with the SEC in March (here is a Reuters article). According to BK’s CEO: “Our goal has always been to take Burger King public . . . . We believe the transparency and stability in ownership offered by being a public company will benefit our employees and franchisees for years to come.”
BK was purchased in 2002 from Diageo PLC by a group of private equity funds for about $1.5 billion. The funds are likely looking to partially cash out, so it will be interesting to see how many shares they sell in the deal. The timing of the IPO is probably motivated in part by the 50% increase in Wendy’s stock this past year and the strong showing of Chipotle’s recent IPO.
As for the possible Securities Act violation, section 5 of the Act prohibits offers to sell a security unless a registration statement is on file with the SEC. “Offer” is broadly defined as “every attempt or offer to dispose of, or offer to buy, a security or interest in a security for value,” and the SEC interprets this to include any publicity that contributes to conditioning the public mind or arousing public interest in the issuer or its securities. Under this definition, it looks like Burger King has made an offer. There are, however, some safe harbor rules pursuant to which a company can disclose a proposed offering without it constituting an “offer.” Rule 135, in particular, may save BK from a section 5 violation, but it depends on whether its announcement contained a required legend. Regardless, statements from BK’s CEO seem to go beyond what is allowed under Rule 135. Incidentally, new Rule 163A which establishes a bright-line exclusion from the definition of offer for communications made more than 30 days prior to filing does not appear to apply because BK’s communication references the securities offering.
In the end, does it really matter? Probably not in this situation, and the SEC recognizes this. The remedy for a slipup of this nature (assuming it is one) is typically a 30-day cooling off period between the technical violation and the SEC declaring the registration statement effective. Given BK clearly will not be in a position to go effective on its IPO registration statement within 30 days, it looks like no harm, no foul.”
I sure hope they run those BK ads during the Super Bowl where the King plunges over the goal line. I root for him every time! In the ad, the King is superimposed over the footage of Steve Young’s legendary 49-yard scramble in the 1988 NFC Divisional Playoffs against the Minnesota Vikings.
Last week, a California Senator introduced a bill that would require the affirmative vote of a majority of the shares represented and voting at a meeting (provided that the affirmative votes constitute at least a majority of a quorum). We have posted a copy of this bill in our “Majority Vote Movement” Practice Area.
Although most public companies headquartered in California are incorporated in Delaware, there are a few well-known, publicly traded California corporations, such as Apple Computer and Cisco Systems, that would be affected by this legislation if it was adopted. Keith Bishop, a former California Commissioner of Corporations, will walk us through what is happening in the Golden State during a March webcast that I am putting the final touches on (remember how the California legislature overwhelming supported a shareholder access bill in ’04, only to be vetoed by the Governor).
[In Seinfeld, remember how Kramer always talked about scams involving his friend Bob Sacramento. In all my years, I have never heard of anyone with that last name. Anyways, what did Bob look like? Find out in this Seinfeld Trivia Test.]
Majority Vote Standard: Pepco Joins Intel
Last week, I blogged about Intel’s announcement that it adopted a “majority vote” standard for director elections. Buried in this recent Form 8-K about its compensation arrangements, Pepco announces that it has followed Intel’s lead (see Item 5.03) – in fact, Pepco’s formulation of the majority vote standard looks identical to Intel’s formulation.
Blogging as an In-House Lawyer
I’m a fan of the spy genre, so it was pretty exciting to do my first “deep throat” podcast with the in-house lawyer behind the blog, WiredGC. In this podcast, John “Doe” explains what its like to blog from the in-house perspective, including:
– What led you to try blogging?
– What have been the most rewarding experiences from it?
– What is your employer’s reaction to your blogs?
– Do you think more lawyers will try it?
It could be just a rumor, but I am hearing that PricewaterhouseCoopers has broken from the Big 4 pack and is not demanding liability limits like their brethren. In our “Auditor Engagement Letters” Practice Area, we have posted a recent letter from the Investment Company Institute urging the AICPA to take a position on auditor indemnification that conforms to the SEC’s position and recommending that the SEC require that companies disclose any contractual provisions with their auditors that limit liability. The SEC’s position is embedded in Section 602.02.f.i of the SEC’s Financial Reporting Policies (which is the SEC’s guideline that prohibits companies from indemnifying their auditors – and which was reaffirmed in late ’04 as the SEC’s position in FAQ #4 of “Other Matters” as part of the SEC’s Auditor Independence FAQs).
Following up on my blog about the PCAOB’s Standing Advisory Group’s upcoming consideration of this issue, consider this useful background from Jack Ciesielski’s AAO Weblog:
“Last June, the Federal Financial Institutions Examination Council came out strongly against practically any kind of limitation on auditor responsibility through engagement letters. Their hard-line comment document is still a work in progress; no formal policy has been issued yet. When they do, it’ll affect firms that report under the auspices of the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS).
While it’s not a regulator, the Professional Ethics Executive Committee of the American Institute of CPAs also exposed a comment document regarding liability caps; in fact, they’re debating the comments received on it this afternoon and deciding to issue a decision. As you can see from the PCAOB’s backgrounder, they examined the same kinds of liability limitations as the FFIEC. With regard to many of the kinds of limitations, the two bodies were in surprising agreement. (For instance, both agreed that auditor indemnification against claims based on the audit client’s negligence would not be a good thing for auditor independence.) In other areas, the AICPA was more favorably disposed to allowing limitations while the FFIEC was not. (Example: clauses that limited punitive damages were okay with the AICPA, but not the FFIEC.)(more).”
Don’t forget to take our new survey on auditor inspection reports and engagement letters.
Ask Your Auditor about its PCAOB Inspection Report
Here is another topic that I have been blogging about for a while: how companies should endeavor to get as much information as they can from their independent auditors regarding the inspection reports issued by the PCAOB. As you might recall, companies have no right to receive the non-public sections of these reports from the PCAOB – but auditors are permitted to voluntarily share them with their clients (which has now been confirmed by the PCAOB numerous times).
At a minimum, I believe that companies should be asking auditors the following questions:
1. Do you believe that any of the issues raised in the non-public portions of the inspection report will affect our audit?
2. Can you describe generally the types of quality control criticisms contained in the non-public portions of the report?
Please let me know if there are other questions you think companies should ask – and whether your auditor was willing to respond to these questions. And don’t forget to take our new survey on auditor inspection reports and engagement letters.
Underwriting Agreements and Legal Opinions After the ’33 Act Reform
I have received some provocative questions for tomorrow’s webcast panel – “Underwriting Agreements and Legal Opinions After the ’33 Act Reform.” With ’33 Act reform still in its infancy, many are looking to Wall Street lawyers and bankers to see what procedures and practices are developing. Come find out from our expert panel!
Today’s WSJ carries this interesting article about the SEC’s proposal that would require companies to disclose any pledges of stock by named executive officers and directors. Ron Mueller notes that in his experience roughly 10% of companies now prohibit or limit the extent to which executive officers can pledge – but the remaining question is how many officers and directors actually pledge at all?
I don’t think there is any way to know how many officers pledge shares. The only situations that the lawyers hear about are those in which problems ensue (e.g., when the brokers call the shares to satisfy the pledge arrangement).