TheCorporateCounsel.net

Yesterday’s conviction of Enron’s former CEO and CFO was greeted with the fanfare of The Wizard of Oz – and rightfully so given the symbol they have come to represent. I shudder to think if they had been found innocent as investors might have pushed Congress into creating Sarbanes-Oxley II. Of course, we still need to weather the appeals process for Skilling and Lay…

The NY Times has this nice count-by-count explanation of the verdicts. And FEI’s “Section 404 Blog” has links to all the articles, charts and remarks that I would have done – including this cool USA Today chart about the verdicts – so I point you there if you have an unfathomable appetite for more news about the convictions.

More on Vonage’s FWPs and Rule 134 Communications

After I blogged about Vonage’s unique use of a blast voicemail on Tuesday, the company filed an amended registration statement with this new statement under “Directed Share Program” on page 140:

“Our initial email communication to prospective participants in the Vonage Customer Directed Share Program and the first page of the website identified above (from which a reader could access a detailed “frequently asked questions” section about the Vonage Customer Directed Share Program) did not include an active hyperlink to the prospectus contained in our most recently filed registration statement relating to this offering as required pursuant to Rule 433 under the Securities Act. The email communication and the information on the first page of the website therefore might be viewed as not having been preceded or accompanied by a prospectus meeting the requirements of the Securities Act. As a result, it is possible that the e-mail communication and the first page of the website could be determined to be an illegal offer in violation of Section 5 of the Securities Act, in which case recipients could seek to recover damages or seek to require us to repurchase their shares at the IPO price.

In addition, our initial voicemail communication to prospective Vonage Customer Directed Share Program participants, which communication may contain only limited information pursuant to Rule 134 under the Securities Act, included the Internet address at which prospective participants could obtain additional information about the Vonage Customer Directed Share Program, including a copy of the prospectus contained in our most recently filed registration statement relating to this offering. However, the voicemail did not include the name and address of a person from whom such a prospectus could be obtained. The inclusion of the Internet address in the voicemail might be viewed as incorporating into the voicemail information that is beyond the scope permissible under Rule 134. In addition, the omission of the name and address of a contact person means that the voice mail would not be entitled to the “safe-harbor” provided by Rule 134. As a result, it is possible that the voicemail could be determined to be an illegal offer in violation of Section 5 of the Securities Act, in which case recipients could seek to recover damages or seek to require us to repurchase their shares at the IPO price.

We believe we would have meritorious defenses to any legal actions based on claims of alleged defects in the email, website or voicemail. The website through which the Vonage Customer Directed Share Program is being conducted requires each prospective investor to open an electronic copy of a prospectus meeting the requirements of the Securities Act prior to making a conditional offer to purchase shares of our common stock. It is, therefore, impossible for someone to place an order (or to open an account to do so) in the Vonage Customer Directed Share Program without first having received a copy of the required prospectus. As a result, we believe that the risks to us relating to any such potential claims are not significant.”

FASB’s New Standard: Accounting For Uncertain Tax Deductions, Etc.

Recently, the FASB adopted a new standard that will require companies to disclose additional quantitative and qualitative information in their financials about uncertain tax positions. A final Interpretation reflecting these decisions are expected to be issued in June and would take effect in 2007.

As noted in this KPMG report (posted in our “Contingencies” Practice Area), the FASB initially proposed that a company would have to conclude it was “probable” (ie. likely to be able to sustain an uncertain tax position such as for an aggressive position on intercompany pricing or an aggressive tax deduction) if it was calculating its income taxes for its financial statements on that basis. At its May 10th meeting, the FASB has decided to lower the threshold required to recognize a financial statment benefit for a position taken for tax return purposes from ‘probable’ that the position will be sustained, as the exposure draft proposed, to a ‘more-likely-than-not’ that the position will be sustained.

This issue arose when two of the Big Four firms used the higher standard and the other two used the lower standard. The SEC Staff weighed in with a statement that the threshold under current accounting guidance should be the higher standard. The lower “more-likely’than-not” standard is effectively a standard that says there is a 51% or better chance the tax position will be sustained; the “probable” standard would have required companies to conclude it was a significantly higher chance they would be able to sustain an aggressive tax position before they could have used it to report their taxes for financial statement purposes.

Now all of the Big Four auditors, as well as other firms, will be using the new lower standard when it is officially issued. The FASB also decided to require further disclosure in connection with the relaxed threshold.