The Practical Corporate & Securities Law Blog

By Broc Romanek

Go to TheCorporateCounsel.net

 
D&O Insurance Developments

At the end of the summer, the SEC announced a policy change so that defendants who settle injunctive proceedings with the SEC - in which they neither admit nor deny the allegations - will be deemed by the SEC to admit the allegations for purposes of subsequent SEC administrative proceedings.

For TheCorporateCounsel.net members, learn how the D&O insurance industry has reacted - among other new developments in this industry - in my interview with Joseph Monteleone of The Hartford on D&O Insurance Developments.

2004 PCAOB Budget - and List of Non-Delinquent Companies

Yesterday, the PCAOB approved a $103 million budget for 2004, a 51% increase from 2003, including $26 million for information technology, $48 million for salaries and benefits, and $8.2 million for travel. Much of the increase is to add 100 new inspectors.

For the most part, the PCAOB is funded by fees charged to public companies - and the PCAOB has begun publishing a weekly list of which companies have paid their fees. It would probably be a more effective collection mechanism if the PCAOB published a list of delinquent companies. In fact, the list notes that the omission of a name does not mean that the omitted company is delinquent: "Just because an issuer does not appear on this list does not mean that the issuer has outstanding a past-due share of the accounting support fee."

No word if the novel collection mechanism of prohibiting independent auditors from issuing "clean" opinions to any clients that are delinquent in paying the PCAOB is in effect yet. Gobble, gobble!

posted by broc at 8:55 AM

 
Transcript of "Internal Controls and Attestation–The Procedural Ball of Wax"

For TheCorporateCounsel.net members, we have posted the transcript from last week's popular webcast with John Huber and Teri Iannaconi on internal controls and attestations.

Congressional Report on Mandatory Rotation of Auditors

On Friday, the GAO submitted its report to Congress (as required by SOX) regarding the potential effects of mandatory rotation of auditors. Based on surveys of large accounting firms and public companies (as well as interviews with other stakeholders), the report states that more experience with SOX reforms is needed before the full effect of SOX's requirements can be assessed - and therefore the SEC and PCAOB should monitor and evaluate the effectiveness of existing requirements.

In my mind, mandatory rotation of audit partners is what is needed (and what we now have under new SOX rules) and that rotation of the firms themselves could very well lead to more opportunities for corporate fraud as auditors will have less incentive to work hard near the end of their rotation - and not possess an abundance of knowledge about clients at the beginning of rotations.

The Debate Over Shareholder Access

Last month, Harvard Law School sponsored six panels - with very notable participants - that debated various aspects of shareholder access. Two transcripts of these debates are now available (the first three panels - and the second three panels). We have added these transcripts to our rapidly growing "Shareholder Access Portal."

Note that the SEC posted its adopting release on disclosure of nominating committees/shareholder communications late yesterday - and that I amended yesterday's blog about "effective date" issues for 9/30 companies.

NASD Proposes IPO Rules

Following up on some of the recommendations of NYSE/NASD IPO Advisory Committee issued in May, the NASD proposed rules yesterday that would:

- Require the lead managing underwriter to disclose indications of interest and final allocations to the issuer’s pricing committee;

- Prohibit acceptance of market orders to purchase IPO shares in the aftermarket for one trading day following an IPO;

- Impose procedures designed to ensure that reneged IPO allocations are not used to benefit favored clients of the underwriter;

- Require that any lock-up that applies to shares owned by the issuer’s officers and directors also applies to shares they purchase in “friends and family” programs; and

- Impose new notification requirements when underwriters waive lock-ups.

The NASD also proposed additional regulatory steps that would promote transparency in IPO pricing, such as requiring underwriters to:

- Retain an independent broker/dealer to opine that the initial IPO price range at which the offering is marketed and the final offering price are reasonable and to require that the independent broker/dealer’s opinion is disclosed in the prospectus;

- Use an auction or other system to collect indications of interest to help establish the final IPO price; or

- Include a “valuation disclosure” section in the prospectus with information about how the managing underwriter and issuer arrived at the initial price range and final IPO price, such as the issuer’s one-year projected earnings or P/E ratios and share price information of comparable companies.
posted by broc at 8:45 AM

 
SEC Staff as Referee for Opt-In Proposals

At the ASCS Issues Update conference last Thursday, Corp Fin Director Alan Beller talked about the need for the SEC staff to act as referee for the "opt-in" shareholder proposals that companies are receiving now ("opt-in" proposals are those that act as a trigger under the SEC's proposed shareholder access framework - i.e. submitted by a 1% shareholder and asking shareholders whether they want a shareholder nominee to be added to the ballot the following year).

Alan was uncertain when the staff would provide written guidance in this area (my guess is it will come through no-action letter responses) and pointed out that the staff could act as referee at 3 different points in time: when a company receives a proposal, when the company delivers proxy materials, and when shareholders vote. It did not appear that Alan was too concerned about the ABA's assertion that the SEC doesn't have the authority to retroactively apply triggering events that occur before a proposal is finalized.

By the way, Alan did confirm that the newly adopted disclosure rules on nominating committees/shareholder communications would indeed apply to 9/30 companies - in fact, the adopting release just came out and states that the rule is effective January 1, 2004, and that the disclosures will apply to proxy or information statements that are first sent or given to security holders on - or after - January 1, 2004. The disclosures will apply to 10-Qs and 10-Ks for the first reporting period ending after January 1, 2004.

Senate Bill Seeks to Expense Options Only for Top 5 Officers

On November 19, a bipartisan group of senators - Senators Mike Enzi (R-Wyo.), Harry Reid (D-Nev.), John Ensign (R-Nev.), Barbara Boxer (D-Calif.) and George Allen (R-Va.) - introduced a bill that would require that a company expense the options of only the CEO and the next four most highly compensated executive officers. The stated purpose of the bill was to be a compromise aimed at convincing the FASB to back down from making companies expense all options.

Wanna See Something Cool?

If so, you gotta check out these photographs of the universe taken by the Hubble telescope.


posted by broc at 9:22 AM