The Practical Corporate & Securities Law Blog

By Broc Romanek

Go to TheCorporateCounsel.net

 
The Grasso Complaint

Due to popular demand, we have posted a copy of the complaint filed by Spitzer against Grasso, Ken Langone and the NYSE in NY's Supreme Court as an "Alert" on our home page.

Real-Time Disclosure Transcript is Up!

We have posted the transcript from last week's timely - and wildly popular - webcast on "Overcoming the Challenges of Real-Time Disclosure."

M&A Diligence

In my interview with David Thornquist on Electronic Due Diligence in M&A, David explains why reviewing the electronic records of a target before buying it should become a standard due diligence practice.
posted by broc at 6:03 AM

 
June E-Minders is Up!

We have posted the June E-Minders a little early due to Memorial Day. Check it out!

Compensation Committee Chairs, Watch Out!

The upcoming legal battle over Dick Grasso's pay package highlights the risks now faced by comp committee members as the NYSE comp committee chair was also named as a defendant in Spitzer's lawsuit.

Unlike audit committees, comp committees do not have many prescribed rules and regulations about how to perform their jobs. The upcoming May-June issue of The Corporate Counsel, due out in a few weeks, will provide a 12 Step program for responsible compensation practices which might help comp committee members avoid liability. Try a no-risk trial to The Corporate Counsel now to obtain this valuable issue.


posted by broc at 6:48 AM

 
Renewed Gun-Jumping with the Return of IPOs

A few weeks ago the IPO of Salesforce.com was delayed based on a mutual agreement with Corp Fin. The company pushed back the offering after its Chairman and CEO was interviewed for a story that appeared in the New York Times on May 9th. In this interview, the CEO said that "the SEC prohibits me from making any statements that would hype my IPO," but then proceeded to discuss the software business and his competitors.

Those who practiced during the Internet boom might recall the delay of Webvan's IPO. It is clear that Corp Fin will take action if statements are made during the quiet period that are viewed as conditioning the market. Even after waiting it out, the staff often requires that a risk factor be included in the IPO prospectus regarding the potential gun-jumping violation. We have put together examples of these risk factors in our Disclosure Analysis and Samples Practice Area.

SEC Issues 10b-18 FAQs

Last week, Market Reg issued these 10b-18 FAQs. I was waiting to blog about it until I uncovered why it states "modified on May 18th" on the bottom - but I found out that is meaningless. That date is the original issuance date.
posted by broc at 6:25 AM

 
More on Third-Party Liability

Continuing my train of thought from Friday's blog, look at this 8-K filed by PepsiCo on April 30th under Item 5 that contains a press release announcing that its Frito-Lay subsidiary had received a Wells letter from the SEC alleging involvement by a non-executive employee with documents supposedly used by Kmart in allegedly improper accounting. The SEC claims that a non-executive employee at Pepsi and another at Frito-Lay signed documents in early 2001 prepared by Kmart acknowledging payments in the amount of $3.0 million from Pepsi and $2.8 million from Frito-Lay. Kmart allegedly used these documents to improperly record the timing of revenue from these businesses. There is no claim that Pepsi's management was involved nor that Pepsi engaged in any improper accounting.

This development lends more credence to the view that third-party liability is an increasingly important topic for the SEC's enforcement staff, particularly in the food and grocery industries.

Other companies have filed 8-Ks regarding Wells notices and third-parties. For example, back on January 8th, IBM filed a 8-K regarding a Wells notice it received regarding Dollar General Corporation, a customer of IBM's point-of-sale products. The SEC believes IBM may have aided and abetted Dollar General when it misstated financial results in the fourth fiscal quarter of 2000. The questionable ransaction concerned IBM's payment of $11 million to Dollar General for used equipment as part of a sale of IBM replacement equipment. IBM disclosed that one of its employees also received a Wells notice.

For those that are not steeped in enforcement matters, the SEC sends a Wells notice to a company or an individual after its staff has completed an investigation and determined that sufficient wrongdoing has occurred to warrant charges to be filed. Under the SEC's procedures, the recipient then has the opportunity to respond to the staff before it makes a recommendation to the Commissioners regarding whether any formal action should be brought against the recipient.

Learn more about the enforcement process - including when disclosure about an investigation is necessary - in our FAQs posted in the SEC Enforcement Practice Area.

Carl Speaks on Shareholders Agreements

Don't forget to check out the May installment of Carl's Corner, where Carl Schneider discusses shareholder agreements.
posted by broc at 6:45 AM