Yesterday, the SEC voted 3-2 to approve the NYSE's proposal to amend Rule 452 (and Listed Company Manual Section 402.08) to eliminate broker discretionary voting for director elections. The amendment to Rule 452 will be applicable to meetings held after January 1, 2010 (but won't apply to a meeting that was originally scheduled to be held in 2009 if adjourned to a date after January 1st).

As I've mentioned before, in my opinion, this change is the biggest of the reforms that companies face - bigger than proxy access, say-on-pay, etc. Here is the SEC's press release addressing all of its actions yesterday - and here is Chair Schapiro's opening remarks (and Commissioners Walter's statement and Aguilar's statement).

Commissioners Casey and Paredes opposed the proposal, both stating that the broker nonvote issue should be considered in the broader context of rejiggering the proxy process (read "proxy access") as well as examining more completely the impact of this change on companies. In his opening remarks, Commissioner Paredes noted they weren't alone - 93 comment letters (out of a total of 136) also urged a comprehensive review of the proxy system. They also expressed concerns that the change would disenfranchise retail holders at the expense of more control by institutional investors.

Since all the other Commissioners agreed with the importance of studying the proxy system's “plumbing,” near the end of the meeting, Chair Schapiro stated that the SEC would conduct this type of review later this year. I see roundtables in our future. If interested in reviewing "live tweets" that occurred during the meeting, see @footnoted and @simonbillenness.

Oh, boy! Check out today's front-page article from the Washington Post about how the SEC was warned in '04 by a SEC Staffer about Madoff - but yet the SEC didn't follow up. And that Staffer's boss ended up marrying Madoff's niece. The article is quite in-depth and is likely to result in more headaches for the SEC. I'll cover this more extensively next week.

The Surprise: SEC Proposes Expedited Disclosure of Voting Results

Although most of the SEC's big open Commission meeting went as telegraphed by earlier statements by the SEC Chair, there was one big surprise. The SEC proposed a new Form 8-K requirement for companies to disclose the results of a shareholder vote within four business days after the end of the meeting at which the vote was held (in contested elections, the final results would be permitted to be delayed under certain circumstances).

As I've complained before, the current disclosure standard doesn't elicit voting results for weeks - or sometimes months - after the vote, which doesn't really work in today's more competitive annual meeting environment.

Not a Surprise: SEC Proposes Say-on-Pay for TARP Recipients

Not surprisingly, the SEC also proposed rules - by a 5-0 vote - that would help implement Section 111(e) of EESA to permit an annual advisory non-binding shareholder vote on executive compensation. The SEC's proposal clarifies how these requirements apply to TARP recipients in the form of new Rule 14A-20. The SEC has already posted the proposing release for this one; could be record time for that. Here is Corp Fin's opening statement.

During the open Meeting, it was pointed out that - outside of the EESA mandate - the SEC Staff has allowed the inclusion of say-on-pay proposals. Commissioner Casey note that she only supported this proposal because it was required under EESA.

SEC Proposes Changes to Executive Compensation Disclosure Rules

No surprises here either. As expected, the SEC proposed amending Item 402 of Regulation S-K as follows (here is Corp Fin's opening statement):

- Broader CD&AS to cover risk - provide information about how a company's overall compensation policies create incentives that can affect the company’s risk – and the management of that risk, including policies for employees generally, including non-executive officers. Such disclosure would only be required if the risks arising from those compensation policies may have a material effect on the company. The SEC did not propose any requirement that would not require the disclosure of specific salaries of any individuals beyond those already required.

- Improved reporting of stock and option awards - revise way in which stock and option awards are reported in the Summary Compensation Table and Director Compensation Table so that it's based on the award's fair value on the grant date. This would reverse the December '06 "surprise."

- More disclosure about compensation consultants - in an effort to allow shareholders to evaluate potential conflicts, require disclosure about compensation consultant fees and services (and their affiliates) when they play any role in determining the amount or form of compensation for executives and directors, but only if those consultants (or their affiliates) also provide other services to the company.

In his "Proxy Disclosure Blog," Mark Borges provided in-depth analysis of the proposals yesterday.

SEC Proposes More Corporate Governance Disclosures

Finally, the SEC proposed a few governance disclosure enhancements, including revising Item 401 of Regulation S-K to require more disclosure about each director’s particular experience, attributes and skills that are appropriate for the person to serve as a director and as a member of any committee to which the person is appointed; extend the disclosure of the director's board memberships to the past 5 years; and expand disclosure of legal proceedings to the prior 10 years.

In addition, the SEC proposed requiring disclosure of why the board selected a particular management/leadership structure, particularly why the board chose to combine or separate the board chair and CEO positions. Although not proposed, the SEC's proposing release will solicit comments about whether the SEC should require disclosure about director diversity, including whether diversity is a factor considered when nominating director candidates.

- Broc Romanek

On Tuesday, the FASB released FAS No. 168, its codification of GAAP that has been long in the making and is officially launched as of today.

As Edith Orenstein notes in FEI's "Financial Reporting Blog": "FAS 168 represents the last numbered standard to be issued by FASB under the old (pre-Codification) numbering system, and amends the GAAP hierarchy to set the stage for a watershed moment - the July 1 launch of FASB’s Codification (full name: the FASB Accounting Standards Codification TM.) The Codification will supercede existing GAAP for nongovernmental entities; governmental entities will continue to follow standards issued by FASB's sister organization, the Governmental Accounting Standards Board (GASB)."

For a long time, I was miffed that the accounting standards that make up GAAP were not available for free. For us lawyers, this was akin to the SEC charging for access to its rules and regulations. About six years back, the FASB got smart and started posting its standards for free. Before then, just summaries were complimentary. (Note that a paper subscription always has - and still does - cost a fee.)

Now the FASB has done it again, charging an annual $850 subscription fee for the online "professional" edition of its codification of GAAP (a beta version was available for free during the recent verfication period). In comparison, the "Basic" version of the Codification is available at no charge (here is FASB's "Codification Resources" page). From reading the descriptions of the two, I believe lawyers can live with the Basic version since the Professional one has bells & whistles not related directly to the content of the Codification (egs. better search tool and printing ability).

It gets me nervous when a regulator sells access to its regulations, even if its just adding bells & whistles. It's a perception of transparency thing and a practice that should be prohibited. I understand that FASB is a non-profit organization and not a federal agency - but it still is a regulator by virtue of the SEC designating it as the organization responsible for setting accounting standards for public companies in the US. Let me know your thoughts (I won't post them without your consent).

NYSE Permanently Lowers Market Cap Requirement

Yesterday, the NYSE filed two rule changes with the SEC - both effective immediately - regarding its continued listing standards so that:

- In this rule filing, permanently lowered the $25 million average market capitalization requirement to $15 million (a temporary bar at the $15 million level was set to expire yesterday).

- In this rule filing, extended the temporary suspension of the $1.00 average closing price requirement until July 31st (prior suspension expired yesterday).

Our July Eminders is Posted!

We have posted the July issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

- Broc Romanek

I received quite a bit of member feedback on my recent blog regarding how Corp Fin has a challenging job analyzing the circumstances of each shareholder proposal before making an exclusion/inclusion determination. Some of the feedback was frustration with the way that the Staff sometimes splits hairs. Here is an example of one member's frustration:

I liked your note about how companies, in trying to interpret the SEC's no-action responses, can misinterpret the tea leaves. I have heard from some in-house counsel about a special meeting proposal that John Chevedden has submitted to almost two dozen companies. He has two versions (copied below), which differ only slightly in the wording - as noted by the bolded and underlined language:

1. RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call special shareowner meetings. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners but not to management and/or the board.

2. RESOLVED, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate governing document to give holders of 10% of our outstanding common stock (or the lowest percentage allowed by law above 10%) the power to call special shareowner meetings. This includes that such bylaw and/or charter text will not have any exception or exclusion conditions (to the fullest extent permitted by state law) that apply only to shareowners and meanwhile not apply to management and/or the board.

In fact, in three instances, John submitted both versions to the same company. In no-action responses to Bristol-Myers, Dow and Wyeth, the SEC Staff allowed exclusion of the "and meanwhile not" version under 14a-8(i)(3). On the other hand, the Staff inexplicably did not allow exclusion of the "but not to" version of the proposal (and rejected arguments made under (i)(2), (i)(3), and (i)(6)).

In each of the cases, it appears that the Staff's determination hinged on whether the proposal contained the "and meanwhile not" wording or the "but not to" wording. It certainly is not clear why the result would turn on that wording. None of the companies made arguments that referred to that wording - and to my eyes, they mean the same thing. It seems that you make your arguments to the SEC Staff, they ruminate on your letters in silence for a few weeks, and their unexplained answer mysteriously appears on their website. I'm not happy.

Personally, my ten cents is that during those weeks of silence, the Corp Fin Staff is in fact researching precedent and often going through a healthy internal debate on where to draw the line. It is understandable that the line drawn often is not apparent to those on the outside since the Staff's response letters don't explain the rationale for the Staff's decision - and we are not privy to the internal debate. And I note that the Staff simply doesn't have the resources to add the rationale to their responses - so that is not the answer unless Congress ponies up more funding for the agency.

Fake SEC Filings: I Felt the Love

A while back, I asked whether anyone remembered a fake filing from a few years back. In response, a horde responded - reminding me of the fake Form F-1 filed by Apollo Publication Corporation in June 2005. I was embarrassed because I had blogged about that filing myself back then - not once, but twice! Clearly, I spaced when I did my homework.

Some interesting anecdotes about the Apollo fake filing:

- It was a Form F-1, not a Form S-1 or SB-2
- The directors of the alleged company included President Bush, Alan Greenspan, Jimmy Carter, Fidel Castro and a cast of thousands.
- The SEC issued a stop order in September '05 (here is an article about that).

An Even Better Fake Filing: Vietnam War Style

One long-time member sent me this prospectus to allow investors to buy stock in the Vietnam War. I am told this was a big hit circa 1970. It is one of the true classics, particularly for those who were in the military during the Vietnam-era. Almost every sentence has a gem in it. Just check out the subtitle: "This offering involves a high degree of risk." Ain't that the truth...

- Broc Romanek

As I've spoken at a number of conferences over the past year regarding last year's "corporate use of website" guidance from the SEC, I thought a few words about creating barriers to entry on your IR web pages would be appropriate. And by "few words," I mean: "don't do it."

There is nothing more antithetical to investor relations than requiring investors to jump through unnecessary hoops in order for them to access any of the content on your IR web pages. There is no practical reason for companies to impose click-through disclaimers on their IR content any more than requiring similar disclaimers for other content on their site. Can you imagine requiring a potential customer to click on a disclaimer to get product information? It's against the general nature of the Web (ie. simple and fast navigation on the information highway) - and severely diminishes the value of your IR web pages as investors will likely go elsewhere to seek what they want.

Luckily, this is a position that the SEC appears to agree with - in its recent interpretive release, the SEC cautions that the use of disclaimers may not be effective. In particular, the SEC says that companies can't require investors to waive protections under the federal securities laws as a condition to accessing content (at least in the blog and e-forum context).

In fact, the Corp Fin Staff seems to be issuing comments to companies that have click-through disclaimers. For example, in comment #3 of this letter to West Bancorp (as part of a Form 10-K review), the Staff asks the company how the disclaimer - which required investors to agree to a general release of liability - "accords with your responsibilities under the federal securities laws."

Unfortunately, the company's response was to add a statement to the disclaimer that the agreement is not intended to limit federal securities law liability. Check out this company's IR home page - would you bother as an investor to go further? So much for having relations with investors. [Ironically, the disclaimer is all about "we provide this site 'as is' and stuff like that" - but when you click the "I Agree" button, you are told you are going to a third-party provider who hosts the company's IR web page.]

I strongly believe that the SEC needs to get into the business of imposing a few bare minimum "do's" and "don'ts" for IR web pages since it's much more likely that's where investors will obtain information about an investment today compared to reviewing SEC-filed documents. In other words, the SEC needs to help save companies from themselves...

California Bylaw Provisions May Not Offend the Right to Buy Livestock

Here's something to brighten your day from Keith Bishop: "As someone who enjoys fishing, I've been bemused by the fact I have a constitutional right to fish here in California (Art. I, Sec. 25 "The people shall have the right to fish upon and from the public lands of the State and in the waters thereof . . .").

I've been practicing corporate law in California for more than two decades and I am ashamed to admit that I've been completely ignorant of the fact that this California statute specifically prohibits the directors or stockholders of a California corporation from adopting a bylaw that would prohibit any officer, stockholder or other person connected with the corporation from buying livestock in any market in California where livestock is bought and sold. This is definitely a statute to keep in mind when drafting bylaws - especially since any attempted enforcement of the proscribed bylaw would be a misdemeanor."

First Drafts: On the Two Yard Line or Closer to Midfield?

Below is some good stuff that John Jenkins of Calfee Halter & Griswold recently blogged on the "DealLawyers.com Blog":

A few months ago, our law firm had one of its periodic training sessions for our associate attorneys. The topic for this particular session was making the transition from junior associate to seasoned business lawyer, and the presenters were two investment bankers from one of our firm’s clients.

Lawyers have an obligation to zealously represent clients and protect their legal interests in a transaction, and that may cause lawyers to butt heads with bankers from time to time. But when bankers speak about the things lawyers do that drive them nuts or impress the heck out of them, it’s worth listening to them, because I think you can pretty much count on their position being consistent with that of the typical corporate client.

After all, when it comes to what an M&A client wants to accomplish - getting the deal done as quickly and efficiently as possible - there’s nobody in the transaction whose interests are more closely aligned with the client’s than its investment banker. That’s because bankers eat what they kill: they only get paid for their efforts if the deal closes.

The bankers who spoke to our associates shared a lot of insights about good and bad lawyering, and I’ll talk about more of them in later posts, but at the very top of their list of bad habits was something that anybody who has worked on a deal has experienced - namely, receiving a first draft of a purchase agreement that is so aggressively one-sided that it’s like starting a drive from your own two yard line.

They pointed out that this bit of grandstanding usually ingratiates you to absolutely nobody, including your own client. The first draft of a deal document sets the tone for the entire transaction. When you start out with one that’s burdensome and oppressive, the recipient’s legal and financial advisors immediately let their client know that the document is over the top. That means that not only does the draft usually get flyspecked, but each succeeding draft, along with just about every request made by the other side during the course of negotiations, gets looked at with a jaundiced eye.

Instead, the bankers suggested that a more balanced first draft is a much better way to approach a deal. If you start out with a document that puts the ball on the 35 yard line, you not only create an atmosphere that suggests your side wants to do business, but ironically, you’ll probably be more successful in your efforts to win on the handful of important deal points that you’ve drafted in your favor. When it comes to doing deals, it’s usually the reasonable people who can get away with murder.

From my perspective, I’ll concede that there are circumstances where it makes sense to be pretty aggressive in documentation. For example, if you’ve got a very hot commodity or a buyer that’s drooling all over the conference room table, then a little documentary boorishness is probably in order. But most deals don’t fall into that category, and most experienced business people don’t view an acquisition or a divestiture as a zero sum game. A first draft that suggests otherwise is usually a bad idea if your client’s primary objective is to get a deal done quickly and efficiently.

- Broc Romanek

As we continue to post hordes of memos analyzing the SEC's proxy access proposal in our "Proxy Access" Practice Area, we're also are keeping an eye on the comment letters being submitted to the SEC. It's very early - so most of the comment letters so far are from individuals, including this one from a disgruntled citizen who is mad about the SEC's handling of Bernie Madoff and this one decrying the tyranny of the voting system (from Thomas Paine no less).

On a more serious note, Ning Chiu of Davis Polk notes: "One of the sleeper issues that has not been noted as much about proxy access is the impact on majority voting. If there's a shareholder nominee, then majority voting provisions default back to a plurality standard since the definition of a contest is usually phrased as having more candidates than board seats. That limits the power of "vote no" campaigns and ISS "vote no" recommendations, which had an impact on compensation matters this year. It's possible that activists and ISS would rather have threat of majority voting than a shareholder nominee on the ballot whose chances of getting elected may be slim."

Just before the SEC posted its proxy access proposing release, I noted that the month wait for the proposal was heading towards a record. [Note that 11% correctly picked "sometime this week" in my poll of predicting when the release would be out; the release came out the day following when the poll went up.]

Former Staffer Scott Taub, now with Financial Reporting Advisors, wisely responded that it wasn't even close to record "still waiting" territory. He points to the gap between the approval of the draft IFRS roadmap at an open Commission meeting (August 27th last year) and when that proposal was posted (November 14th). That wait will be hard to beat...

The Latest Compensation Disclosures: A Proxy Season Post-Mortem

We have posted the transcript from our recent CompensationStandards.com webcast: "The Latest Compensation Disclosures: A Proxy Season Post-Mortem."

No, Michael Scott Does Not Work for Us

But I wish he did. For those of you that aren't fans of the TV show - "The Office" - Michael Scott is a funny character played by Steve Carell. I do watch the show and it's good, but the reason I have bothered to blog about him is that some of our members have decided to use the names of characters from the show when they leave anonymous questions/answers in our "Q&A Forum." Here is one of the funnier notes:

I can sell you some paper, but cannot give it away. That would be stealing from my company. Instead, I'll give you a pass for a free night stay at Schrute Farms.

My superior thanks you, Dwight Schrute, Assistant Regional Manager

I just love it. Just like I love the screen names that members have used for our "Blue Justice League." My Top 5 there include: To Dye For; Tinkerbell; Clever Hans; moto moto and Professor Bertram.

As long as I'm blogging about TV shows, you need to see Tina Fey trying to get out of jury duty by pretending to be Princess Leia in this video.

- Broc Romanek

As promised by Chair Schapiro earlier this month, the SEC has calendared an open Commission meeting for next Wednesday, July 1st, where it will consider proposals related to executive compensation disclosures, TARP's say-on-pay and other corporate governance issues. It also will consider approving the NYSE's "elimination of broker non-votes for director elections" proposal. This is a biggie.

There is one curious item on the SEC's agenda - I have no idea what the second part of Item 3 relates to: "to clarify certain of the rules governing proxy solicitations." I haven’t heard anything about problems with the proxy solicitation requirements. [Note: I now understand that this relates to codification of the Amylin letters (Eastbourne Capital/Carl Icahn) letters and other "housekeeping" rules.]

Early Bird Expires Tomorrow: With the SEC's goal to have new executive compensation disclosure rules in place before next proxy season - combined with the real likelihood of say-on-pay legislation and the loss of broker nonvotes for director elections - our the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”) will be more important than ever. These Conferences will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9-10th.

Take advantage of reduced rates that will expire tomorrow, June 26th by registering now. These rates will not be extended - there will be no early bird discounts after Friday!

The SEC's Quick Response to Insider Trading Allegations: A More Restrictive Compliance Program

As media accounts continue to dribble out that damage the SEC's reputation (eg. see this recent Washington Post article regarding the Cox years), it appears that the furor over allegations over possible insider trading by SEC Staffers has died down.

One of the reasons may be the SEC's quick response - it quickly announced a series of measures that will strengthen its internal compliance program as noted in this WSJ article. More specifically, as outlined in this SEC press release, the measures include:

- New set of new internal rules governing securities transactions for all SEC employees that will require preclearance of all trades
- Prohibition on trading in securities of companies under SEC investigation regardless of whether an employee has personal knowledge of the investigation
- Contracting with an outside firm to develop a computer compliance system to track, audit and oversee employee securities transactions and elicit financial disclosure in real time
- Consolidated responsibility for securities transactions and financial disclosure reporting oversight within the SEC's Ethics Office
- Authorized the hiring of a new Chief Compliance Officer

Here is a noteworthy Washington Post article in which a SEC Staffer responds to complaints unrelated to the insider trading allegation, but which were included in the related SEC's Inspector General report .

Alleged Insider Trading: Reactions from Our Community

Since our members are closer to what happens at the SEC compared to the general public, it's worth noting some of their reactions to the insider trading allegations. I've already blogged my own thoughts in a piece entitled "My Ten Cents: What Does This Alleged Insider Trading Scandal Mean?"

And we have these poll results regarding "Should the IG's Report Have Been Made Public So Soon?":

- 54.6% said it shouldn't have been made public yet
- 34% said it should have been made public when it was
- 14.4% said the report was too long to read
- 15.5% wanted to cry
- 7.2% wanted to laugh

Here some of the member reactions that I received:

- Perhaps the SEC should do what some of the more conservative law firms do and prohibit its employees from trading in anything except index funds and ETFs? That would reduce the workload for the clearance officer and virtually eliminate any appearance of conflict. Still, if either of these people is guilty, they're just plain stupid since they of all people know how easy it is for the SEC to trace suspicious acvtivity.

- It is unclear whether the SEC Enforcement Attorneys traded on inside information or seriously violated SEC rules. However, the IG has been investigating for 15+ months and felt strong enough about the record to refer it to the US Attorney. Doesn't sound good- especially the parts about trading in stocks with potential or current investigations. I do note that the IG's last two reports to Congress mention the investigation and give identifying details.

- One person said that certain people who were familiar with the record found that the many of the questioned trades "didn't make sense." No one was happy with this reputational hit.

- These appear to be innocent (yet sloppy) transactions, not intentional fraud. One of the big problems at the SEC is that not many truly understand how the law and the financial markets work in a macro sense and how everything is connected to each other. Sure you have brillant people is specialized offices who know all about net capital rules, investment company communications or no action letters, etc... but not many who understand what really make investors, financial analyst and traders tick (can we say "Madoff"). This is not an easy thing as its takes a ton of work and reading to keep on top of things as you are aware. Thus you actually have to commend those who try to help others bridge the gap (this is how to invest in a stock, this is a bond) and who generally try to hone their skill sets.

- Didn't the SEC say they wanted to hire more financial professionals, do they expect these people to put all of their money in T-bills when they join? Unfortunately, the careers of these lawyers are probably doomed regardless of their culpability since if you did that many trades eventually you will probably run into a SEC conflict at some point, especially if you are buying financial stocks. I remember trying to pre-screen trades at the SEC many years ago; itf was essentially a broken system, so I hope that is not the reason for their predicament. Bottomline: expect future risk taking, innovation, and morale at the SEC to take a further set back.

- Broc Romanek

We just posted the "Summer '09 Issue" of InvestorRelationships.com (we are maintaining this publication as complimentary thru ’09 as a “Thank You” to our loyal members in a down economy). The "Summer '09" issue includes articles on:

- How to Monitor Shareholder Activism in a Changing World
- The Art of Handling Director Resignations: Practice Pointers
- Parsing the SEC’s Proxy Access Proposal
- My Last ExxonMobil Annual Meeting
- Online Document Sharing Services: Legal and Reputation Concerns for IROs

If you're not yet a member of InvestorRelationships.com, simply provide your contact information in this sign-up form and gain free and immediate access to the issue. If you signed up last year, your ID/password will continue to work - if you forgot what those are, you can get a reminder.

Survey Results: Schumer's "Shareholder Bill of Rights" Unpopular with Executives

Recently, the NYSE conducted a poll of its listed companies regarding Senator Schumer’s "Shareholder Bill of Rights Act of 2009." Here is a summary of the results:

- 87% oppose and 6% favor legislation that requires advisory votes on executive compensation

- 82% oppose and 7% favor legislation to require proxy access, while 76% oppose and 10% favor the proposed 1% ownership level threshold for proxy access (among those opposed, 49% oppose and 31% favor a 5% level for proxy access, 55% oppose and 27% favor a 10% level for proxy access)

- 76% oppose and 16% favor legislation that mandates separation of the CEO and Chair roles

- 90% oppose and 4% favor legislation that precludes the CEO or a former CEO from ever serving as Chairman, even after retirement as a company executive

- 63% oppose and 25% favor legislation to mandate that all directors stand for re-election each year

- 45% oppose and 43% favor legislation requiring that in uncontested elections, directors must receive a majority of votes cast

- 66% oppose and 19% favor legislation that requires companies to establish a risk committee

- 73% currently have independent directors as part of the audit committee responsible for the company’s risk management practices, while 10% have a separate committee

- 81% oppose and 4% favor the Shareholder Bill of Rights Act (51% indicated that the Act would “greatly” or “somewhat” impair the company’s position with respect to their international competitors, while 24% and 2% say it would have “no impact” or “enhance” their competitive position; 90% say the Shareholder Bill of Rights Act would “significantly” or “somewhat” increase their costs as a public company, with 3% citing no effect)

Your Vote: What are the Odds of Schumer's Bill Being Passed?

Provide your anonymous vote in this poll:

- Broc Romanek

Senator Charles Schumer's "Shareholder Bill of Rights" is not the only legislation floating around the Hills these days seeking to reform corporate governance. Here are three others:

1. "Shareholder Empowerment Act" - As Dave recently blogged about, Rep. Gary Peters introduced the "Shareholder Empowerment Act." Similar to Schumer's bill - but going further - Peters' bill would implement eight governance reforms that were highlighted in a Council of Institutional Investors letter to Congress late last year, including:

- Require majority voting for directors
- Allow long-term investors to have proxy access by nominating their own director candidates
- Eliminate uninstructed broker votes in uncontested director elections
- Require separation of board chairs and CEO positions
- Implement nonbinding annual shareholder approval of executive compensation
- Require independent compensation consultants
- Strengthen clawbacks of unearned incentive compensation
- Bar severance agreements for executives terminated for poor performance

2. "Excessive Pay Shareholder Approval Act" and "Excessive Pay Capped Deduction Act of 2009" - In May, Senator Richard Durbin introduced two bills in May aimed at curbing "excessive” compensation: the "Excessive Pay Shareholder Approval Act" (Bill S. 1006) and the "Excessive Pay Capped Deduction Act of 2009" (Bill S. 1007).

The "Excessive Pay Shareholder Approval Act" would require a supermajority vote (60%) to approve a compensation structure in which any employee is paid more than 100x more than the average employee of that company. In addition, in connection this vote, proxy disclosure would need to include:

- Compensation paid to its lowest paid employee
- Compensation paid to its highest paid employee
- Average compensation paid to all of its employees
- Number of employees who are paid more than 100x the average employee compensation
- Total compensation paid to employees who are paid more than 100x the average employee compensation

The "Excessive Pay Capped Deduction Act" would limit the federal income tax deduction for compensation paid to executives to 100x average employee compensation. Any amounts paid in excess of this cap would be considered "excessive compensation" and would be non-deductible.

In addition, any company that paid "excessive compensation" would be required to file a report with Treasury for such taxable year that included:

- Amount paid to the employee receiving the lowest amount of compensation during such year
- Amount paid to the employee receiving the highest amount of compensation during such year
- Average compensation of all of its employees during such year
- Number of employees receiving compensation that is more than 100x the average employee compensation during such year
- Amounts paid to the employees receiving compensation that is more than 100x the average employee compensation during such year

An Inspector General Report: The SEC's "Restacking Project"

At the end of last year, I blogged about how the SEC was spending $4.1 million to shuffle its personnel around physically due to bad planning when the Staff first moved into its new building a few years ago. The SEC called this it's "restacking project."

Back in March, the SEC's Inspector General, David Kotz, issued this report on how the restacking project fared. The IG initiated the review because of Staff complaints that the project was "not properly approved and initiated, did not serve a useful purpose, and was a waste of Commission resources." The report claims that 81% of the Staffers surveyed by the IG felt that the reorganization was completely unnecessary. Then SEC Chair Cox ordered a cost-benefit analysis that was never completed for the project. Not a good story.

"Cool Deal Cube Contest": We Have a Winner!

Recently, I announced a "cool deal cube contest" as part of our ongoing "Deal Cube Chronicles." John Newell of Goodwin Procter takes the prize with this cube. John notes:

Here is an old JPMorgan advertisement from the late '80s that explains this cube. In a nutshell, it is that the cube/tombstone from the "tombstone of the unknown deal." I made a joke to a senior guy at Bowne of Boston after a public deal cratered and he made a couple of these babies.

Recently, I also received this story from a member:

During a drafting session for a follow-on offering in which we were underwriters' counsel, we commented that the CFO was referred to in his bio as a certified pubic accountant. Company counsel expressed surprise because they had copied the language verbatim from the original IPO prospectus. There followed 1-1/2 seconds of uncomfortable silence, after which we flipped through a copy of the IPO prospectus and confirmed the worst.

There is some consolation in the fact that a search of the term "certified pubic" on EDGAR yields 142 hits (and counting).

- Broc Romanek

Whew, the proxy season is over. And it's now fair to ask: just how wild and crazy was this proxy season? Given all the coming reforms, probably not as crazy as next year's proxy season will be - but it certainly was't dull. You can read details about how the various proposals were supported in RiskMetrics' new "Preliminary Postseason Report."

Regarding one of the hottest topics, as of June 1, “say-on-pay” shareholder proposals averaged 46.7% support, representing an increase of over 5% from 2008. The 2009 figure is based on preliminary or final voting results for 50 of the 85 proposals voted so far this year. Meanwhile, RiskMetrics is tracking 18 majority votes in favor of the resolution as of June 1st, compared with 11 in all of 2008. Proposals at another five companies received between 49 and 49.9% support.

It's Time to Weigh In: RiskMetrics Launches Annual Policy Formulation Process

Last week, RiskMetrics kicked off its annual global policy formulation process by inviting comments in its 2010 proxy voting policy survey. This year’s policy formulation process will include more outreach to investment industry groups as well as expanded outreach to the global corporate community.

Given that these comments could influence RiskMetrics' views - and given that RiskMetrics' views will be more important than ever given regulatory reform, say-on-pay, proxy access, etc. - you should take advantage of this opportunity. The survey period ends July 31st - and will be followed by an open comment period in October after RiskMetrics publishes its draft policies. Don't wait for this 2nd comment period to weigh in - it's better to influence the policies now before the train gets rolling...

CEO Pay: Big Changes Coming

With the SEC's goal to have new executive compensation disclosure rules in place before next proxy season - combined with the real likelihood of say-on-pay legislation and the loss of broker nonvotes for director elections - our the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”) will be more important than ever. Here is the agenda.

Early Bird Expires This Friday: These Conferences will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9-10th. Take advantage of reduced rates that will expire this Friday, June 26th by registering now. These rates will not be extended - there will be no early bird discounts after Friday!

- Broc Romanek

Good news. Peter and Alan just completed the 2009 edition of their popular “Section 16 Forms & Filings Handbook,” with numerous new – and critical – samples included among the thousands of pages of samples (remember that a new version of the Handbook comes along every 3 years or so - so those with the last edition have one that is dated). If you don’t try a ’09 no-risk trial to the “Romeo & Dye Section 16 Annual Service,” we will not be able to mail this invaluable resource to you in early July when it’s done being printed.

You can use this order form or order online. The Annual Service not only includes the “Forms & Filings Handbook,” it also includes the popular “Section 16 Deskbook” and the quarterly newsletter, “Section 16 Updates.” Get all three of these publications when you try a ‘09 no-risk trial to the "Romeo & Dye Section 16 Annual Service" now.

A Father's Day Item: Becoming a "DAD"

From Keith Bishop: Are you, or would you like to become, a DAD? Pink OTC Markets provides an over-the-counter quotation system that is comprised of the OTCQX and Pink Sheets. These are not exchanges and the Pink OTC Markets is not a securities regulator or self regulatory organization.

A company that applies for admission to the OTCQX must have a "Designated Advisor for Disclosure" or otherwise known as "DAD." A DAD may be either an attorney or an investment banking firm. According to the OTCQX rules: "The role of a DAD is to serve as a cautious and conscientious gatekeeper to prevent companies with inadequate questionable disclosure from joining OTCQX." The OTCQX website currently lists a dozen attorney DADs.

By the way, I've heard that one investment banking firm was quoting a price of $90,000 to be a DAD. I must be living my life in reverse because all I do is write checks for my kids - no one is paying me to be a dad.

What Does a Spoofed Email Look Like?

Last week, Dave blogged about the email sent from a SEC attorney's email account - even though she didn't send the email (otherwise known as "spoofing"). As this episode illustrates, this fraudulent act isn't like someone stealing your credit card. Spoofing is more than a mere hassle, it can injure your reputation even if uncovered. Here is a copy of the spoofed email so you can see how crazy it was.

I rehash this incident because spoofing isn't limited to email, it now happens on Twitter and other new mediums. Companies need to be monitoring these new forms of media and not just stick their heads in the sand because they are new...

I play a lot of "old man" hoops (and I'm not that shabby), so I was excited to see this ESPN article about how President Obama has shaken up the love for basketball in the DC area.

- Broc Romanek

Yesterday, the Treasury Department released the final version of the White Paper that Dave blogged about yesterday. In addition, this executive summary was posted. We already have started posting memos on this important development in our "Regulatory Reform" Practice Area.

For a short glossary of the 75+ acronyms in the White Paper, check out Mike O'Sullivan's "Provided However" Blog.

Microsoft's Legal Department Enters the Blogosphere

Several months ago, Microsoft launched a new blog - entitled "Microsoft On The Issues" - that includes the company's "Law and Corporate Affairs" department among the contributors. The company uses the blog as a forum to communicate about issues important to it. For example, here's a blog about how the company's board recently recommended amendments to the company's articles of incorporation that would give shareholders representing 25% or more of outstanding shares the right to call special shareholder meetings.

Hopefully this development will help nudge companies to be more outspoken, including submitting comments during the SEC's rulemaking process - as well as draw outside counsel into the blogosphere. If in-house lawyers aren't afraid to blog, I don't see how law firms can continue to be so reluctant...

Survey Results: Compliance Committees

We recently wrapped up our Quick Survey on Compliance Committees practices. Below are our results:

1. Does your company have a Chief Compliance Officer:
- Yes, and with that title - 57.8%
- Yes, but not with that title - 26.7%
- No - 15.6%

2. Does your board have a Compliance Committee, with that or a similar title:
- Yes - 31.1%
- No - 68.9%

3. If the answer to #2 is "yes," how old is the compliance committee:
- Less than one year - 14.3%
- 1-2 years - 28.6%
- 3-4 years - 35.7%
- More than 4 years - 21.4%

4. If the answer to #2 is "yes," how often does the compliance committee meet:

- Once a year - 14.3%
- 2-3x per year - 50.0%
- More than 3x per year - 35.7%
- As needed - 0.0%

Please take a moment to participate in our new "Quick Survey on Audit Committee Oversight and Subsidiaries."

- Broc Romanek

While the official announcement of the Administration’s proposals for financial reform is slated for later today, copies of a near-final draft of the white paper outlining the proposals have already been circulating to members of Congress and to the major news organizations. Many thanks to Marty Dunn of O'Melveny & Myers for pointing this document out to me last night.

The SEC would seem to fare well under the Administration’s proposals. The white paper indicates that the SEC and the CFTC would maintain their current authorities and responsibilities as market regulators, while the statutory and regulatory frameworks for futures and securities would be harmonized. As previously discussed, the SEC would oversee the registration of advisers of all hedge funds and other private capital pools. Regulation of securitizations and over-the-counter derivatives will be accomplished through a “coherent and coordinated” regulatory framework.

Further, the white paper calls for expanded authority for the SEC to promote transparency in investor disclosures, and states that the SEC should be provided with new tools to increase fairness for investors, through the establishment of a fiduciary duty for broker-dealers offering investment advice and harmonizing the regulation of investment advisers and broker-dealers.

Among the new regulators proposed are:

- a Financial Services Oversight Council (FSOC), chaired by the Treasury and composed of prudential regulators tasked with identifying emerging systemic risks (replacing the President’s Working Group on Financial Markets);

- a National Bank Supervisor with the authority to supervise all federally chartered banks;

- an Office of National Insurance within the Treasury Department; and

- a Consumer Financial Protection Agency, tasked with protecting consumers from “unfair, deceptive and abusive practices.”

The FSOC would also establish the Financial Consumer Coordinating Council, with membership including federal and state consumer protection agencies, and a permanent role for the SEC’s newly created Investor Advisory Committee.

Seemingly back “on the front burner” with the white paper proposals is the issue of IFRS, with the report recommending that accounting standard setters “make substantial progress by the end of 2009 toward development of a single set of high quality global accounting standards."

As widely expected, the Federal Reserve would gain more authority under these proposals, including authority over "Tier 1 Financial Holding Companies" and oversight over the payment, clearing and settlement systems.

Whether any or all of these proposals move forward is tough to say at this point, but at least today we now have a much clearer picture of the complete package of reforms under consideration.

New FINRA Conflict of Interest Rules

Just in time for hopefully an uptick in offering activity, the SEC has approved changes to NASD Rule 2720, which governs underwriter conflicts of interest in public offerings. These changes are meant to modernize and simplify the conflict of interest requirements, and provide some additional flexibility in connection with public offerings. The amendments to Rule 2720 will be implemented within 30 days after FINRA issues a Regulatory Notice (which will be issued some time within 60 days of the SEC’s approval).

Monitoring Activist Activity

During this DealLawyers.com podcast, Mary Beth Kissane of Walek Associates analyzes how companies should be monitoring shareholder activist activity, including:

- How do hedge funds have such a solid activism record?
- What should companies do to prepare for an activist attack?
- Who within the company owns the "monitoring activists" task?
- Who within the company should be dealing with the financial press?
- Who is the "financial press" these days? Bloggers included? Social media?

- Dave Lynn

Just when you thought that the Shareholder Bill of Rights Act was the only thing to worry about on the federalized corporate governance front, along comes the “Shareholder Empowerment Act of 2009.” Last Friday, Congressman Gary Peters (D-MI) announced that he had introduced the legislation, which is intended to “expand shareholder rights and give investors a greater voice in overseeing the companies they own.”

This bill is even more wide-ranging than the Shareholder Bill of Rights legislation. The bill would amend the Securities Exchange Act of 1934 to provide:

1. Mandatory majority voting for directors - The SEC would direct the exchanges to adopt listing standards providing that a director nominee in an uncontested election must receive votes in favor from a majority of shareholders, and any nominee running unopposed for re-election would be forced to resign if he or she failed to receive a majority vote.

2. Proxy access - The SEC would be required to adopt rules, applicable beginning with shareholder meetings occurring after January 1, 2010, that would require issuers to “identify and provide security holders with an opportunity to vote on candidates for the board of directors who have been nominated by holders (sic) in the aggregate at least 1 percent of the issuer’s voting securities for at least 2 years prior to a record date established by the issuer for a meeting of security holders.” The SEC’s rules adopted under this provision would specify the information to be provided and would only be applicable when less than a majority is nominated.

3. Uninstructed Broker Votes in Uncontested Elections - This provision would direct the SEC to adopt rules providing that a broker will not be allowed to vote securities in an uncontested election if the beneficial owner has not provided specific instructions. The rule would apply for meetings held on or after January 1, 2010.

4. Independent Chairman - This provision of the bill would require the SEC to direct the exchanges to adopt listing standards mandating that issuers split the Chairman and CEO roles. Further, issuers would be required to provide that, to the extent possible and consistent with the issuer’s status as a public company, the Chairman is independent (under specified standards) and has not previously served as an executive officer.

5. Shareholder Approval of Executive Compensation - This provision would give shareholders an annual, non-binding advisory vote on the compensation packages of senior executives.

6. Independent Compensation Advisers - Under this provision, the SEC would be directed to adopt rules requiring that if a board or compensation committee retains an individual advisor or advisory firm in conjunction with negotiating employment contracts or compensation agreements with the issuer's executives, the individual adviser and his or her firm must be independent, as prescribed in the bill.

7. Clawbacks of Unearned Pay - The SEC would direct the exchanges to adopt listing standards requiring issuers to have a policy for reviewing unearned bonus payments, incentive payments or equity payments awarded due to “fraud, financial results that require restatement, or some other cause.” The policy would need to require recovery or cancellation of any unearned payments “to the extent it is feasible and practical to do so.”

8. No Severance Agreements for Poor Performance - The SEC would direct the exchanges to adopt listing standards prohibiting the board or compensation committee from entering into agreements providing for severance payments for executives terminated for poor performance.

9. Disclosure of Performance Targets - The SEC would need to adopt rules requiring disclosure of specific performance targets used in compensation plans. In the course of this rulemaking, the SEC would need to “consider methods to improve disclosure in situations when it is claimed that disclosure would result in competitive harm to the issuer.” These methods might include required disclosure of past experience with similar targets, disclosure of inconsistencies between compensation targets and targets set in other contexts, and mandated confidential treatment requests.

There will no doubt be more legislative proposals of this kind. While the bills may not ultimately be adopted as proposed, they will continue to add issues to the debate over what sorts of governance reforms should go forward, and put pressure on the SEC to act with respect to its numerous outstanding rule proposals and contemplated rule proposals. Hat tip to Ted Allen's RiskMetrics Group Risk & Governance Blog for highlighting this legislation.

How to Plan for CEO (and Other Senior Manager) Succession

Tune into tomorrow's webcast - How to Plan for CEO (and Other Senior Manager) Succession - to hear Amy Goodman of Gibson Dunn; Holly Gregory of Weil Gotshal; Mark Van Clieaf of MVC Associates; and Mark Nadler of Oliver Wyman Delta talk about one of the most important - but yet the least understood - of governance areas out there.

You can review the Course Materials for this webcast now.

Don’t Sleep on the FASB Codification

The launch of the FASB Accounting Standards Codification is fast approaching on July 1, 2009. The Codification, which will serve as the single source of authoritative, non-government US GAAP, will be effective for interim and annual periods ending after September 15, 2009. Once the Codification is launched, all existing accounting standard documents are superseded, and all other accounting literature not included in the Codification will be considered "nonauthoritative." For more information, you can check out FASB’s upcoming webcast about the Codification on June 22nd.

Yesterday, the FASB announced that it had issued Statement No. 166, Accounting for Transfers of Financial Assets (which serves and an amendment to FASB Statement No. 140) and Statement No. 167, Amendments to FASB Interpretation No. 46(R). In its announcement, the FASB notes that these standards will change the way issuers account for securitizations and special-purpose entities, and will impact financial institution balance sheets beginning in 2010. It was further noted that the impact of the standards was factored in by banking regulators in the course of conducting their recent “stress tests.”

- Dave Lynn

For some time now, we have been waiting to see if the SEC would bring any insider trading actions involving the use of Rule 10b5-1 plans. Ever since the SEC Enforcement Staff first mentioned concerns with potential abuses of Rule 10b5-1 plans back in 2007, much has been made of how to avoid invalidating a Rule 10b5-1 defense (for comprehensive coverage of these issues, see our "Rule 10b5-1" Practice Area). Now, we have the SEC’s complaint against Countrywide’s former CEO Angelo Mozilo and others as a first of its kind SEC case questioning trades made under Rule 10b5-1 trading plans.

The SEC’s complaint in the Countrywide case alleges that Mozilo and two co-defendants misled investors about the problems that the mortgage lender faced, with contemporaneous e-mails painting a picture of significant internal concern over the company’s lending practices, while at the same time the company was portraying a rosy picture to the investment world. In this regard, SEC Enforcement Director Robert Khuzami, waxing poetic, called the situation “a tale of two companies” in the SEC’s press release announcing the action.

In the complaint, the SEC notes that Mozilo entered into four Rule 10b5-1 sales plans in late 2006, in each case while he was in possession of material non-public information about the mounting credit risk that Countrywide faced and the expected problems with the Countrywide-originated loans. With respect to his October 2006 sales plan, for instance, the SEC alleges that Mozilo established the plan one day before sending an e-mail to his co-defendants stating “we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales.” Over the course of the next 12 months, Mozilo exercised over 5 million options and sold the underlying shares pursuant to the Rule 10b5-1 plans, resulting in proceeds of over $139 million.

The Mozilo complaint for the most part focuses on one of the most fundamental elements for a successful Rule 10b5-1 defense – that the person entering into the plan must not be in possession of material non-public information at the time of entering into, or amending, the plan. I still get the question from time to time of whether a person can enter into a plan while in possession of material non-public information so long as trading does not commence until after the information is made public, which obviously can never work.

It will probably be some time before this case makes it to trial. It remains to be seen whether the Mozilo case is just one isolated incident of allegations involving Rule 10b5-1 plans, or whether more of its type are on the way. In any event, I think that the threat of the SEC cracking down on Rule 10b5-1 plans has in all likelihood cleaned up most abuses in this area (if there were any to start with).

In this entry from the D&O Diary blog, Kevin LaCroix provides a great explanation of why it is appropriate for Bank of America to be advancing Mozilo’s defense expenses.

Academic Research on Hedging Transactions and Abnormal Returns

As Mike Melbinger recently noted in his CompensationStandards.com blog, a recent academic study has highlighted a potential relationship between executives entering into prepaid variable forward contracts and a drop in their company’s stock price. (The study is discussed in this WSJ article). This research could potentially raise the SEC’s attention concerning these types of transactions, similar to the way that research on well-timed Rule 10b5-1 plans originally garnered the SEC’s attention on those plans. While it doesn't seem that prepaid variable forwards have been as popular as they once were, they still offer an alternative for executives to diversify and monetize a portion of their stock holdings.

The Administration's Regulatory Reform Proposals Expected This Week

In this Washington Post piece appearing today, Timothy Geithner and Lawrence Summers lay out the Administration's plans for financial reform. The piece discusses how the Administration's proposals will address five key problems. Among the solutions, Geithner and Summers indicate that the plan will call for "harmonizing the regulation of futures and securities, and for more robust safeguards of payment and settlement systems and strong oversight of 'over the counter' derivatives. All derivatives contracts will be subject to regulation, all derivatives dealers subject to supervision, and regulators will be empowered to enforce rules against manipulation and abuse."

The WSJ also reports today that announcement of "the most sweeping reorganization of financial-market supervision since the 1930s" is expected this Wednesday. [It seems that in this phase of the financial crisis and its aftermath, Wednesday is the new Sunday. It used to be last Fall that we would wait until Sunday evening before Asian markets opened to find out what major calamity had been averted or precipitated. Now, major announcements seem to be happening on Wednesdays, which takes away some of the drama but is perhaps a good sign.]

From the WSJ report, the only agency on the chopping block is the Office of Thrift Supervision - otherwise, financial regulatory authority is expected to be reallocated so as to avoid gaps in regulation. As many have expected, the Federal Reserve will garner more power under the Administration's proposal, overseeing the largest of financial institutions with enhanced authority.

It remains to be seen how quickly Congress will act on these proposals - healthcare seems to be taking center stage away from the financial crisis as signs of normalcy on the economic front have begun to emerge.

Deal Protection: The Latest Developments in an Economic Tsunami

We have posted the transcript from our recent DealLawyers.com webcast: “Deal Protection: The Latest Developments in an Economic Tsunami.”

- Dave Lynn

There is no doubt that the SEC has a laser-like focus on its investor protection mission these days. Recently, the SEC announced that it will be getting some help from a newly-established investor advisory committee. Commissioner Aguilar will serve as the Commission’s “sponsor” of the Committee, and it will be made up mostly of institutional investors and representatives of individual investor organizations.

The SEC said that the Advisory Committee’s main goals will be providing:

- advice to the Commission on areas of concern to investors;
- investors' views on “current, non-enforcement, regulatory issues;” and
- information and recommendations to the Commission regarding regulatory programs.

The SEC is free to set up these sorts of advisory committees under the Federal Advisory Committee Act (5 U.S.C. App. 2 §§ 1-16), if it can be determined that the establishment of the advisory committee is in the public interest. An advisory committee can be established (15 days after the publication of a notice in the Federal Register) by filing a charter for the committee with the Senate Committee on Banking, Housing, and Urban Affairs and with the House Committee on Financial Services. A copy of the charter is also filed with the SEC Chairman, furnished to the Library of Congress, placed in the Public Reference Room at the SEC, and posted on the SEC's site.

The charter for the committee must provide that the duties of the committee are to be solely advisory, and specify the time frame during which the committee will operate. The charter also provides that the SEC alone will make any determinations of action to be taken and policy to be expressed with respect to matters within the SEC’s authority that are recommended by the committee.

The advisory committee approach can be a useful way for the SEC to obtain a more detailed understanding of matters without expending scarce Staff resources. In my view, they seem to work best when they operate relatively independently and their specific agenda is not more or less directed by the SEC.

More on the "Shareholder Bill of Rights Act"

Broc has blogged about Senator Schumer's bill and we have posted memos analyzing it in our "Regulatory Reform" Practice Area. Now, in this podcast, Colin Diamond of White & Case provides some insight into the Shareholder Bill of Rights Act, including:

- What are the provisions of the Shareholder Bill of Rights Act?
- Are any provisions of the bill not seen before in other similar bills?
- What are the odds of passage of the bill?
- What are the implications of the bill, if passed?

The Spoofed E-mail Caper

It seems like the last thing the SEC needs right now is some bizarre story of a mysterious, highly critical e-mail sent to its leadership and the press, but that is just what happened earlier this week in the strange case of the “spoofed” e-mail account. As noted in this WSJ article (see also this Bloomberg and Washington Post coverage), the four page e-mail appeared to be sent from an enforcement attorney’s e-mail account, and it was addressed to Chairman Schapiro, a number of other SEC officials and several reporters covering the SEC. The e-mail attacked the performance of Chairman Schapiro and SEC Inspector General David Kotz, and railed against a number of things at the agency, including the performance review process. The original story from the apparent sender was that her Blackberry was stolen, but it later turned out that the e-mail was sent from outside of the SEC’s network where someone had “spoofed” her e-mail address. (I know all about “spoofing,” having received about fifty Canadian pharmacy e-mails a day from myself over the past couple of years.)

From the description of the e-mail and the excerpts that have been reported, it sounds like the e-mail came from a very angry Staffer (or ex-Staffer). I can think of several crazy e-mail stories from my days at the SEC, but by and large those involved self-inflicted e-mail gaffes. Of course back in the good old days, I recall that these sorts of loose-cannon Staffer activities were carried out on pilfered letterhead, rather than by e-mail. No matter how it is done, it is really unbelievable that someone would go to such lengths to vent their frustration - they should really get another hobby.

- Dave Lynn