Monthly Archives: August 2002

August 31, 2002

The SEC released its statement explaining how they have drafted a tailored Section 302 certification for asset-backed issuers at

August 29, 2002

A little belated – the SEC’s adopting release on Section 302 certifications is now at

On a completely unrelated – but pleasant matter – after 16 years of uselessness, the airlines are no longer required to ask you those two silly questions when you check in!

August 28, 2002

Everyone is anxiously awaiting posting of the SEC’s final rules regarding Section 302 certifications that takes effect tommorrow. Should be soon…I’m definitely becoming a geek…or was i already one but failed to notice…

August 27, 2002

The SEC held a lengthy open meeting this morning – the 1st one before a full Commission since Chairman Pitt assumed his post. Here is a summary of the actions taken:

A. Section 16

1. There is no transition period – accelerated reporting commences this Thursday, the 29th (so an insider transaction on Thursday will be required to be reported by COB on Tuesday – because Monday is a holiday). The SEC is trying to post the release ASAP on its Web site since it takes effect so soon.

2. As noted in the SEC’s statement providing supplemental information and requesting comments on this topic a few weeks ago, transactions permitted to be filed on Form 5 under Rule 16b-3 will now be required to be filed within 2 business days of the transaction.

3. Also as proposed in the SEC’s statement, there are two categories of transactions that will be accorded deferred reporting (both because the transactions are not within the insider’s control):

– contracts, instructions or written plans under Rule 10b5-1
– discretionary transactions under Rule 16(a)-3(f)

The deadline for these two categories of transactions is 2 business days after the day that the executing broker informs the insider that there was a transaction (the “notice” date) – with an overall cap of 3 business days after the actual trade date. Form 4 will have a new column to allow insiders to specify when this “notice” date occurs.

4. The SEC intends to mandate EDGAR filing of these forms (and posting on corporate Web sites) within a few months – much earlier than the Congressionally mandated deadline of 7/31/03. In the upcoming release, they encourage companies to do both right now. When the SEC mandates e-filing, it expects to mandate a form that will enable the data to be tagged – so that the information can easily be placed into a database for quick and easy “splicing and dicing” by investors.

5. There are over 140k Form 4s filed annually before this rulemaking – it is expected that this number will go up dramatically.

B. Accelerated Filing of 10-Qs/10-Ks and Web Posting

1. The new requirements only apply to domestic companies with a $75 million float, that have reported for one year and filed at least one 10-K. They do not apply to small businesses nor foreign private issuers.

2. For the 10-K, the deadlines do not change for the upcoming year – and then beginning with fiscal year ends that end on 12/15/03 or later, the deadline is 75 days for the 1st year and then 60 days following that. In other words, the final deadline phases in over 3 years.

3. For the 10-Q, the deadlines do not change for the upcoming year – and then beginning with fiscal year ends that end on 12/15/03 or later, the deadline is 40 days for the 1st year and then 35 days following that. In other words, the final deadline phases in over 3 years.

4. For web posting, for companies that meet the thresholds in #1 above, beginning with fiscal year ends that end on 12/15/02, companies are required to disclose whether they post their periodic reports on their sites “as soon as is practicable.” There is no absolute deadline stated in the rule.

5. It was noted that over 300 comment letters were received – investors in favor and corporate, legal and accounting groups opposed. The resulting rules reflected the comments. Chairman Pitt stated that his vote in favor of this rules were predicated on passage of rules that mandated “current” reporting. It was also noted that the SEC wanted some experience with the new rules before applying them to small businesses and foreign private issuers.

C. Section 302 Certifications

1. There is no transition period – the rules are effective Aug 29 and apply to reports filed after that date. These rules apply to all public companies, including small businesses and foreign private issuers (and asset-backed issuers for whom there is a tailored form of certification).

2. As noted in the SEC’s statement providing supplemental information and requesting comments on this topic a few weeks ago, the rules that cover disclosure controls and procedures go beyond mere internal controls for financial information for financial statements. That type of internal controls has been required to be conducted since the adoption of the Foreign Corrupt Practices Act in the 70s. This new requirement will now require companies to adopt procedures specifically tailored to the disclosure requirements.

3. The precise nature of required controls is not mandated. The SEC recognizes the need for flexibility to address each company’s circumstances.

4. The SEC made clear that the new rules apply only to Section 302, and do not change the existing Section 906 certification. Commissioner Goldschmid expressed interest in having the Department of Justice or the SEC provide some guidance on SEction 906 sooner rather than later. Alan Beller, when asked by Commissioner Campos, said it was a difficult question whether the SEC has the ability to develop a single certification that would meet the requirements of both Section 302 and 906 – and that the SEC’s General Counsel office has not taken a position on this yet.

5. The Release has a discussion on the “fairly present” standard which applies to the financial statements and other financial information in the report. The Release will say it covers all financial statements, footnotes, MD&A and other financial information. The SEC did not add the “in accordance with GAAP” qualification for certifications under Section 302 – as the legislation intended something broader than GAAP. The fairly present standard is intended to cover whatever additional disclosure is required to give a complete picture.

6. Alan Beller addressed the consequences of a Section 302 certification. First, he made the point that aside from legal liability, Congress adopted this provision to ensure that executives knew that reading and understanding disclosure documents was a critical part of their job. Second, he noted that the SEC would be able to more easily wield its toolkit of weapons to personally go after someone who made the certification – which says “to my knowledge” – either under Section 13 or under Rule 10b-5 if the person had scienter. It was noted that recklessness was part of the scienter standard here – and that not having adequate disclosure controls noted in #3 above might contribute to showing recklessness.

August 23, 2002

On Tuesday, August 27th, the Commission is holding an open meeting at 10 am to consider adoption of three proposals: acceleration of deadlines for 10-Qs and 10-Ks; Section 302 certifications and acceleration of Form 4s and other Section 16 amendments. More info is at

The SEC has finished analyzing the 691certifications it received – or should have received. It reports that 16 companies did not provide the requisite certification. A list of the companies – with reasons why they did not comply is at

August 16, 2002

Now that companies have had their first experiences with the Section 906 certifications, they should turn their attention to the Section 302 certification which will be required for the next round of 10-Qs.

The Section 302 certification requires extensive representations as to the CEO’s and CFO’s responsibility for the issuer’s internal reporting controls – both financial and non-financial – including a representation that they have evaluated the effectiveness of those controls on a quarterly basis.

These representations are new and are not part of the Section 906 certification – so companies should start examining whether their CEOs and CFOs will be able to comfortably make these representations (and if not, begin to implement procedures so they can). As many practitioners recommended for the last round of certifications, companies may want to document their processes and procedures – so that there is tangible evidence underlying the certifications when they are made in mid-November.

Broc will be on vacation next week – without access to the Web – so my blogging will be limited. Enjoy the silence!

August 15, 2002

As widely reported, quite a few companies restated their financials as their CEO/CFO certifications were submitted to the SEC. The SEC was slammed with a deluge of 10-Qs and hard-copy certifications. It will take the SEC staff a few days to post the certifications mandated from the Section 21(a) order. See

August 14, 2002

Today is the due date for the Form 10-Qs – and the sworn certifications – from most companies. An article on the topic from the Washington Post is at

No word yet on whether any CEO or CFO purposedly has not submitted a certification – or has submitted a modified one.

August 13, 2002

The following notes are from today’s panel regarding Section 16 and Executive Compensation developments at the ABA annual conference :

1. Sara Nelson Bloom from Nasdaq indicated that Nasdaq would eventually have a Web page for their legal department to make their positions more transparent, particularly in light of the inevitable slew of interpretations that will be necessary when their listing standards amendments become effective.

2. Mark Borges from the SEC indicated that, generally, companies with a 3/31 fiscal year end did a good job in providing disclosure regarding equity dilution. He noted that about 15% of the companies appeared to not include the disclosure, but observed that this generally included smaller companies that might not have been aware that the new regulation was in effect. Mark noted that interpretive guidance from the SEC regarding several issues regarding equity dilution disclosure was forthcoming in the near future.

3. Anne Krauskopf from the SEC mentioned what Alan Beller had already noted the day before – that the upcoming rulemaking under Section 403 of the Sarbanes-Oxley Act would likely leave the Section 16(a) reporting exemptions intact. Anne also noted that it was likely that some Form 5 transactions would continue to be reportable on Form 5 – with the exceptions being the ones noted in the SEC’s release last week – such as Rule 16b-3 transactions. These exceptions would now be reportable on Form 4 – such as excess benefit plans that might involve payroll deductions (in those cases, a Form 4 would be filed within 2 business days after each payroll deduction). For the new Form 4 (which will obviously no longer be a monthly form), Anne indicated that the holdings total could be based on the date of the report (after taking into account the transaction which caused the form’s filing); not the date of filing. She also indicated that Item 405 disclosure is only required for untimely filings; not necessarily for forms that might inadvertantly miscalculate the total holdings.

4. Anne also noted that the SEC was exploring solutions for the practical mess of obtaining filing codes for each insider. However, she did not indicate if this could – or would – be done before August 29th. As a result, companies might want to obtain filing codes for each insider as soon as practicable to facilitate electronic filing of these forms after August 29th.

August 12, 2002

From the American Bar Association annual conference, here are some brief notes from this morning’s dialogue with Corp Fin Director Alan Beller:

1. Regarding the certifications under the SEC’s Section 21(a) Order, it is important that companies and their counsel proofread what they submit so that the form of certification precisely matches what is required (apparently, there have been a number with typos – and that makes them deficient) – and companies should consider following the form of certification to a “t” and not list the reports that the certification covers. Otherwise, the company may inadverently not include a report that should be covered – and the SEC staff does not have the manpower to contact the company to ask if it was inadvertent – and the company will have submitted a deficient certification.

2. Stan Keller noted that the SEC had responded to a letter from some ABA members questioning the SEC’s ability to issue this SEC Order under Section 21(a) – both letters are on the ABA’s Web site. Dixie Johnson noted that the real concern was the SEC’s use of Section 21(a) in the future – and the related impact it would have on SEC enforcement investigations.

3. Alan addressed the question if a company had one person that served as both CEO and CFO – he stated if they truly were the same person (and was identified and signed as such in the company’s SEC filings), only one cert was required to be submitted.

4. Alan noted that the SEC was awaiting the formal rule proposals from the NYSE and Nasdaq – and hoped for uniformity in listing standards – and that the SEC wouldn’t be bashful in attempting to achieve that result. He also noted that these standards would have to conform to the Sarbanes-Oxley Act as well.

5. Regarding review of the Fortune 500, Alan noted that screening of all these companies (except for companies that have filed their 10-Ks recently – or will file them soon) has been completed – and that several hundred comment letters have – and will continue – to go out. Companies will not be notified if a comment letter is – or is not – forthcoming.

6. Alan noted that the rulemaking regarding accelerated deadlines for periodic reports would continue – but likely with generous transition periods – in light of the comments asking for more time and need for more internal processes at companies in order to comply with new obligations wrought by Sarbanes-Oxley.

7. Regarding the August 29th deadline for rulemakings regarding Section 302 certifications and Section 16 forms, the SEC is mulling the idea of transition periods to allow sufficient time for companies to comply – but no assurances could be given at this time. The Sarbanes-Oxley Act requires the SEC to finish rulemaking by August 29th – but is silent as to whether the rules can have transition periods.

8. Regarding Section 16 forms, Alan noted that it was likely that a few of the existing Section 16(a) reporting exemptions would remain in place. The existence of Form 5 itself likely will survive the rulemaking due from the SEC by August 29th – although many fewer transactions will be eligible for reporting on that form.

9. Regarding interpretations under the various provisions in the Sarbanes-Oxley Act, Alan repeatedly noted that Congress had just acted – and it is not the SEC’s place to then quickly undermine their actions by conducting rulemaking that exempts issuers and transactions contrary to the plain language of the legislation. He noted that interpretations of certain sections might be forthcoming in the long run – but could not provide any assurances about timing, nature and if it would happen at all. He noted that the SEC was in conversations with the DOJ to potentially provide interpretations under Section 906 – but that there were no assurances and that nothing was imminient.

10. Regarding the application of Sarbanes-Oxley to foreign private issuers, the points made above in 9. apply here as well. The SEC might not act – and certainly will not act quickly to provide any relief to those issuers.

11. Regarding whether the SEC is likely to meld Section 302 and 906 certifications, Alan noted that the Act clearly has required them as two separate certifications – so it was unlikely that they could be combined – although it might be too early to tell in the long run.

12. Karl Groskaufmanis noted that during last week, 150 companies had filed their 10-Qs – and 30 filed them with knowledge qualifiers in their 906 certifications. 112 of these companies included the 906 certifications as Exhibit 99 or in the 10-Q itself. 11 of these companies only filed or furnished the 906 certifications on a 8-K.

13. SEC General Counsel, Giovanni Prezioso, noted that his office has estimated that Sarbanes-Oxley will directly require the SEC to conduct at least 24 rulemakings/studies/other actions – and conduct at least another 20 such actions as part of this rulemaking process (note that these are not all Corp Fin rulemakings).