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).