Monthly Archives: October 2002

October 30, 2002

Notes from today’s open meeting at the SEC (regarding proposed rules on pro forma information, “real-time” disclosure, off-balance sheet disclosure and pension blackout trading restrictions) are part of the November ezine, which was just posted at

October 29, 2002

The SEC has moved its open Commission meeting relating to consideration of proposed rules under Section 307 of Sarbanes-Oxley regarding attorney standards of professional responsibility from 10/31 to next Wednesday, November 6th.

October 26, 2002

On October 25th, at one of the SEC’s most contentious open meetings in recent memory, the Commission appointed the five members of the new Public Company Accounting Standards Board. Under Sarbanes-Oxley, the SEC was required to establish this board by October 28th.

In a 3-2 vote, the Republican majority on the Commission selected former FBI and CIA director William Webster to chair the new board, with a term until 2007. The SEC’s two Democratic Commissoners, Harvey Goldschmid and Roel Campos, claimed that Mr. Webster lacks the expertise to oversee the accounting industry. This followed earlier accusations by others that the accounting lobby effectively blocked former TIAA-CREF chairman John Biggs from being selected as chair.

The other board members appointed were:

• Daniel Goelzer, a partner at Baker & McKenzie who previously spent seven years as general counsel at the SEC (term expires 2006).
• Kayla Gillan, former general counsel of the California Public Employees’ Retirement system (term expires 2005).
• Willis Gradison Jr., a former Republican congressman who is Senior Public Policy Counselor at Patton Boggs (term expires 2004).
• Charles Niemeier, the SEC’s Chief Accountant in the Division of Enforcement and co-chairman of its financial-fraud task force. Mr. Niemeier previously worked at Williams & Connolly (term expires 2003).

Commissioner Goldschmid voted against all five board members to protest the selection process and said that as far as he knew none of the five board members approved yesterday was properly vetted – and that he was not told their names until the morning before the meeting. Commissioner Campos dissented only to the choice of Chairman Webster.

After the SEC’s appointments, according to the Washington Post, Senate Banking Committee Chairman, Paul S. Sarbanes (D-Md.) declared that “the country would be best served if Mr. Pitt stepped down.” Others in the Democratic congressional leadership and Sen. John McCain (R-Ariz.) had already recommended that Chairman Pitt resign or be fired.

The October 26th Washington Post article regarding the meeting is at The related SEC press release is at

October 25, 2002

A last minute open Commission meeting has been scheduled for today at 2:30 pm EDT – so that the Commission can vote on the members of the Public Company Accounting Oversight Board. Under Sarbanes-Oxley, the Commission is charged with selecting this board by Monday.

According to the Washington Post, Commissioner Goldschmid requested the open meeting (as opposed to the Commission voting behind closed doors). The Post reports that there likely will be a division along political party lines in selecting the chair – with the 3 republicans voting for William Webster, a former FBI and CIA director – and the 2 democrats voting for John Biggs, former TIAA-CREF chair. Controversy still swirls around this issue. See more at

October 24, 2002

The SEC has announced it will have 2 open commission meetings next week – one on 10/30 and one on 10/31- proposing rules under Sections 401(b)(pro forma information), 401(a) (MD&A), 306(a)(pension blackout periods) and 307(standards of professional conduct for attorneys) of the Sarbanes-Oxley Act. See the SEC’s Digest at

October 23, 2002

The SEC has posted its two proposal releases relating to last week’s open Commission meeting regarding internal control reports, definintion of “financial experts” and improper influence on auditors – the are at and

In addition, the Department of Labor has issued proposed rules on pension blackout periods at

October 18, 2002

The Nasdaq has finally issued a summary of its new proposed corporate governance listing standards at:

October 16, 2002

As many have heard, a group of law firms has gotten together to draft a white paper on interpretive prohibited loan issues under Section 402 – this paper is at

At the SEC’s open commission meeting today, the Commission proposed rules under Sections 303, 404, 406 and 407 of the Sarbanes-Oxley Act. The related press release is at

Other notable discussions at the meeting include

– the applicability of these rulemakings to non-U.S. issuers and the need for them to send in comments if there are concerns

– 404 regarding internal control report – the SEC intends to let companies tailor these reports to their own circumstances, but noted that this report should have a profound impact on how closely independent auditors pay attention to their client’s internal controls (due to the attestation requirement). This was a primary reason for not accelerating the due date for next year’s 10-K. The SEC staff will be monitoring this disclosure in targeted reviews next year to ensure the “spirit” of the requirement is being followed.

– 406 regarding code of ethics – As one observer remarked, the SEC appears to be getting “code happy.” The Commission talked about requesting comment whether this rulemaking should be broadened to cover more than just CEOs and CFOs (this rulemaking already goes beyond what Sarbanes-Oxley dictated – that Act only mentioned codes that apply to CFOs). The Commission will request comment whether codes applying to directors, investor relations’ professionals, etc. should be swept in – following on model codes adopted by NIRI, FEI and BRT. The code that applies to the CEO and CFO would be filed as an exhibit to the 10-K – and disclosure noted in the 10-K that it exists. They release also will be tweaked to ensure that the 8-K filing requirement applies to “de facto” waivers of the code. Commissioner Campos read a statement to express his view that urges companies to go beyond the letter of the law in ensuring that ethical cultures are formed.

– 404 regarding financial experts – Chairman Pitt expressed an interest regarding changing the label from “financial expert” to “audit committee accounting expert.” There was a lot of discussion regarding state law liability (and that the SEC was not preempting state law) and whether the financial expert would be held to a higher standard (with no definitive statements made). The upshot was to ensure that having a so-called “financial expert” on an audit committee does not relieve other committee members from their duties (i.e. they can’t overly rely on the expert). There was some discussion about whether the rules were too detailed regarding who could qualify – and who would be eligible (with no definitive statements made). There also was some confusing discussion about companies being “encouraged” to identify all directors who would qualify as financial experts – but perhaps that they would not be required to identify these persons if they did not go thru the drill of reviewing each director’s credentials (this being said, the proposed rules would require disclosure of the number – and identity – of each financial expert).

– 303 regarding improper influence – Chairman Pitt wants rule’s language tweaked to ensure it was clear that no scienter would be required for the SEC to bring an action under this section (particularly as it does not create a private right of action). The Commission noted that this rulemaking was fairly superfluous – as Section 20(c) of the 1934 Act already allowed the SEC to bring actions for the type of behavior that was actionable (including “attempts” to improperly influence)

October 15, 2002

Here is the Nasdaq proposal filed with the SEC regarding shareholder approval of equity compensation plans -

October 14, 2002

Chairman Pitt continues to be under fire – the Washington Post has a new editorial urging the Chairman to resign – see

The other article explains the recent flaps at the SEC over the selection (or non-selection) of John Biggs as the head of the Public Company Accounting Oversight Board and the hiring of a White House public relations staffer – see