January 23, 2003

This is a guest blog

This is a guest blog by Mike Holliday

The final rules on conditions for use of non-GAAP financial measures, and insider trades during pension fund blackout periods are now available on the SEC’s website.

Non-GAAP is at

Insider trading is at

The following are quick notes from the SEC’s meeting today, and are subject to the actual wording of the adopting Releases and final rules.

A. Standards of Professional Conduct for Attorneys, Sarbanes-Oxley Section 307. Certain changes in the proposed rules were discussed at the meeting. The definition of appearing and practicing before the Commission to be subject to the rules was modified. The rules will not apply to attorneys who are licensed to practice law but are not providing legal services to issuers. Most foreign attorneys who are not admitted in the US and do not advise clients on U.S. law would not be subject to the rules. Non-US attorneys who provide legal advice on US law without consulting with US counsel would be subject to the rules if their activities constitute appearing and practicing before the Commission. It will be necessary to check the adopting Release and final rules to see exactly how this treatment of foreign attorneys is worded.

To be covered by the rules, the attorney must be providing legal services to the issuer and have an attorney/client relationship with the issuer. In addition, the attorney would have to have notice that a document the attorney is preparing or assisting in preparing will be filed with or submitted to the SEC. Again, it will be necessary to check the actual language.

Modifications to the final rule will insure that issuers can direct counsel to conduct internal investigations and defend them in litigation without compromising the attorney/client relationship.

The rules have an objective standard. The meeting discussion referred to using the concept of “credible evidence” of a violation; a prudent and competent attorney under the circumstances; and a reasonable likelihood standard that a material violation has occurred, is ongoing or is about to occur.

The requirement for the attorney to document the report of evidence of a material violation and the response has been eliminated. Also, the rules adopted do not include the proposed “noisy withdrawal” provision. The Commission is extending the comment period on that issue for 60 days, and then will consider the proposal. The proposal has not been eliminated but will be considered at a later time after the extended comment period.

B. Disclosure of Mutual Fund Proxy Voting Policies and Procedures and how the Fund Voted on Specific Issues. The proposals were adopted with modifications to reduce the costs of the new requirements.

C. Requirement for Registered Investment Advisers to Adopt and Disclose to Clients Proxy Voting Policies and Procedures and how the Adviser Addresses Conflicts of Interest. The rules do not require public disclosure of how the adviser voted, but to tell clients how they can obtain the actual voting record from the adviser.