Monthly Archives: March 2003

March 31, 2003

The SEC has issued technical

The SEC has issued technical corrections in an adopting release to clarify that companies can provide their audit committee financial expert disclosure in its proxy or information statement and incorporate that disclosure into its annual report (if it complies with applicable rules for incorporation by reference). The original rule had stated that the disclosure was only permitted in annual reports. See

Mark Borges in the SEC’s Office of Rulemaking soon will be moving on to a new job at Mercer Consulting. Mark handled many of the staff’s executive compensation disclosure issues over the past few years and will be missed.

March 27, 2003

Because Edgar is not yet

Because Edgar is not yet configured to handle the new 8-K items, the SEC issued a statement providing interim guidance regarding how to file new Item 11 (regarding notice of a pension fund blackout period) – and new Item 12 (regarding earnings releases).

For “would-be” Item 11 filings, companies should continue to disclose the information under Item 5 (Other Information) of Form 10-Q or 10-QSB in the first quarterly report filed by the company after commencement of the blackout period.

For “would-be” Item 12 filings, companies should furnish the information under Item 9 (Regulation FD Disclosure) of Form 8-K. A company must furnish the information within 5 business days after the occurrence of an event specified in Item 12. Information provided under Item 12 also may be required to be provided under the requirements of Regulation FD; in this case, any earlier deadline for Item 9 under Regulation FD would apply.

This interim guidance will remain in effect until the SEC announces otherwise. The SEC’s statement is at

March 27, 2003

Regarding CEO/CFO certifications for asset-backed

Regarding CEO/CFO certifications for asset-backed issuers, the SEC staff now intends to issue no-action responses in the very near future – and will allow issuers with similar asset classes to rely on these letters (rather than require each issuer to seek relief). Asset-backed issuers with novel asset classes (i.e. not previously addressed in these upcoming staff responses) will have to seek their own no-action letters.

As for modified reporting relief, asset-backed issuers may rely on previously issued no-action letters just as they always have for years.

In the wake of Sandy Weill (whose firm was recently fined $300 million in the analyst research case) recently taking himself out of the running to serve on the NYSE board, SEC Chair Donaldson has given the exchanges until mid-May to propose reforms to their own corporate governance structures. See the Washington Post article at

March 26, 2003

On April 1, the SEC

On April 1, the SEC is holding an open meeting to adopt the audit committee of exchange-listed companies rules. This comes a day after the PCAOB holds a roundtable at the SEC’s HQ in Washington to discuss registration of foreign audit firms (and for which the SEC issued a press release making a big deal of the fact that the SEC Commissioners would also attend the roundtable).

The SEC’s test website for Section 16 filings is up and running – don’t get confused if you play around on the site and it issues warnings that you are about to make a “live” filing. It really doesn’t mean it. The test site is at

For subscribers, we have posted an interview with Ken Winer on SEC enforcement and 3rd party liability at

We have also posted sample disclosure committee charters and D&O questionnaires under “Special Features” on the home page – as well as a more recent edition of the SEC Telephone Directory (Sept. 2002 version) at

March 25, 2003

In his second speech, SEC

In his second speech, SEC Chair Donaldson talked about corporate governance and going slow in mandating specific governance structures – but also railed about excessive executive compensation – see

We have posted the April issue of E-Minders at In addition, we have announced two timely webcast programs – one on April 8th for subscribers on “Comparing the Section 16 Filers – What You Need to Know Now.” This features key SEC staffers discussing the new test site – and nine service providers explaining how their products add value to what the SEC’s site will do. See

The other program is for subscribers – “Regulation G Unplugged” – on April 30th. See

March 24, 2003

Late Friday, the SEC proposed

Late Friday, the SEC proposed amendments that would require certifications provided under Sections 302 and 906 of Sarbanes-Oxley be included as exhibits to the reports to which they relate. The purpose of the proposal is to make it easier for investors and regulators to locate the certifications.

The current rules require 302 certifications to be included at the end of the report immediately following the signature block. Companies have more flexibility for their 906 certifications, using one of the following methods: including them after the signature block, filing them as exhibits to the related reports or submitting them as paper or electronic correspondence, or “furnishing” them under Item 9 of Form 8-K.

As proposed, the 302 certification exhibits would be considered “filed” – but the 906 exhibits would merely be considered “furnished” (and thus not subject to Section 18 liability and not incorporated in registration statements unless the company took steps to include the certification in a registration statement). Both the new 302 and the 906 certification exhibits would be subject to Rule 302 of Regulation S-T – so companies would be required to retain originals of manually signed certifications.

Until the proposals become final, as interim guidance, the SEC is encouraging companies to submit the 906 certifications as exhibits to the periodic reports to which they relate. The guidance states how this should be handled in electronic filings, including a specific legend that should be inserted with the certification -and asking that companies retain a manual signature page or other authenticating document for each certification. A 906 certification submitted in the manner specified in the interim guidance will be treated as “accompanying” the periodic report to which it relates rather than being “filed.”

The comment period is 45 days. The proposing release and interim guidance is at

For subscribers, we have posted an interview with David Lynn on this new certification proposal at

March 21, 2003

Yesterday, the SEC announced that

Yesterday, the SEC announced that it will soon have a new website for making test filings of Forms 3, 4 and 5 (the test site likely will be up and operational on Monday or Tuesday next week). The new filing system will allow filers to create and file a report directly on the SEC’s website – or to make filings through the new website using third-party software that has been adapted to conform to the new reduced content format.

We expect the test period to last for approximately one month, during which time the existing EDGARlink system will exist side-by-side with the new system. After the test period expires, the SEC will convert to the new system as the exclusive means for filing Forms 3, 4 and 5.

Electronic filing will remain voluntary for a period of time thereafter, but it is likely that by June (well ahead of the July 30 deadline imposed by Section 403 of the Sarbanes-Oxley) the SEC will make electronic filing mandatory for all Section 16 filers. The SEC’s announcement is at

For subscribers, there is a webcast program on “Comparing the Section 16 Filers” on April 8th. Learn how to best use the SEC’s test site from key SEC staffers and hear the pros and cons of nine different third party web filers. More information is at who are not yet subscribers can access the webcast (or the transcript) by taking advantage of the no-risk trial at

March 20, 2003

The SEC staff is expected

The SEC staff is expected to provide FAQs on Regulation G issues before the March 28th effective date. Here are some conversations we have heard that have taken place with the staff regarding transition issues (although don’t rely on them unless you speak with the staff or the FAQs are issued):

– so long as annual report is mailed before 3/28, providing other copies after 3/28 does not mean the report must comply with Reg G
– if 10-K is filed before 3/28, the fact that its posted and on a website after 3/28 does not mean the 10-K must comply with Reg G (however, if the 10-K is posted after 3/28, it must comply)
– if 10-K filed before 3/28 and annual report is delivered after 3/28 that repeats information from 10-K, the repeated information does not need to comply with Reg G
– shelf registrations filed after 3/28 that incorporate information from a 10-K that does not comply with Reg G would then need to comply with Reg G – this can be done by amending the 10-K or by filing a 8-K or 10-Q that is incorporated by reference and complies with Reg G (note that shelfs filed before 3/28 are not impacted by Reg G)

Yesterday, the SEC took enforcement action against HealthSouth for alleged accounting fraud that included a 2 day trading suspension – that is a fairly stiff sanction by itself for the company and rare for the SEC to impose such a sanction on a large cap company. See

For subscribers, we have posted an interview with Bob Juceam on D&O insurance at

March 19, 2003

In its newly posted proposing

In its newly posted proposing release, the Public Company Accounting Oversight Board has released its estimates of the levels of fees that companies would pay to fund the Board. As proposed, fees would be based on the relative average monthly market capitalization for the 12 months preceding the fiscal year.

The allocation of the fees is top-heavy. The Board estimates that the largest companies would be allocated $260,000 for every $10 million of accounting support fees. The 1,500th largest issuer would be allocated $500 for each $10 million of fees. To understand the order of magnitude, based on market capitaliztions at the end of 2001, the 5th largest company would pay about 63% of the fee paid by the largest market cap company, the 25th largest company would pay about 22%, and the 50th largest company would pay about 11%. The proposing release is at

For subscribers, we have posted an interview with Mark Bergman of Paul Weiss regarding the impact of the new SEC rules on non-US companies at

March 18, 2003

At the 75 day mark

At the 75 day mark for 12/31 companies – which will be next year’s 10-K deadline – over 1000 companies have already filed their 10-Ks. Considering that there are slightly less than 10,000 companies with 12/31 year-ends, this is a sizable percentage.

On the SEC’s website – under “Regulatory Actions” there is a new section called “PCAOB Rulemaking.” So far it only includes proposed Bylaws for the Public Company Accounting Oversight Board – not the proposals the PCAOB has issued which is available on its website. The SEC’s PCAOB portal is at The PCAOB’s website is at

For subscribers, we have posted model Pre-Approval Policies for Non-Audit Services from Wachtell Lipton and Ernst & Young at

We also have posted sample disclosures from companies that have significant deficiencies and material weaknesses in their internal controls at