Monthly Archives: April 2003

April 30, 2003

In a bizarre development, on

In a bizarre development, on April 11th, Senator Biden included an extensive “legislative history” of Sarbanes-Oxley in the Congressional Record. His submission includes views that are inconsistent with some current practices, such as the the prevailing view that Section 906 does not cover Forms 8-K and 6-K. We have posted this “legislative history” at

Yesterday, Sens. Barbara Boxer (D-Calif.) and John Ensign (R-Nev.) introduced a bill in the Senate that would delay enforcement of an upcoming FASB proposal that would require companies to treat stock options as expenses. The bill would direct the SEC to enhance financial disclosures of stock options – and then study the issue for 3 years before enforcing any new rules. A similar bill was introduced in the House last month.

For subscribers, today is our “Regulation G Unplugged” webcast – see more at

April 28, 2003

On Friday, the SEC reaffirmed

On Friday, the SEC reaffirmed the FASB as the accounting standards setter – and recognized the PCAOB as the auditing standard setter. See and

Today, the SEC announced its global settlement with Wall Street regarding analyst conflicts – see

We have posted our May issue of Eminders at

April 24, 2003

At today’s open Commission meeting,

At today’s open Commission meeting, the SEC adopted final rules on mandatory Edgar filing of Section 16 reports. Although not much was said at the meeting, we do know that the rules will be effective June 30th (no more paper after that!), the temporary hardship exemption is being eliminated for Section 16 reports, the filing deadline is being extended from 5:30 pm to 10 pm EST (but just for Section 16 reports; not other types of filings), and there will be a one-year temporary relief period for making Item 405 disclosures in the proxy statement for filings that are only one day late. See the SEC’s press release at

In addition, the SEC adopted amendments to Regulation 13B2 that implement Section 303 of Sarbanes-Oxley Act. The new rules prohibit officers and directors of an issuer, and persons acting under the direction of an officer or director, from coercing, manipulating, misleading, or fraudulently influencing the auditor of the issuer’s financial statements if that person knew or should have known that such action could render the financial statements materially misleading.

Over the objections of some commentators, the SEC decided to keep a “negligence” standard as proposed – although it modified the language to the more traditonal negligence language of “knows or should have known.” The SEC did not adopt an “intent” standard even though commentators argued that was more consistent with Section 303 of Sarbanes-Oxley (which had language that arguably was an intent standard – “for the purpose of”).

Chairman Donaldson has announced his primary leadership team – none of whom have overwhelming experience with the securities laws. Laura Cox has been named Managing Executive for External Affairs, to deal with legislative and public affairs. She currently serves as Deputy Assistant Secretary for Banking and Finance in the Office of Legislative Affairs at the Treasury Department. Prior to joining the Treasury, Cox was Vice President for Strategic Policy Communications, Government and Regulatory Affairs at Instinet Corporation.

Peter Derby has been named Managing Executive for Operations, to assist the Chairman with the increase in the SEC’s operational effectiveness and responsiveness while considering administrative, operational and management issues as the Commission grows. He had served as an elected member of the Board of Trustees of the Village of Irvington-on-Hudson, New York, since 2002. Derby spent a decade in Russia, where he participated in the founding of DialogBank, the first private Russian bank to receive an international banking license.

Patrick Von Bargen has been named Managing Executive for Policy and Staff, to handle the promulgation and enforcement of policies, regulations, rules and procedures. He will be Chairman Donaldson’s primary liaison with the other Commissioners’ offices and conduct the management of the Chairman’s personal office. Prior to this, he was Executive Director of the National Center for Regional Innovation and Competitiveness and Vice President of the Council on Competitiveness, a public policy organization of major CEO’s, university presidents and labor leaders. He had served as Chief of Staff for United States Senator Jeff Bingaman (D-NM) from 1989 to 1999.

April 24, 2003

Yesterday, the PCAOB voted to

Yesterday, the PCAOB voted to require foreign auditors who audit companies that sell securities in the US to register with it (the SEC still must approve these rules before they become effective). This was a controversial action after intense lobbying by overseas regulators, who argued that accountants should abide by rules set by their own countries and noted conflicts with their country’s privacy laws. The PCOAB still must address the controversial issue of whether foreign auditors will be subject to the Board’s inspections and discipline.

In response to the 40 comment letters received, the PCAOB agreed to give foreign auditors an additional 6months to register – until April 2004. It also agreed that foreign auditors would not have to provide certain kinds of information if they include copies of the conflicting privacy law, legal opinions on the issue, and a certification that they tried and failed to get waivers to provide the information in question.

In addition, the PCAOB adopted a $68 million 2003 budget, announcing that it would hire as many as 200 accountants and support staffers by the end of the year and would open a New York office. Companies will receive invoices for support fees based on this budget sometime in May.

For subscribers, one of our finest features is the Rule 144 Q&A Forum with Bob Barron, where Bob and Jesse Brill can answer your Rule 144 questions – see

April 23, 2003

The SEC has delayed the

The SEC has delayed the timetable for its new Section 16 website to go “live.” It was supposed to occur over the weekend – but is now delayed to an undetermined date. See the SEC’s notice at

The SEC’s open meeting tommorrow has been pushed back from 10 am to 1 pm.

Yesterday, FASB unanimously endorsed the expensing of stock options – now it has to determine how to value them, which it hopes to do sometime next year. See the related Washington Post article at

For subscribers, we have posted a more recent version of the SEC Telephone Directory (September 2002 edition) at

April 22, 2003

Everyone is still waiting to

Everyone is still waiting to see if the SEC staff issues interpretative guidance on Regulation G (and how far it goes beyond addressing transitional issues). We are hearing that the staff still intends to issue guidance – but they have been saying that for a few weeks. In our “Regulation G/Earnings Portal,” we have links to over 100 Item 12 8-Ks – see

The PCAOB is holding a meeting tommorrow to adopt rules regarding registration of foreign audit firms – and on Thursday, it makes its case to the SEC for it to be recognized as an official body. At that point, its interim auditing standards would be effective (and displace all existing standards).

For, we have posted an interview with Andrew Humphrey of Faegre & Benson on the impact of SOX on private companies – see

April 19, 2003

Gearing up for its official

Gearing up for its official recognition as an oversight entity, the PCAOB has been very busy. On Friday, it adopted final rules for funding, including the support fees that companies will pay ( – and it proposed rules regarding setting auditing standards ( In the meantime, the Oversight Board has established some interim auditing standards based on existing standards (

In addition, the PCAOB has hired long-time investor advocate, Douglas Carmichael, as Chief Auditor. See the related Washington Post article at

This Thursday, the SEC is having an open Commission meeting to consider final rules under Section 303 of Sarbanes-Oxley regarding improper influence of auditors – and under Section 403 regarding mandatory Edgar filing of Section 16 reports.

April 18, 2003

Anyone who has filed a

Anyone who has filed a 1933 Act registration statement in the past year or two knows that the staff has been reviewing and commenting on Exhibit 5 opinions. The ABA Federal Regulation of Securities Committee established a task force last year to review Exhibit 5 opinion practice and attempt to work with the staff to develop practices and forms of opinion that satisfy the staff and don’t give heartburn to opining counsel. We hear that the dialogue between the staff and the ABA is proceeding productively. When the ABA report is finalized, we’ll post it here.

As we posted on April 9, Senator Carl Levin attached an amendment to a Senate bill (relating to charitable giving) seeking to give the SEC fining authority. That bill passed the Senate by a vote of 95 to 5, and would allow the SEC to impose fines on lawyers who advise public companies in connection with filings that violate the federal securities laws. Critics of the bill say it will chill communications between lawyers and their public company clients and make lawyers more conservative in advising companies regarding their disclosure obligations.

April 15, 2003

The search appears to be

The search appears to be over. The Commission announced today that William J. McDonough is its nominee to become the new Chairperson of the five-member Public Company Accounting Oversight Board. (The Commission said it will not “formally” appoint McDonough until a thorough background check has been performed.) McDonough chas been the president of the Federal Reserve Bank of New York since 1993, but will resign that position to assume his position as chairperson of the PCAOB. The Commission’s press release announcing McDonough’s nomination is available at

April 14, 2003

The Commission declined today to

The Commission declined today to review the staff’s position that a registrant may exclude from its proxy statement a shareholder proposal seeking to allow any beneficial owner of 3% or more of the outstanding stock to propose a board nominee for inclusion in the registrant’s proxy statement. The American Federation of State, County and Municipal Employees had requested that the Commission reverse the staff’s position (expressed in a no-action letter to Citigroup) that such a proposal relates to an election of directors and therefore is excludable under Rule 14a-8(i)(8). At the same time, the Commission asked the staff for a report on all rules and intepretations relating to the election of directors and recommendations for improving shareholder participation. The report is to be based on the input of all interested constituencies, and is due July 15. The Commission’s press release is available at

This is a hot governance topic, and at least one Commissioner has expressed sympathy for AFSCME’s position in recent speeches.

If shareholder proponents win the right to include alternative nominees in the registrant’s proxy statement, the nature of election contests will change dramatically. So, expect this issue to receive major shareholder and media attention.