I really like what Wells Fargo has posted on its website regarding shareholder/director communications and shareholder nominees. They have provided details of how communications might be vetted (including defining “ordinary business matter”) and by whom within the company, as instructed by the board. As you might recall, the NYSE laid out in FAQ D.1 how non-officer employees are allowed to filter shareholder communications, so long as non-management directors have provided instructions as to the nature of the filtering.
I have added this useful example to the others in our “How Shareholders Can Contact Directors” page in our Shareholder Access Practice Area.
Lessons Learned from Lucent’s Non-Cooperation Enforcement Settlement
There are a host of lessons learned – and interesting questions – from Lucent’s settlement with the SEC on Monday which resulted in Lucent paying a $25 million penalty and 10 persons being charged with fraud (3 of the 10 have settled; the other 7 will go to court – one of the 10 had worked for Winstar). It is notable that earlier announcements of the settlement didn’t include a penalty against Lucent – so non-cooperation appears to have cost them $25 million.
The non-cooperative actions that led to the $25 million penalty were:
– “incomplete” and untimely document production
– comments from outside counsel, which according to the SEC “undermined both the spirit and letter of [Lucent’s] agreement in principle with the staff”;
– expanding the scope of employees that could be indemnified against the consequences of the SEC’s enforcement action without being required to do so by state law or corporate charter. The SEC’s press release labeled such conduct “contrary to the public interest.”
In his blog yesterday, Bruce Carton laid out a nice analysis of the non-cooperation aspect of this settlement. He noted that the third element of Lucent’s “lack of cooperation” should be a real eye-opener for public companies in similar situations. He noted that an SEC official was quoted as saying that with respect to Lucent’s offer to pick up the legal tab for employees who would not normally be covered by such benefits, “these people would basically be given a blank check to litigate with us, with no consequences” – and that the SEC has been reiterating in speeches “that to enhance deterrence and accountability, the Commission recently has adopted a policy requiring settling parties to forgo any rights they may have to indemnification, reimbursement by insurers, or favorable tax treatment of penalties.”
Bruce noted that the Lucent case takes that a step further, revealing the SEC’s apparent position that companies indemnifying employees that they are not required to indemnify are (a) outright failing to cooperate with the SEC, (b) acting contrary to the public interest, and (c) subject to stiff fines.
One interesting point is that the Monday article in the Wall Street Journal noted that indemnification of legal fees also was a factor in the non-cooperation – but the SEC’s complaint was silent on that point. More on that later.