Monthly Archives: June 2004

June 15, 2004

Rule 10b5-1 Webcast Transcript is

We have posted the transcript from our popular webcast, “The Latest on Evolving 10b5-1 Plan Practices.”

Nasdaq’s Two New FAQs

The Nasdaq has issued two new FAQs regarding continuing waivers of codes of conduct as follows:

1. Is disclosure required of a waiver to the Code of Conduct granted to an officer or director before the May 4, 2004 effective date for Marketplace Rule 4350(n)?

If the pre-existing waiver relates to a matter concluded before May 4, 2004, then disclosure is not required. If the waiver relates to a matter not concluded by such date or to an ongoing matter without a specific end-date, then disclosure is required, notwithstanding the fact that the waiver was granted prior to the effective date of the Rule. In view of the potential for company confusion as to the applicability of the disclosure requirement to pre-existing waivers, companies will be afforded up to June 15, 2004 to disclose waivers to officers and directors that preceded May 4, 2004.

2. What disclosure is required for a waiver to the Code of Conduct for an officer or director that extends beyond one year?

For ongoing matters or matters extending beyond one year, disclosure is required at least annually.

More on Shareholders’ Agreements

Here is this month’s installment of Carl’s Corner features more commentary by Carl Schneider on Shareholders’ Agreements.

June 14, 2004

Appeal of Staff Exclusion of

As noted in this press release, the Service Employees International Union is appealing Corp Fin’s exclusion of a shareholder proposal to the full Commission. The precatory proposal urged Crescent Real Estate Equities’s board to implement a comprehensive policy governing related party transactions between Crescent and any officer or director, which would require annual disclosure in a separate report to shareholders. Corp Fin had excluded the proposal as ordinary business under Rule 14a-8(i)(7).

Impact of Friday Holiday on Tender Offers?

A reader asked if the Presidential declaration of an unscheduled federal holiday is not a business day for purposes of the 20 business day period that tender offers must remain open, like Friday’s memorial day for President Reagan. [In addition to the memorial day for President Reagan, the day before or after Christmas is sometimes declared to be a federal holiday by a Presidential executive order.]

It is my understanding that the SEC staff takes the position that if the offer is ongoing, you can still count the unscheduled Friday holiday in the 20 days. But you shouldn’t have ended the offer or started it on Friday.

June 10, 2004

The Google Dutch Auction One

One of the more fascinating stories of the year is Google’s decision to forego traditional distribution methods for its IPO and utilize a Dutch Auction process instead. Learn more about Dutch Auctions from my interview with Maria Gabriela Bianchini on Google’s Dutch Auction.

PCAOB Adopts Document Retention and Non-US Review Standards

At yesterday’s meeting, the PCAOB adopted Auditing Standard No. 3 that require auditors to retain their records for seven years – and in sufficient detail so that an experienced auditor with no previous connection to the engagement could read them and understand clearly what work had been performed, who performed the work and why the auditor reached its conclusions.

In addition, the PCAOB adopted rules that call for the PCAOB to take into account the rigor and independence of non-US oversight groups when deciding how to review the work of non-US accountants who have audit clients with stock trading in U.S. markets. To date, 103 foreign audit firms in 42 countries have registered with the PCAOB, with nearly 250 more in the pipeline.

Executive Compensation Trends

You will soon be getting an earful from us on executive compensation in the next issue of The Corporate Counsel. But if you can’t wait, I suggest you check out this IOMA webinar being held next Tuesday featuring Dick Wagner, an experienced compensation consultant who isn’t afraid to speak his mind.

Dick just joined an executive compensation task force that I have been helping set up in connection with our October 20th major compensation conference. More about that later…

June 9, 2004

302 CEO/CFO Certifications in Amended

It looks like Corp Fin’s position on 302 certifications for amended filings has evolved a bit. Now, if an amended filing contains an amendment to the Reg. S-K Item 307 & 308 disclosure about the company’s evaluation of disclosure controls and procedures and internal controls for financial reporting (and accordingly, the paragraph 4 certifications regarding controls and procedures are made), the CEO/CFO must also make the paragraph 5 certifications. In other words, paragraphs 4 and 5 go together when it comes to amended filings.

We have added a decision tree for 302 certifications in amended filings to our “CEO/CFO Certifications” Practice Area.

SEC Cleaning House Re: ’34 Act Filers?

Yesterday, the SEC instituted two separate public administrative proceedings against 31 companies to determine whether to revoke the registration of their securities under the ’34 Act (the SEC also temporarily suspended trading in the securities of 26 of these companies).

This really is not newsworthy, except that it’s the first time that the SEC has brought this type of action. Even though the SEC appropriately is going after these shell companies to prevent market manipulation, I couldn’t help but think how this will help reduce Corp Fin’s review burden under Section 408 of Sarbanes-Oxley (i.e. each ’34 Act filer must be reviewed once every 3 years), even though 31 companies is merely a drop in the bucket…

June 8, 2004

More Auditor Independence Woes for

Yesterday, Korn/Ferry International filed an 8-K reporting that it has been advised that the SEC staff is conducting an informal inquiry into independence issues arising out of payments made by Ernst & Young, the company’s auditors, to a company affiliated with a former director of the company for marketing services.

The Wall Street Journal reports today that Best Buy and TeleTech Holdings also are subject to the same SEC inquiry, as the same consultant sits on their boards and also use E&Y as their auditor (but these two companies have not yet filed a 8-K regarding the investigation). The WSJ points out the major difference between this inquiry and the recent PeopleSoft one (which led to E&Y being barred from obtaining new public clients for 6 months) – this new investigation involves only $377,000 for the director’s marketing consulting; the PeopleSoft matter involved $500 million.

Apparently the provision on auditor independence that the Staff is looking at is Rule 2-01(c)(3) of Regulation S-X. Rule 2-01(c) sets forth a non-exclusive specification of circumstances inconsistent with auditor independence:

“3. Business relationships. An accountant is not independent if, at any point during the audit and professional engagement period, the accounting firm or any covered person in the firm has any direct or material indirect business relationship with an audit client, or with persons associated with the audit client in a decision-making capacity, such as an audit client’s officers, directors, or substantial stockholders. The relationships described in this paragraph do not include a relationship in which the accounting firm or covered person in the firm provides professional services to an audit client or is a consumer in the ordinary course of business.”

According to the 8-K, E&Y conducted an internal review and confirmed its independence to Korn/Ferry – and based on that confirmation and its current knowledge, Korn/Ferry believes that E&Y’s independence was not impaired. Thanks to eagle eye Mike Holliday for helping out on this one!

Disclosure about’s IPO Cooling Off Period

On May 25th, I blogged about how’s IPO was delayed due to gun-jumping concerns. The company has filed an amended S-1 with a risk factor related to this potential gun-jumping and we have added it to our laundry list of “Risk Factors Regarding Gun-Jumping” in our “Disclosure Samples & Analysis” Practice Area. So far, the cooling off period appears to be nearly 4 weeks and counting…but some of this period might be attributed to the company’s own timetable for going to market.

No EDGAR on Friday

Out of respect for President Reagan, the SEC will be closed this Friday – and EDGAR will not be accepting filings.

June 7, 2004

More on the Berlin-Bremen Exchange

Dan Mahoney of Rogers & Theobald LLP reports that he has had success getting his clients delisted from the Berlin-Bremen Exchange after sending a communcation to Julia Hädicke at Berliner Freiverkehr. Her contact information is: (Aktien) AG – Kurfürstendamm 119 – 10711 Berlin / Phone: +49-30-890 21 143 – / Fax: +49-30-890 21 198 / email –

To find out if a company has been delisted – go to Yahoo-Finance and enter the company’s ticker symbol and then “.be” after it, the listing on the Berlin-Bremen Exchange will come up. It will show whether they were dropped or not. Some are simply pending, so they display all zeroes.

Dan notes that the Berlin-Bremen Exchange is the same as the so-called “Unofficial Regulated Market”, which is one of the three organized and regulated markets of the German exchanges (the other two are the Official (“Amtlicher Markt”) and the Regulated (“Geregelter Markt”) Markets). The Berlin-Bremen Exchange listing process is simple as an authorized broker merely needs to file an application for a permit with the administration of the exchange for trading the stocks.

For trading on this exchange, there are fewer requirements (egs. there are no annual fees and no publication and, of course, no consent requirement by the company) – because the stocks are already listed on other exchanges that have more extensive review criteria.

June 4, 2004

Enforcement’s New “Wildcatting” Philosophy Recently,

Recently, the SEC’s Enforcement Division has signaled a change in philosophy – from a reactive approach (i.e. investigations of individuals or companies were initiated after evidence of a possible violation surfaced) to “seeing around the corner.”

In this interview with Bill Baker on the SEC Staff “Wildcatting” for Fraud, Bill – who recently left as an Associate Director in Enforcement to join Latham & Watkins – explains how Director Stephen Cutler has a desire to foster a cultural change within the enforcement program to encourage more risk taking when pursuing investigations where, at the outset, it is not clear that a securities violation has occurred. This also is known as “wildcatting.”

Hats Off to Cecilia Blye!

Yesterday, Cecilia Blye was promoted to head Corp Fin’s new Office of Global Security Risk. As Cecilia has been a staple in the Office of Chief Counsel for some time, many of you might have dealt with her over the years. She is an absolute sweetheart and I bet many staffers will be applying to serve under her experienced and steady hand.

June 3, 2004

Impact of Internal Controls on

Here is a pretty interesting interview with Chris Ford and Scott Stevenson on Impact of Internal Controls on Outsourcing. Not only is the topic timely, but the impact of 404 on outsourcing can be significant, particularly for more mature companies that have outsourced functions or processes that affect controls over financial reporting.

What is the Berlin-Bremen Stock Exchange? And Why is Your Company Listed There (Without Your Knowledge)?

Here is a question I answered yesterday on our Q&A Forum: “One of our smaller publicly held clients received notice that its shares have been listed for trading on the Berlin-Bremen stock exchange, without the company’s prior knowledge, consent or authorization. From a quick search on the internet, it looks like this has happened to a number of other smaller publicly held companies and that the concern in that due to the unregulated nature of this exchange, a company’s stock could be targeted for naked shorting. Has anyone had any experience with this issue and procedures with the de-listing process?”

For the answer, check out our Q&A Forum, which is available from a button at the top of the home page on (hint – this development is affecting hundreds, and perhaps, thousands of companies!)

June 2, 2004

Happy Birthday SEC! On Thursday,

On Thursday, the SEC celebrates its 70th birthday with a small party for members of the SEC Historical Society and current SEC staffers – join the Society now by making a small donation. As part of its 5th Annual Meeting on Thursday, the Society is offering this free webcast with Doris Kearns Goodwin, Pulitzer Prize-winning author, who will discuss Joseph P. Kennedy as the first SEC Chairman.

Some of you might have been at the SEC’s 60th celebration at the National Building Mueseum a decade ago. Boy, that was some bash!

SEC Staffers in Need of a Shrink?

Thanks to Bruce Carton for digging out this gem – I gotta repeat his blog verbatim:

“Attention psychologists! You have just 9 more days to respond to the SEC’s job posting seeking an in-house psychologist to help “improve employee attitudes and satisfaction related to employee retention, job satisfaction, burnout, conflict and stress.”

The SEC’s decision to hire a psychologist for its employees, discussed in this article by Judith Burns of the AP, was reportedly met with a steady stream of one-liners from former SEC officials, including:

Bill McLucas (former Director of the SEC’s Division of Enforcement): “Just one? They should get a couple.” McLucas also figured “it’s going to take more than two years” to buck up morale at the federal securities agency. “This is a long-term job.” McLucas also was quoted as saying said he’d like current Enforcement director Stephen Cutler to get the first appointment once the psychologist is on board so that “he can take out his hostilities with that person instead of my clients.”

David Becker (former SEC General Counsel): “Working for the SEC in the current media climate is enough to drive anybody nuts.” Becker also wondered if the SEC is “about to introduce the group hug as a regulatory technique.”

Harvey Pitt (former SEC Chairman): “The SEC is a great place to work, but it is not for the faint of heart.” Asked if the SEC is a very stressful place to work, he joked: “Certainly, if you’re chairman.”

Laura Unger (former acting SEC Chairman): Asked whether SEC employees would line up to talk to a psychologist, Unger said “I have this picture of Charlie Brown sitting at his window with a ‘doctor is in’ sign and nobody showing up.”

Personally, I don’t know what to make of this other than I predict that a lot of heated discussions with SEC staff are going to end with the following salvo by defense counsel: “I think you need to see the SEC shrink!”

June 1, 2004

NYSE Updates Its Affirmations On

On May 25, the NYSE posted updated versions of its Section 303A Annual Written Affirmation, Interim Written Affirmation and Exhibit G (the updates are not yet marked on the NYSE’s Corporate Governance page – but on the updated forms themselves, they say “Updated May 25, 2004” on the top of the forms).

These updated forms make clear that companies that list only preferred or debt securities don’t have to file the annual CEO certification and that Exhibit G need not be filed by companies that have indicated on Exhibit D that they are exempt from Rule 10A-3 (regarding audit committees). Preferred and debt-only companies still have to file the annual company certification and must either comply with Item E on audit committees or explain their exemption on Exhibit D.

The updated affirmation form also adds business development companies and open-end management investment companies to the types of listed companies and changed the affirmation to apply to such companies. There may be other changes that I didn’t notice.

The Latest on Evolving 10b5-1 Plan Practices

Join us tomorrow for an exciting webcast – The Latest on Evolving 10b5-1 Plan Practices – in which a growing number of panelists will explain how the 10b5-1 market has changed recently – and what you should do now to keep up with the market. Take a look at this all-star panel, including key representatives from three Wall Street firms:

– Sue Morgan, Partner, Perkins Coie LLP
– Sharon Hendricks, Shareholder, Heller Ehrman LLP
– Lou Rorimer, Partner, Jones Day
– Michael David, Executive Director, Executive Services Group, Morgan Stanley
– John Berton, Vice President and Associate General Counsel, Goldman Sachs
– Keith Schnaars, Director, Private Banking & Investments, Merrill Lynch
– Georgia Bullitt, Executive Director and Counsel, Morgan Stanley
– Jeff Mullen, Vice President, Structured Equity Solutions Group, Goldman Sachs

Try a no-risk trial now to to listen to this practical and timely program.