December 27, 2004

Disney’s Eisner Was Originally Included in SEC Disclosure Case

In this article, Bloomberg reported just before Christmas Eve that the Commission originally was pursuing a claim against Disney CEO Michael Eisner as part of the settlement the company reached with the SEC earlier in that week over disclosure violations. Apparently, Eisner and the Enforcement staff had reached an accord in which he took blame for not disclosing the company had business ties to some directors as well as omitting disclosure of certain compensation.

But the SEC commissioners split on that aspect of the settlement, ending the
case against Eisner and leaving just the case against the company; marking the second time this month the Commission balked at approving a staff recommendation to penalize a company official. On December 9th, SEC Chair William Donaldson and two commissioners rejected a Enforcement settlement with former Global Crossing Chair Gary Winnick. Must be some pretty interesting closed Commission meetings these days…

SEC Posts Adopting Release for Regulation AB

Thacher Proffitt has this analysis of the adopting release for the new asset-backed framework (warning: 495-page PDF!), that was posted late last week: The securitization industry has received a very important benefit under Regulation AB relating to market-making. In the proposing release, the SEC had taken the position that a current prospectus was required in market-making transactions (that is secondary sales by dealers who are affiliated with the depositor). Moreover, the SEC proposed that all pool information in the original prospectus would have to be updated in the market-making prospectus.

A number of comment letters (including letters from The Bond Market Association, the American Securitization Forum and the ABA) argued that the policy reasons for requiring a market-making prospectus did not reasonably apply to ABS. Comments also stated that there were adequate protections under federal securities laws to prevent misuse of information by dealers in these transactions.

In the adopting release for the final Regulation AB, the SEC stated that “we are sufficiently persuaded by these comments such that we will no longer require registration and delivery of a prospectus for market-making transactions” for ABS (see footnote 192).

In other words, there is no longer any requirement in secondary transactions to update the prospectus – or to maintain 1934 Act reporting after it is allowed to be suspended as a means of updating the prospectus – merely because the depositor is affiliated with the dealer. This position applies regardless of whether the dealer is affiliated with the servicer. This position does not apply to registered remarketing transactions, resecuritizations where information must be provided on the underlying ABS, or a delayed or continuous selling shareholder offering. However, these exclusions would not apply to typical market-making transactions.