Thanks to Penny Somer-Greif of Arnold & Porter LLP, here are notes from the PLI’s “PCAOB Speaks” held a few weeks ago – the notes are written from the perspective of how the PCAOB’s activities impact public companies. There were a number of provocative points made during the conference, such as whether independent auditors were using enough skepticism in their evaluation of audit committees.
Personal Plane Perks
Today’s WSJ carries a front-page article on personal plane perks. This topic isn’t going away. The upcoming May-June issue of The Corporate Counsel will deal with this topic in detail, that issue should be out in about two weeks.
Example of Reporting-Up Obligations at Work
From a few weeks back, this press release from Theragenics Corporation describes how the company’s CFO and General Counsel reported up alleged violations caused by the CEO – and how they then resigned after the audit committee determined that there were no violations. I wonder what the back-story is there!
Here is an excerpt from the press release:
“James MacLennan and Tracy Caswell, the Company’s Chief Financial Officer and General Counsel, respectively, recently reported to the Board of Directors allegations regarding actions taken by the Company’s Chief Executive Officer that they viewed as inappropriate. The allegations did not relate to the accuracy of the Company’s financial statements or prior public disclosure by the Company. A subcommittee empanelled by the Company’s Board of Directors consisting solely of independent directors, with the assistance of special legal counsel, has investigated the allegations and presented its report to the Board. Following receipt and evaluation of the subcommittee’s report, the Board of Directors has determined that no violation of law or rule or regulation applicable to the Company or of any duty owed to the Company has occurred.
“Theragenics has been and remains committed to high ethical standards and this was confirmed by our investigation,” said Patrick Flinn, Chairman of Theragenics’ Audit Committee. “We take allegations of misconduct very seriously. The process worked the way it should have and is now complete with no violations found.”
Mr. MacLennan and Ms. Caswell have informed the Company that they will not participate further in the preparation of the Company’s public disclosure. Accordingly, the Board of Directors has accepted their resignations today. Mr. MacLennan, through counsel, has assured the Board in writing that he is not aware of any facts or circumstances that would cause the financial information contained in the Company’s earnings announcement issued April 22, 2005, to be inaccurate.”
An E-mail Retention Scare
A few days back, Reuters ran this disturbing article about the Morgan Stanley case and related e-mail perils. The disturbing part was the second sentence of this excerpt:
“Banks and broker-dealers are obliged to retain e-mail and instant messaging documents for three years under U.S. Securities and Exchange Commission rules. But similar requirements will apply to all public companies from July 2006 under the Sarbanes-Oxley corporate reform measures.”
Chuck Ragan of Pillsbury Winthrop Shaw Pittman confirms that he is unaware of any measures likely to be enacted that would extend the broker-dealer retention mandates of SEC Rules 17a-3 and 17a-4 to all records of all public companies.
Chuck notes that Sarbanes-Oxley imposes liability for failure to preserve records in the face of pending or reasonably anticipated litigation, but not all records at all times, as this sentence would suggest – and in the absence of a duty to preserve for litigation, there is no generally applicable obligation to retain all documents, e-mail and instant messaging, and organizations may still adopt policies to manage their information and records in accordance with sound business practices and other legal rules.