June 17, 2005

Zero Tolerance for Tandy Language Modifications

A number of members have asked whether they are permitted to modify the Tandy Letter language in their responses to comments from the SEC Staff. As you might recall, the Staff began requiring Tandy Letter language in all response letters last August, as part of the project to post all comment and response letters on the SEC’s website. The required language is an acknowledgement that “the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any persons under the federal securities laws of the United States.”

Objections to broadly requiring this acknowledgement have been made by the ABA Committee on Federal Regulation of Securities and two committees of the New York City Bar Association. Desired tweaks include such matters as being able to assert the SEC effectiveness order as a defense in an action alleging unregistered sales of securities or the absence of scienter. Another issue is what does the phrase “as a defense” mean, exactly? Would it prohibit using a staff comment ‘to explain’ why certain things were done?

Before last August, the SEC Staff only required this language when the Staff had an open Enforcement inquiry related to a particular company – but this selective approach became unworkable when response letters became universally available.

The SEC Staff’s position continues to be that the Tandy Letter language must be included in the initial response letter and that none of the Tandy Letter language can may be modified – similar to the Staff’s “no changes allowed” position on Section 302 certifications – and the Staff will not tolerate any changes whatsoever. I touched a little more on this topic during yesterday’s webcast” “How to Navigate Tricky Confidential Treatment Requests.”

Delayed 10-K as Credit Default

Yesterday, the NY Times ran this article about how a hedge fund has sent Saks a notice of default on some convertible notes due to a delayed 10-K. In the article, Professor Coffee comments on how novel and aggressive this is as its a “highly technical default”, not an economic one (i.e. about whether the company can pay on its convertible debt) – and he also notes how it might not be just the best strategy, but perhaps the start of a trend.

1K! Broke My Maiden!

After two and a half years in this job, we just crossed the magic “1000” (aka “one large”) mark for questions posted in the Q&A Forum, available from the top tool bar on our home page (can’t link directly to the Forum because oddly the URL changes each time a new question or answer is posted).

Quite a body of knowledge has built up there – and the pace of questions has really picked up this year. Scared to see size of the thing 10 years from now. The Q&A Forum is intended to be an interactive community forum, so feel free to reply any time to a question – and you can also reply to a reply if ya want. [fyi – “broke my maiden” is a horse racing term used to describe when a horse wins its first race.]