July 6, 2005

Nasdaq’s View on Impact of 404 on Smaller Companies – and Member Rebuttal

As noted in this press release, Nasdaq GC Ed Knight provided the following testimony on the impact of 404 on smaller companies before the SEC’s Advisory Committee of Smaller Public Companies. Here are some highlights:

– Based upon a survey of Nasdaq companies, as a percent of revenue, smaller issuers appear to have spent approximately 11 times more than larger companies on 404 compliance

– Since auditor resources are stretched thin, the set of smaller companies that do retain national auditors often receive less attention and are put on a lower priority track than larger companies; Nasdaq issued 60 delisting letters to issuers that failed to file on time, while last year only 14 companies were late

– In the first quarter of this year, 22 Nasdaq issuers voluntarily delisted compared to only seven in the same period in 2004; in each of these cases, the companies explained their decisions by citing the increasing regulatory costs associated with being public

Some members noted the fact that Nasdaq has 60 companies in delisting proceedings due to late filings is frightening – and that maybe the SEC should consider a different process to be used for those types of late SEC filings that are not caused by an “Enron type” of fraud (i.e. one does not require auto-delisting, but allows Nasdaq staff discretion to monitor the company). As noted in this earlier blog, it’s not too late to provide comments to the Nasdaq regarding its delisting procedures.

Disclosure Trends on Late SEC Filings

Sheldon Krause provides this interesting insight into how companies tend to announce that they will be late making their SEC filings: Late Nasdaq filers mainly wind up filing an 8-K under Item 3.01 to disclose noncompliance; whereas NYSE companies seem to rarely do so (although he has noticed a recent trend of more 3.01 8-Ks by NYSE companies).

Of particular interest to Sheldon is Saks filing a Form 8-K under Item 3.01 on June 3rd to disclose the late filing after having already filed a Form 8-K under Item 8.01 on May 17th reflecting that the company had received a May 3rd letter from the NYSE stating that they would have the dreaded “LF” indicator displayed aside its trading symbol.

The Art of Private Equity M&A

On, the long-awaited transcript from the popular webcast – “The Art of Private Equity M&A” – is now available.

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