TheCorporateCounsel.net

As part of our “Drill Down” series of webcasts on the ’33 Act reform, we have posted draft T&R Responsiblity Schedules in our “Securities Act Reform” Practice Area to help you think about how deals will look like after December 1st. The samples below are just drafts as the reform is so new and there is some uncertainty as to how some of the rules will be interpreted – and how bankers/lawyers will apply them. Please send comments to me as you look at these:

– Draft Time & Responsibility Schedule – WKSI Equity Offering
– Draft Time & Responsibility Schedule – IPO Equity Offering
– Draft Time & Responsibility Schedule – Seasoned Issuer Equity Offering
– Draft Time & Responsibility Schedule – Unseasoned Issuer Equity Offering

More Disney Opinion Analysis

On CompensationStandards.com, in addition to the opinion itself, we now have a horde of law firm memos analyzing the case in our “Disney Opinion and Analysis” section on the home page. In addition, Mike Melbinger has been blogging nearly daily on various aspects of the opinion in his “Melbinger’s Compensation Blog.” And to get a take on the case from some academics, check out the Conglomerate Blog.

SEC Charges Kmart CEO and CFO for Words, Not Numbers, Fraud

Yesterday, the SEC filed charges against the former top Kmart CEO and CFO for misleading investors about Kmart’s financial condition in the months preceding the company’s bankruptcy. According to the SEC’s complaint, the former officers were responsible for materially false and misleading disclosure about the company’s liquidity and related matters in the MD&A section of Kmart’s Form 10-Q for the third quarter and nine months ended October 31, 2001, and in an earnings conference call with analysts and investors.

What’s interesting in this case is that the SEC is alleging misleading narrative in the MD&A; not bad numbers. The SEC alleges that Kmart’s MD&A section didn’t disclose the reasons for a massive inventory overbuy in the summer of 2001 and the impact it had on the company’s liquidity. For example, the MD&A disclosure attributed increases in inventory to “seasonal inventory fluctuations and actions taken to improve our overall in-stock position.” The SEC alleges that this disclosure was materially misleading because, in reality, a significant portion of the inventory buildup was caused by a Kmart officer’s reckless and unilateral purchase of $850 million of excess inventory.