November 15, 2005

My Ten Cents: The SEC’s Focus on XBRL

It appears that one of Chairman Cox’s top priorities is the use of XBRL; here is a speech he gave last week on the topic (and here is another speech he gave recently). The SEC’s XBRL pilot has been in operation since April – and in that 6 month period, a total of 19 filings have been made in XBRL. I believe there’s a reason for this: the technology is complex and the payoff for a company that dabbles in it is small (at least right now), so that no one wants to invest in creating even an XBRL test filing.

Chairman Cox is absolutely right in his concern that the SEC is behind the curve regarding the use of technology to give examiners a jump on where to focus their resources, but I’m not convinced that widespread adoption of XBRL will be the big breakthrough that helps solve that problem. Plus I believe it will take quite a while to get most companies over the XBRL hump (EDGAR was not built in a day; it took roughly a decade until full implementation).

From what I understand, there perhaps are other quicker – and cheaper – ways for the SEC to leverage automated analysis. For example, the SEC could buy data and create analytics based on XBRL data; there are multiple XBRL providers already and some can convert financial statements into XBRL almost on the fly. So the SEC could do what the FDIC has already accomplished – create a templated report that every company has to file and this template could have XBRL behind the curtain. Just my ten cents…

Caselaw Developments regarding D&O Insurance

In this podcast, Nate McKitterick of DLA Piper Rudnick Gray Cary explains the latest caselaw developments involving D&O insurance – which have drastic implications as innocent D&Os could see their policies rescinded – including:

– What is “rescission”?
– What have the courts said recently regarding rescission?
– Won’t the indemnification obligations adequately protect the directors and officers?
– What can a company and its board do to minimize rescission risk?

When ERISA Suits Tagalong to D&O Claims, the Fiduciary-Liability Coverage Might Not

From the Insurance Scrawl Blog: Corporate directors and officers litigation today often involves claims asserted under the federal securities laws as well as under federal employee-benefits law (ERISA). The plaintiffs in these suits are conceptually different: securities-law plaintiffs are people who (and entities that) purchased or sold the company’s securities; ERISA plaintiffs are participants in employee-benefit plans that held or permitted the investment in company securities. Increasingly, ERISA cases are tagging along to securities cases: the directors and officers (who often are plan fiduciaries) are alleged to have failed to disclose certain facts about the company’s operations or finances to the market generally (for securities claims) or to participants in company-sponsored employee-benefit plans (for ERISA claims).

The United States Court of Appeals for the First Circuit recently had the opportunity to address coverage for a tagalong ERISA claim that was made four years after a securities-law class action was filed. In a very troubling opinion, the court ruled that no coverage was available for the ERISA class action because the gravamen of the complaint echoed the allegations in the earlier securities class action. The basis of the court’s ruling was not that the policyholder had failed to disclose the early securities-law class action, but rather that a generic prior-and-pending litigation exclusion barred coverage. Federal Ins. Co. v. Raytheon Co. (1st Cir. Oct. 21, 2005). More analysis on this case is provided here.