April 27, 2006

Corp Fin’s Effectiveness Orders: No More Triplicate!

According to this press release, Corp Fin’s long-standing practice of executing effectiveness orders in triplicate is going the way of the dodo bird. For those not doing deals, these orders are executed by Assistant Directors in Corp Fin, pursuant to delegated authority from the Commission, to officially declare a registration statement “effective.”

The orders are printed on old-fashioned triplicate paper, the kind you have to type up on a manual typewriter – and the typing permeates through the three layers, although the last layer is always a little hard to read. One copy is sent via regular mail to the issuer, one layer goes into some type of permanent record and one copy is probably sold on e-Bay (I am obviously in a joking mood today).

I have to be honest here, it saddens me to see this development as I view the time-honored ritual of typing up an effectiveness order and cornering an Assistant Director to sign it as one of the last remaining vestiges of the “old days.” Alas, no more microfiche, no more mimeograph. The SEC Historical Society should take a snapshot of a junior Staffer leaning over an Assistant Director’s desk with the multiple pages of an effectiveness order flapping in the wind.

As for the notion of a registration statement “going effective,” it has always struck me as odd that a deal could be held up on Wall Street because a junior Staffer was down at Starbucks throwing down a double latte rather than shepparding the proper papers through this process. In other words, unless the registration statement is on a form that allows for automatic effectiveness, a deal can’t go forward until the order is officially executed (even though all comments already are cleared by the Staff – or the registration statement was selected for a “no review” in the first place!). A very mechanical process – and one that will partially remain after this new development; now it will just be an electronic process rather than a paper one.

For you former (and current?) Staffers out there, remember shopping for an Assistant Director that might be amenable to signing your order if your own AD was out of the office? Some ADs had the reputuation of being difficult, such as quizzing you on the contents on the registration statement even though it was just a no-review! In hindsight, they probably were the smart ones – they just wanted the reputation of being unapproachable so that they weren’t hassled…

SEC Still Has Its Own Material Weaknesses

Last Friday, the GAO released this 29-page report covering the SEC’s financials for fiscal years ’05 and ’04 and noting that the SEC still has material weaknesses in its internal controls. The report concluded that many of the material weaknesses carried over from an earlier GAO report that I blogged about many moons ago. In the report, the GAO made 14 recommendations about how the SEC could improve its internal controls.

CalPERS Demands Meeting with UnitedHealth Group’s Compensation Committee

Wow! I was quite surprised to read – in this WSJ article and otherwise – that CalPERS had sent a letter to the head of UnitedHealth Group’s compensation committee to demand a telephonic meeting before the company’s annual meeting (which is next week – should be a humdinger) to learn more about the details of the company’s alleged options backdating practices. I know that activist funds have demanded meetings with directors before, but I can’t quite recall one soley over compensation pay practices nor one that was reported in the mainstream press.

Perhaps this is the start of a new practice by large shareholders? Of course, this is one of the more egregious examples of pay practices, as the lawsuits already have been filed – and UnitedHealth Group is making governance changes as fast as it can. [Speaking of UnitedHealth Group, read my reply contained in Saturday’s WSJ Online to last week’s Alan Murray column.]