August 15, 2006

New Market Reg Director: Erik Sirri

Yesterday, SEC Chairman Cox appointed Erik Sirri as the new Director of the Division of Market Regulation, the last remaining senior SEC post that was vacant. It has been open since Annette Nazareth moved up to Commissioner last year.

Eric currently is a Finance Professor at Babson College and served as the SEC’s Chief Economist back in the late ’90s, back when I was worked for Commissioner Unger – so I have seen Erik in action. It is not unheard of for an economist to be head of Market Reg – Rich Lindsey moved up from Chief Economist to Market Reg Director in the mid ’90s.

SEC’s IM Staff Provides No-Action Relief After Goldstein

Last Thursday, the Division of Investment Management Staff gave this no-action response to the American Bar Association’s Subcommittee on Private Investment Entities to provide guidance to the hedge fund industry following June’s decision from the US Court of Appeals for District of Columbia Circuit, Goldstein v. SEC.

The Goldstein decision vacated Rule 203(b)(3)-2, the intent and effect of which had been to require the registration of a substantial number of investment advisers to hedge funds. As Chairman Cox noted in this recent testimony on the Hill, the SEC has decided not appeal the Goldstein ruling – instead, the SEC will go back to the drawing board and propose new hedge fund rules in the near future.

Alleged Section 409 Violation: The Quoza Story

A new monitoring service from Quoza claims to track whether companies are posting their press releases on their websites before – or exactly – at the same time that information is otherwise disseminated. The origins of this service appears to be based by the requirement in Section 409 of Sarbanes-Oxley for companies to disseminate information on a “rapid and current basis.”

Apparently, Quoza’s software repeatedly checks the IR and PR web pages of companies – and Thomson began to block this monitoring/tracking software because it causes “performance degradation and impairs its ability to accurately understand website traffic, usage trends and analytics.” Thomson operates the IR and/or PR web pages for a number of public companies. From what I gather, Thomson has requested a Cease & Desist order – and Quoza has made a number of complaints against Thomson, some of which are detailed on this page. Quoza also has sent this e-mail to a number of companies:

“You are in violation of section 409 of the Sarbanes- Oxley Act. Please stop blocking access to your website. This email is to inform you that is launched and available to the public. We invite you to visit and read the ‘Why Us’ section on the site. This section is self-explanatory and highlights the need and the mission to bring timely reporting, transparency and equal access to all material and mosaic news of your company to the masses and the small investor. Our objective is to bring all investors a fair system in real time that monitors information that leads to investment decisions. One way we do this now is bringing clear illustration thru compliance reports that show some locations where and possibly when information was distributed.

You may or may not be aware that we have had serious problems with one of the operating units of your subcontractor, The Thomson Corporation, stock symbol [TOC] which handles your website press release pages. They have been blocking and disrupting our attempts to bring timely reporting, transparency and equal access of your news to the masses.

The Thomson Corporation [TOC] is a company that has many services to add value to and integrate information. The Thomson Corporation [TOC] sells their services to many large financial institutions and the elite and helps distribute these services fast. Most of corporate America has been working to comply with section 404 of Sarbanes-Oxley. We note on our site that section 409 of Sarbanes-Oxley requires public corporations to distribute material information on a “Rapid and Current Basis”. We would like to caution you that the blocks placed by The Thomson Corporation on access to all your news that is material and non-material (mosaic) disrupts our ability to bring your news to the masses on a rapid and current basis. This increases the liability for your company and places your company in violation of section 409 of Sarbanes-Oxley. It is clearly a conflict of interest for The Thomson Corporation to handle and control access to your press releases on your website, while using this information to sell value added services to large financial institutions and the elite.

Your company can increase fairness and distribution by releasing all material and non-material (mosaic) information on your website, at the very same time such information is released, distributed or sold to large financial institutions and the elite anywhere else. By releasing all material and non-material information on your website, even if any non-material information is later determined to be material, you can demonstrate that the information has been made widely available thru your website. This also reduces your company’s liability and exposure.

Quoza gives the public the ability to extract your news from your company website, rather than the masses reading your edited company news on a third party websites. You are in total control of how you want your news story to be presented on your website along with other marketing material. Quoza’s method of giving the public the ability to extract news from your company website carries with it marketing advantages for your company at no additional costs. Quoza’s compliance reports on your news stories can also serve as a tool to decrease your company’s exposure and liability by bringing transparency and equal access to all your material and non-material (mosaic) information.

Quoza is offering a 24-hour free trial period to all general subscribers and corporate sponsors. We believe once you view our product by visiting and read ‘Why Us?’ you will cooperate with us by asking The Thomson Corporation to stop blocks on our attempts to bring timely reporting and transparency of your company news on your web pages to the masses.

You can demonstrate your support for Quoza by becoming a corporate sponsor for an annual sponsorship USD 5000 per year. This fixed annual sponsorship fee is open to first 100 corporate sponsors at this time. The regular site sponsorship fee is USD 10,000 per year. You can also register as a general subscriber, which costs only USD 15.95 per month, but paid on an annual basis for a total cost of USD 191.40..

As a Corporate sponsor, Quoza will provide the service of giving the public the ability to extract news for your company directly from your website, along with the news time compliance reports. This service provided for news of corporate sponsors will be free to everyone and not just reserved for Quoza’s paid subscribers.

We look forward to your support in our mission to bring timely reporting, transparency and equal access to all your material and non-material information. If you need to contact us you can do so through the contact us section on the registration page. If you want one of our representatives to call you, please include your contact information and the best time to reach you in your email.”

My ten cents: This may very well be a novel case for a court to determine whether automated processes, such as crawlers, spiders, and other applications that scrape data or perform automated retrieval of content, are considered to be to legitimate users of web sites. In addition, I believe most of us presumed that the SEC’s adoption of new Form 8-K rules in 2004 (ie. “real-time” disclosure) took care of what Congress envisioned in Section 409 of Sarbanes-Oxley. It will be interesting to see how this plays out…