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Following up on my Monday blog, a number of members have asked for more information about what Corp Fin Chief Accountant Carol Stacey said at the ABA Fall Meeting Saturday regarding forthcoming option backdating guidance. In essence, Corp Fin hopes to issue guidance to clarify what filings will be required under various circumstances, with the likely result that the burden of needing to amend all prior filings being reduced – and alleviate the need to seek Staff approval before deciding not to amend the filings for all prior years (you still would have to restate for those prior years, but you may not have to file amended reports for those years). In other words, the expected relief relates both to not having to file amended reports for a large number of years and the detail required in the financial statement footnotes in order to minimize what needs to be reaudited.

Option Backdating: Nasdaq Issues FAQs on Appeals Process for Deliquent Companies

Since a significant number of companies have become delinquent in their SEC filings due to issues related to stock option backdating, the Nasdaq has updated some existing and added a few new FAQs regarding delisting and the appeals process in the backdating context.

In the FAQs, the appeals process is explained as follows: Nasdaq’s Hearing Panel has the discretion to grant a delinquent company additional time to remain listed, provided the company has a specific plan to regain compliance and is taking appropriate steps to deal with the circumstances which caused the delinquency. The Panel may not, however, grant an extension which would exceed the earlier of 90 days from the date of its decision or 180 days from the date of the Nasdaq Staff’s initial delisting notification. Generally, it is the 90-day limitation that restricts the time available to a company to cure its SEC filing deficiency.

When a Nasdaq company cannot cure its SEC filing deficiency within the extension of time provided by the Hearing Panel, it may appeal the Panel’s determination to the Nasdaq Listing Council. An appeal to the Listing Council does not stay the Panel’s decision to deny continued listing to the company. Further, the time for appeal, which must be made within 15 days of the date of the Hearing Panel decision, may have expired at the point when the company determines that it will not file within the extension period granted by the Hearing Panel.

However, all Panel decisions are also subject to being “called for review” by the Listing Council. In connection with a call for review, the Listing Council has the discretion to stay the Panel’s decision. Should the Listing Council grant a stay, then the company would remain listed during the pendency of the Listing Council’s review. If the Listing Council determines it is appropriate, it may grant the company additional time to regain compliance while listed, until the earlier of 60 days from the date of its decision or 180 days from the Hearing Panel’s decision.

In a new FAQ, Nasdaq states that it is using the “call for review” process in certain cases in order to stay the delisting of companies that are SEC filing delinquent due to stock option issues while the company remains in the appeals process. This new FAQ is repeated below:

“Generally, the Listing Council will not exercise its discretion to stay a Panel delisting determination. However, with respect to companies that have become filing delinquent due to issues related to accounting for stock options, the Listing Council has determined that it may be appropriate to grant a stay. In that regard, the Listing Council recognizes that there are unique circumstances surrounding these issues: most issuers and their accounting firms were taken by surprise; the necessary investigation may require the thorough review of documents and processes surrounding hundreds or thousands of option grants over a period of time typically years ago; and these issues could have enormous effect on the company and the individuals involved.

In view of this, the Listing Council has determined that it may be appropriate to exercise its discretion on a case by case basis, balancing the need for timely financial reporting with the interests of shareholders and issuers in maintaining a listing on a more transparent, liquid market. In determining whether to grant a stay, the Council will, among other things, consider whether the issuer acted promptly and appropriately to address the problems that occasioned the filing delinquency, including whether the issuer commenced an independent investigation and took steps to deal directly with individuals who it determined engaged in misconduct; whether the issuer has adopted appropriate remedial measures to avoid a recurrence of these problems; and whether the issuer will be able to regain compliance within the maximum time afforded by NASDAQ’s rules.”

A Sad Farewell to John “The Duke” Jones

It is with deep sadness that I remember one of the nicest guys I have ever met, John Jones. John was the strong silent type, a former Captain in the Marines who enjoyed boxing (a three time All-American on the NCAA boxing team) – he always struck me that he could have been a movie star if he wanted. John spent a few years in Corp Fin starting in the late ’90s and was General Counsel of Radio One when he suddenly passed away last Sunday of an apparent heart attack at the young age of 38. Our thoughts and prayers are with his family. If you knew John, please take a moment to sign this guest book on WashingtonPost.com.