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One of the many topics that the SEC Commissioners discussed during last week’s testimony before the House Committee on Financial Services was the SEC’s ongoing efforts to scale back the implementation of Section 404 of Sarbanes-Oxley. When asked whether more of a delay in implementing Section 404 was necessary for smaller companies, the Commissioners rejected any notion of extending the compliance timetable.

Just a couple of days later, the US House of Representatives passed an amendment to the SEC’s appropriations bill that would limit the agency’s ability to require Section 404 compliance by non-accelerated filers for all of fiscal 2008 (that is, through September 30, 2008). Having not had much luck getting traction in the House with more comprehensive Sarbanes-Oxley reform, the sponsors of the amendment (Rep. Scott Garrett (R-NJ) and Rep. Tom Feeney (R-FL)) sought to use the often more reliable “power of the purse” to give smaller companies additional time for digesting new SEC and PCAOB guidance. Despite lobbying efforts by groups such as the AFL-CIO, the Council of Institutional Investors, AARP, a coalition of consumer groups and even leaders from the House Committee on Financial Services, the amendment passed by a vote of 267 to 154.

While the amendment’s prospects in the Senate are unclear, the fact that it passed so shortly after the SEC’s reassurances that it was making progress in reducing Sarbanes-Oxley compliance burdens certainly raises the pressure on the agency to reconsider giving smaller companies another break. At this point, can’t we just bite the bullet and get on with it? [Note that the bill itself is the appropriations bill, H.R. 2829, which doesn’t say anything about 404. The Garrett-Feeney amendment was introduced on the floor, and the text of it is reported here in the Congressional Record.]

More House Action: Compensation Consultant Conflicts

As Broc noted back in May, Rep. Henry Waxman (D-CA), Chairman of the House Committee on Oversight and Government Reform, had sent letters to a number of compensation consulting firms seeking information about their potential conflicts of interest when recommending pay packages for executives. Based on this article from Saturday’s NY Times, it looks like Rep. Waxman means business on this matter, issuing a subpoena to Towers Perrin seeking the previously requested information about the firm’s clients and the services that it provides to those clients.

When adopting the executive compensation rules last year, the SEC rejected suggestions from some commenters that the rules require disclosure about the actual or potential conflicts of interest that compensation consultants may have when designing or recommending executive pay. Given that Rep. Waxman’s inquiry shows no signs of abating, this issue will potentially be a hot topic among shareholders (and perhaps the SEC) going into next proxy season.

SEC Posts Electronic Form D Proposing Release

In yet another installment of the proposals directed at making things easier for small business (and in this case, anybody doing Reg. D private placements), the SEC posted its proposing release for simplifying Form D and establishing an online filing system for the Form. This one has been on the Corp Fin to-do list for a while now, so it is nice that this proposal is now seeing the light of day.

Under the proposal, Form D would be reorganized into 14 numbered items that would solicit information generally along the lines of what Form D requires now, with some tweaking (and in some cases expansion) of the current disclosure requirements. More explicit direction on when to file amendments to Form D are also proposed, which would hopefully clarify those situations where there is most likely a material change in the previously submitted information.

The proposed electronic filing capability would be available to anyone using a computer with Internet access. Filers would obtain the same codes necessary to file using the EDGAR system, and would utilize an online Form D filing system with drop-down menus designed to assist in preparation of the Form. In terms of output, the filed Form D would be available to the public through the SEC’s website in either normal text or XML. With the proposed XML feature, the tagged data would be searchable and “interactive.” The SEC proposes to take care of any general solicitation and general advertising concerns arising from the ready availability of Form D by proposing a safe harbor for the electronically filed information, so long as it was provided in good faith and the issuer made reasonable efforts to comply with the Form D requirements.

The SEC has established a 60-day comment period for this proposal. We will be posting memos about this and other smaller company capital-raising reform proposals in our “Private Placements” Practice Area.

– Dave Lynn