TheCorporateCounsel.net

Monthly Archives: October 2007

October 4, 2007

Course Materials Now Available

You are now able to obtain – and print out – the course materials related to our three Conferences. Note that you will need your Conference ID and password to access the course materials (in many cases, your ID and password for TheCorporateCounsel.net or CompensationStandards.com will work if you have registered; if not, your Conference ID and password were e-mailed to you earlier this week).

If you’re watching online, obtain the Course Materials for the your Conference(s) either here – or directly at these links (if you’ll be in San Fran, a set will be handed out to you):

– “Tackling Your 2008 Compensation Disclosures: The 2nd Annual Proxy Disclosure Conference” (to be held Tuesday, 10/9)
– “Hot Topics and Practical Guidance Conference: The Corporate Counsel Speaks” (to be held Wednesday, 10/10)
– “4th Annual Executive Compensation Conference” (to be held Thursday, 10/11)

Instructions for Those Watching Online: Come to the home page on the day of the Conference and click the prominent link that will be posted that day. Watch the Conference live by clicking a video link that will be on the Conference page that matches the type of player installed on your computer (ie. Windows Media Player or RealPlayer) and the speed of the connection that you have. Panels will be archived several hours after they are shown live.

For Those Watching by Video Webcast (and Want CLE Credit)…

All three of our Conferences have been accredited in nearly every state which requires barred lawyers to earn CLE credit. The exception being one state where our application is pending (Kansas) and two states that don’t recognize our online CLE (Delaware and Pennsylvania). In our FAQs, there is a complete list of CLE credit hours available via web attendance for each Conference.

However, there are two “catches” to earn CLE credit via web attendance:

1. Need to Watch Live – Nearly every state requires “live” – and not “archived” – attendance, which can be a pain for those on the East Coast as the Conferences are on a West Coast schedule (but partial CLE credit can be earned as noted below).

2. Need to Click Periodic Pop-Up Boxes – To comply with the verification requirements of many of the state bars, we have built a system which requires those seeking CLE credit to click on a periodic prompt as they watch. These prompts – in the form of “pop-up boxs” – will occur every 10-15 minutes and last about a minute. By clicking each pop-up box you see, you have proved to your state bar that you attended (yes, this is annoying – complain to them, not us). Each pop-up box will be prominent and will say “You must click me.” Keep clicking each one you see; don’t stop after just clicking one.

A few other items to note:

Register for CLE Every Day – If you want CLE credit for web attendance, when you first enter the conference page on the day of the conference and click on one of the video feed links; from there, you must click the prominent link in the red box entitled “How to Earn CLE Credit for Web Attendance” and follow the steps. You will need to do this each day if you watch more than one Conference.

Earn Partial CLE Credit – If you can only watch a portion of the Conference, you can still earn CLE credit for the amount of time watched (assuming you click on the prompts as noted above); this is particularly relevant for those on the East Coast.

Limits on Group Watching – You must click the periodic prompts yourself so you can prove to the state bar that you indeed attended (so you can’t earn CLE by sitting in a conference room unless you have your computer with you).

CLE Certificate Mailed Out Next Month – If you followed our online CLE system, we will be mailing a CLE certificate to you – but it’s gonna take us a while to get those out (at least a few weeks).

Pending States – If you seek CLE credit for Kansas where our application is pending, you should sign-in for the prompt system in case they approve the Conference.

Here are a set of FAQs about earning CLE credit for web attendance.

For Those Coming to San Fran…

All three of the Conferences will be held at the San Francisco Marriott, which is at 55 4th Street (here is the hotel’s phone number if you get lost: (415) 896-1600 /(888) 575- 8934). Once you reach the hotel, you will want to check in to receive your badge, etc. – and if you are early enough, there is a continental breakfast available. This master agenda lists check-in and breakfast times for all three Conferences.

If you haven’t registered yet, but do plan to attend in San Fran – note that our HQ can’t accept registrations after 5 pm Pacific today. However, walk-in registration can be done at the SF Marriott – and bring a check or credit card. (Note: registrations for web attendance still can be done online at any time.)

[Captain XBRL strikes again! As noted in this blog, he drops Britney Spear’s former lawyer from top of the heap…]

Free Stoneridge Webcast

Coming up next Tuesday is the much-anticipated Supreme Court oral argument in the case of Stoneridge Investment Partners v. Scientific-Atlanta. As we have noted in the blog before, this one is a biggie!

Tomorrow, the Center for Business Law & Regulation at Case Western Reserve University is hosting a half-day conference on the issues involved in this important case. This event will be webcast live – and for free.

– Broc Romanek

October 3, 2007

Shareholder Access: What Now?

Yesterday was the deadline for comments on the two competing shareholder access proposals, and as might be expected they both pulled in lots of comments. If anything was to be decided on the sheer number of comment letters, then the proposing release that would give 5% shareholders the ability to submit binding access bylaw amendments would be the hands down winner, with over 15,000 comment letters so far. Of those over 15,000 letters, a little more than 14,700 were designated by the SEC as “form” letters. The proposing release seeking to codify the SEC Staff’s interpretation of Rule 14a-8(i)(8) only garnered just north of 7,400 comments (of which over 7,370 were designated as “form” letters). True to form, while the investor community and individuals belonging to organizations with an interest in this matter turned out in force, there does not appear to be a whole lot of input from the issuer side on these proposals. While these comment numbers are nothing to sneeze at, they still don’t touch – when viewing the two access releases separately – the well over 20,000 letters commenting on the 2006 executive compensation disclosure proposals.

Now that the SEC Staff has all of these comments to sift through, it remains to be seen which way the SEC will ultimately go and when. In order to have proposals in place for the upcoming proxy season as Chairman Cox told the Senate Banking Committee he would at the end of July, it would seem that an adopting release needs to be on the SEC’s calendar in November, when many of the other Corp Fin proposals from earlier this year are expected to be considered. As noted in the RiskMetrics Risk & Governance Group blog, former Commissioner Campos said at a September CII conference that he doubted a replacement would be named in time to participate in shareholder access deliberations before next proxy season. Campos also indicated that he thought it was unlikely that Chairman Cox would push for a final decision on the issue without a full complement of commissioners.

At a House Committee on Financial Services hearing last week, investor and business representatives squared off on the shareholder access proposals. The SEC did not participate in the hearing. Reminiscent of the debate that ensued when shareholder access was last proposed in 2003, the two sides can seemingly find no middle ground. The investor side would rather see neither proposal move forward, and instead would like to submit access proposals without any restrictions. John Castellani, president of the Business Roundtable, raised the specter of “fractured boards representing special interests or small groups of shareholders” if the SEC adopts some form of shareholder access.

Adding to the uncertainty about the ultimate outcome of shareholder access is the outstanding warning from Senator Christopher Dodd (D-CT), who said that he will consider legislation to resolve the question of proxy access if the SEC doesn’t adopt access rules.

Farewell to Commissioner Nazareth

The SEC announced that Commissioner Annette Nazareth intends to step down. Commissioner Nazareth has indicated to the President that she does not wish to be re-nominated, and her term expired earlier this summer. No departure date has been set.

Commissioner Nazareth has been at the SEC for nine years, first as Director of the Division of Market Regulation and then as a commissioner. It is rare these days to see someone appointed to a commissioner slot from the Staff, and I believe that Nazareth’s experience on the Staff always contributed to her outstanding work as a commissioner. I really enjoyed working with Commissioner Nazareth and her excellent Staff – her departure is a big loss for the SEC.

ACAP Gets Off the Ground

Yesterday, Treasury Secretary Paulson announced the members of the Treasury Advisory Committee on the Auditing Profession. The date of the Committee’s first public meeting is set for October 15th. As Broc noted in this blog from back in May, the Committee – headed by former SEC Chairman Arthur Levitt and former SEC Chief Accountant Donald Nicolaisen – is tasked with examining issues such as audit firm concentration, how to strengthen the accounting industry’s financial soundness and how to enhance the ability to attract and retain qualified personnel. More information is available at the Committee’s website.

Our October Eminders is Posted!

We have posted the October issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

– Dave Lynn

October 2, 2007

Spotlight on Insider Trading at Hedge Funds

In yesterday’s blog, three out of the top ten recent Enforcement cases that I listed involved allegations of insider trading—clearly a top priority at the SEC. In late August, the SEC sent a 27-page letter to registered hedge fund advisers, seeking information about employees and clients who might be in a position to obtain material non-public information. As noted in this Washington Post article, Mark Schonfeld of the SEC’s New York regional office indicated “[t]his is an effort to look out for potential insider trading at hedge funds and to ensure that hedge-fund advisers are living up to their obligation to detect and prevent insider trading.”

According to published reports, the letter asks for lists of all employees and clients of the fund, as well as any relatives serving as officers or directors of public companies. The letter also requests information about contacts at brokerage firms with which the fund has done business. In addition, the SEC is seeking information about controls in place to prevent insider trading.

With this level of scrutiny, now more than ever companies need to focus on their insider trading policies and the activities of their officers and directors (including the use of Rule 10b5-1 plans). Even though we are only a week away, it is still not too late to sign up for our three critical conferences. In addition to Linda Chatman Thomsen’s keynote address at our Hot Topics conference, you can also hear the latest on Rule 10b5-1 plans and everything you need to know—in a nutshell—to prevent inadvertent, costly insider trading, Section 16 and Rule 144 violations. Register now for:

– “Tackling Your 2008 Compensation Disclosures: The 2nd Annual Proxy Disclosure Conference” (10/9)
– “Hot Topics and Practical Guidance Conference: The Corporate Counsel Speaks” (10/10)
– “4th Annual Executive Compensation Conference” (10/11)

Register for the “Member Appreciation Package” online—or use this Order Form.

If you have any questions, contact our HQ at info@compensationstandards.com or 925.685.5111.

Stock Option Legislation Introduced

Last Friday, Senator Carl Levin (D-Mich.) introduced a bill entitled the “Ending Corporate Tax Favors for Stock Options Act” (S. 2116). The bill was referred to the Senate Finance Committee.

Levin’s bill would:

– match the corporate tax deduction for stock option compensation to the book expense reflected in a company’s financial statements;

– permit companies to deduct stock option compensation in the same year that it is recorded on their books, rather than when the options are exercised;

– provide that research tax credits use the same stock option deduction when computing the “wages” eligible for those particular tax credits;

– establish a transition provision that would apply the new tax deduction to stock option exercises occurring after enactment, permit the old tax deduction rule to apply to options vested prior to adoption of FAS 123R, and allow a catch-up deduction in the first year after enactment for options that vested after adoption of FAS 123R but before the date of enactment; and

– make stock option compensation part of the same $1 million cap on the tax deductions that can now be claimed by public companies for other forms of executive compensation under Section 162(m).

In Senator Levin’s statement introducing the bill, he noted the significant disparity in pay between the CEO of a large corporation and the average worker. As for the influence of the tax code on executive compensation decisions, Levin noted: “When a company’s compensation committee learns that stock options can produce a low compensation expense on the books, while generating a generous tax deduction that is multiple times larger, it’s a pretty tempting proposition for the company to pay its executives with stock options instead of cash or stock. It’s a classic case of U.S. tax policy creating an unintended incentive for corporations to act.” This legislation stems from the Senate’s Permanent Subcommittee on Investigations hearing entitled “Executive Stock Options: Should the IRS and Stockholders be Given Different Information” from back in June. The bill would not affect the stock option compensation tax rules applicable to individuals.

Test Your M&A Knowledge: Are You a Pro or Troll?

We have posted one of our popular quizzes – “Pro” or “Troll”? Test Your Knowledge – on DealLawyers.com. It will score your answers as you go—and let you know how you compare against your peers.

Simply read each statement and decide whether you agree with it (by clicking “Ah Yes”) or disagree (by clicking “That’s Ridiculous”). Then, you will be told whether you were correct—and we also provide some analysis if you wish to learn more about each answer.

– Dave Lynn

October 1, 2007

End of the Year Crush: SEC Enforcement Activity in September

Today is the start of fiscal 2008 at the SEC. As is typically the case, the end of the last fiscal year saw lots of Enforcement activity, as the Division sought to make or beat its budget numbers. The number of Enforcement cases and Corp Fin filing reviews are always very important for supporting the SEC’s annual budget request. The stepped-up Enforcement activity at year-end is demonstrated by the crush of 52 litigation releases issued in September, as compared to an average of around 36 litigation releases per month during the other 11 months of fiscal 2007. Here is my top 10 list of cases from the end-of-year blowout:

1. Daniel McKay – McKay was charged with trading on material non-public information that he misappropriated from his spouse, who was an executive vice president at Triangle Pharmaceuticals. As noted in this NY Times article from August, there has been a notable increase in insider trading cases involving husbands and wives.

2. Salvador Chavarria, et al. – Continuing the insider trading theme, three Dell accountants were charged with trading in options on Dell stock while in possession of material nonpublic information about the company’s disappointing results for the second quarter of 2006. This case should be a reminder that all employees in an organization (and particularly those with access to sensitive financial information) need to have the company’s insider trading policy drilled into their heads, as well as the potential consequences for not adhering to that policy.

3. Buca, Inc. – Buca, which operates the Buca di Beppo restaurant chain, was charged with, among other things, failing to report compensation to the company’s former CEO and CFO arising from reimbursed personal expenses. The personal expenses included ATM cash withdrawals, duplicate airline tickets, family wedding expenses, dog kenneling, home remodeling costs, vacations, and visits to strip clubs. The company is also charged with failing to report various related party transactions, including the former CEO’s purchase of an Italian villa with company funds and the former CFO’s ownership interest in a vendor. While the unreported compensation and related party transactions predate the SEC’s new rules, the case demonstrates that the SEC is more than ever willing to pursue these types of cases, even when the amounts involved are not large. Be sure to sign up now for next week’s conferences, including Linda Chatman Thomsen’s keynote speech at the “Hot Topics and Practical Guidance Conference: The Corporate Counsel Speaks,” to hear more.

4. Exo-Brain – The SEC announced a final judgment against this company and its principal for the usual unregistered offering and fraudulent misrepresentations and omissions violations. I just thought the name “Exo-Brain” was cool.

5. Federal Home Loan Mortgage Corporation, et al. – Freddie Mac and four of its former executives settled charges stemming from the company’s alleged fraudulent scheme to deceive investors about its true performance, profitability, and growth trends. Much of the conduct centered around Freddie Mac’s accounting for derivatives. The company agreed to pay a $50 million civil penalty, which is expected to be distributed to injured investors through a Fair Fund.

6. Joseph Keeney – Keeney, who was acting a business consultant to Frederick’s of Hollywood, was charged with trading on the basis of material non-public information obtained about the possible merger of privately-held Frederick’s and publicly-held Movie Star, Inc. Keeney was directly involved in the merger negotiations and was in charge of maintaining communications between the Special Committees of the two boards.

7. FCPA Actions – The recent trend toward stepped-up Foreign Corrupt Practices Act enforcement continued last week with a case against a former EDS official named Chandramowli Srinivasan, who was charged with bribing senior employees of Indian state-owned enterprises. EDS was also charged with related reporting, books-and-records, and FD violations. In another case, the SEC announced a settlement with Bristow Group for FCPA violations arising from improper payments made to Nigerian state government officials.

8. Stock Loan Crackdown – In Darin DeMizio, et al. and Joseph Simone, et al., the SEC charged 38 defendants with involvement in schemes where stock loan traders paid improper finders fees and illegal kickbacks. The defendants include current and former stock loan traders at Morgan Stanley, Van der Moolen, Janney Montgomery, A.G. Edwards, Oppenheimer, and Nomura Securities. Clearly there are some real problems in the stock loan industry that the SEC is seeking to ferret out.

9. Dwight Sean Jones – Jones – who was a defensive end for the LA Raiders, Houston Oilers, and Green Bay Packers – was charged with failing to allow the SEC Staff to examine his business records. Jones had been a registered investment advisor. The SEC may be the least of his worries – he was arrested in June on charges of mortgage fraud.

10. Robert Berlacher, et al. – The SEC’s efforts to crack down on illegal insider trading by hedge funds in the PIPEs market continues with a case against Berlacher, his Lancaster Investment Partners fund and related funds. According to the SEC’s complaint, the defendants generated $1.7 million in gains by shorting stock based on information about upcoming PIPEs offering and then covering those shorts with PIPE shares.

SEC Filing Fees: No Changes For Now

Another sign of the new fiscal year is the SEC’s Fee Rate Advisory from Friday. As is typically the case, the SEC starts fiscal 2008 off under a continuing resolution, because Congress has not yet passed the agency’s regular appropriation. As Broc noted in this blog, the SEC sets the filing fees annually under the “Investor and Capital Markets Fee Relief Act of 2002,” and the fiscal 2008 fees were set in this April order. The new fees will not go into effect, however, until five days after the date of enactment of the SEC’s appropriation.

For now, the filing fee rate for Securities Act registration statements remains at the current rate of $30.70 million. The same rate applies under Exchange Act Sections 13(e) and 14(g). Once the appropriation is enacted, this rate will rise to $39.30 per million.

Webcast Crush: Test Your Access Now

We are receiving so many last minute registrations for our three critical Conferences coming up next week – particularly the Video Webcast sign-ups – that we are concerned that many more of you are waiting until the very last minute to register.

Those that wait any longer may not have sufficient time to sign up and adequately test your ability to access streaming video, which is the format by which the webcasts will be displayed.

Those that have not yet registered for these essential Conferences – particularly in view of the latest executive compensation proxy disclosure guidance that will be provided by senior SEC Staffers John White and Paula Dubberly – are encouraged to do so now by clicking any of the links below:

– “Tackling Your 2008 Compensation Disclosures: The 2nd Annual Proxy Disclosure Conference” (10/9)
– “Hot Topics and Practical Guidance Conference: The Corporate Counsel Speaks” (10/10)
– “4th Annual Executive Compensation Conference” (10/11)

Register for the “Member Appreciation Package” online – or use this Order Form.

If you have any questions, contact our HQ at info@compensationstandards.com or 925.685.5111.

– Dave Lynn