January 10, 2008
More Bad PIPEs Law
A few months ago, I blogged about the case of SEC v. John F. Mangan, Jr. and Hugh L. McColl, III, where the court dismissed the SEC’s allegations that Mangan violated Section 5 by shorting PIPE shares before the resale registration was declared effective, and then covering the short sales with the PIPE shares after the resale registration statement was effective. As if that ruling wasn’t bad enough for the SEC, last week a judge in the Southern District of New York issued this opinion reaching the same unfortunate result in the case of SEC v. Edwin Buchanan Lyon, IV and his Gryphon Partners entities.
You can read more about these decisions (including our take) – and what the SEC intends to do about them – in the just-mailed November-December issue of The Corporate Counsel. Since all of our publications are on a calendar-year basis, renew your subscription to The Corporate Counsel today. If you are not yet a subscriber, we encourage you to take advantage of a no-risk trial, so you can get the latest analysis on topics such as this in The Corporate Counsel.
NASDAQ Rewrites its Rulebook
Recently, NASDAQ unveiled a proposed rewrite of the NASDAQ Marketplace Rules applicable to companies listed on the NASDAQ Stock Market. NASDAQ’s goal is to make the rulebook clearer and easier to understand by simplifying the organization and presentation of the rules, as well as the language of the rules themselves. This commendable effort does not appear to be directed at changing the substance of the initial and continued listing standards, but rather to present those standards in a more user-friendly way.
NASDAQ has put the proposed rulebook out for public comment until February 1, 2008, and it plans to file the proposed rule changes with the SEC by the end of the first quarter.
SAB 108 Implementation
Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, was issued to address the diversity in practice concerning the quantification of errors that arose in prior years, and it was effective for fiscal years ending after November 15, 2006. The SAB requires companies to use both the “iron curtain” and “rollover” approaches when quantifying misstatement amounts. SAB 108 does not require previously filed reports to be amended when companies correct prior-year financial statements for immaterial errors – rather, the errors may be corrected the next time the company files the prior year financial statements.
Audit Analytics recently published a study of companies adopting SAB 108 for years ended from November 15, 2006 to June 30, 2007. The study notes that a relatively small number of companies (296) have adopted SAB 108 in their 10-Ks. The companies making adjustments under the SAB were concentrated in a few industries, with finance and insurance companies comprising the largest sector. Clients of KPMG accounted for almost 40% of the total companies adopting SAB 108. Audit Analytics indicates that the relatively low number overall – and the concentration in some industries – may be accounted for by the lack of restatements among those companies or industries, where immaterial errors would have likely been corrected in the course of restating the financials. The study indicates that errors affecting liabilities and reserve accounts and tax accounting errors made up bulk of corrections under SAB 108.
– Dave Lynn