May 16, 2008

The SEC Pushes Banks on Liquidity Disclosures: Exhibit A

As noted in this WSJ article last week, SEC Chairman Cox said in a speech that the four largest investment banks are being pushed by the agency to provide better disclosure about their “actual capital and liquidity positions…in terms that the market can readily understand and digest.” According to the article, these disclosures will begin after the second quarter, with additional information about concentrated exposures within the investment banks phased-in later.

Maybe all this Market Reg-type stuff is beyond me, but I don’t understand why the SEC Chairman has to twist arms to get this type of disclosure from the banks? Wouldn’t the banks provide this disclosure under MD&A – Item 303 of Regulation S-K – as part of their liquidity disclosures? This harkens back to my surprise about how the banks were not fully baking the impact of the credit crunch into their risk factors (see this blog). All of this baffles me as I always thought companies perceived their SEC filings as “liability” documents – meaning that they would disclose as much “bad stuff” as possible in them to avoid liability.

Anyways, I chalk up this entire incident as “Exhibit A” for why the prospect of principles-based regulation is scary. Looks like even line-item regulation doesn’t fully work…

Criminal? Stretching Sarbanes-Oxley Beyond Corporate Fraud

Keith Bishop notes: The 11th Circuit recently rendered an interesting decision in US v. HUNT, (11th Cir. 5-5-2008). In that case, a police officer was convicted of making a false false entry into a police incident report with the intent to impede, obstruct, or influence an FBI investigation.

So what does that have to do with securities law? The statute in question is 18 U.S.C. Sec. 1519 which was amended by Section 802 of Sarbanes-Oxley to provide “Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.”

The case is noteworthy because the Court found that the statute was not: (1) limited to corporate fraud or malfeasance even though it was enacted as part of Sarbanes-Oxley and (2) unconstitutionally vague.

SEC Approves NYSE’s New SPAC Listing Standards

Last week, in this order, the SEC approved the NYSE’s rule changes to make it easier for SPACs to be listed on the exchange. In addition to SPAC listings, the rule changes will impact reverse mergers. Recently, DealBook reported on the first SPAC looking to jump from AMEX to NYSE.

It is expected that the Nasdaq’s SPAC proposals will be approved soon too. Come hear all the latest about the Nasdaq in this June webcast: “Nasdaq Speaks ’08: Latest Developments and Interpretations.”

– Broc Romanek