TheCorporateCounsel.net

Last night, Corp Fin posted a series of new Compliance and Disclosure Interpretations replacing three sections of the Manual of Publicly Available Telephone Interpretations. The new Compliance and Disclosure Interpretations cover:

– Exchange Act Sections

– Exchange Act Rules

– Exchange Act Forms

These Compliance and Disclosure Interpretations include many of the old Telephone Interpretations, as well as a number of new notable interpretations that answer some fundamental, recurring questions.

For example, Question 130.02 of the Exchange Act Sections Compliance and Disclosure Interpretations notes that a delinquent filer must file all delinquent reports in order to be considered current in its Exchange Act reporting. Delinquent filers often ask the Staff if they can become current by filing the latest Form 10-K or some sort of consolidated “catch-up” filing, and now this interpretation makes clear that all missed reports must be filed. Further, Questions 116.04 through 116.06 of the Exchange Act Sections Compliance and Disclosure Interpretations address the issues around the automatic effectiveness of a Form 10, including the ability to withdraw the Form 10 in limited circumstances prior to effectiveness and the necessity of filing Exchange Act reports once the Form 10 is automatically effective, even if the Staff’s review of the Form 10 is ongoing.

In the Exchange Act Rules Compliance and Disclosure Interpretations, the Staff includes some detailed guidance on the ability of companies to use an effective Form S-3 during and after the Rule 12b-25 period, as well as some helpful guidance on delisting and deregistration mechanics. Further, following up on some helpful guidance in the Regulation S-K Compliance and Disclosure Interpretations posted over the Summer about correcting CEO/CFO certifications (see our discussion of those interpretations in the July-August 2008 issue of The Corporate Counsel) , the Staff has consolidated much of its guidance on CEO/CFO certifications in new Compliance and Disclosure Interpretations under Exchange Act Rule 13a-14.

Fair Value Accounting Guidance from the SEC and FASB Staff

In the face of intense lobbying calling for the suspension of fair value accounting, the SEC’s Office of Chief Accountant and the FASB Staff issued a press release outlining a series of “clarifications” on fair value accounting.

The press release answers the following questions on the application of FAS 157:

1. Can management’s internal assumptions (e.g., expected cash flows) be used to measure fair value when relevant market evidence does not exist?

2. How should the use of “market” quotes (e.g., broker quotes or information from a pricing service) be considered when assessing the mix of information available to measure fair value?

3. Are transactions that are determined to be disorderly representative of fair value? When is a distressed (disorderly) sale indicative of fair value?

4. Can transactions in an inactive market affect fair value measurements?

5. What factors should be considered in determining whether an investment is other-than-temporarily impaired?

While the new Staff guidance is not inconsistent with what has been said before, it appears that the intent is to provide at least some flexibility for issuers to depart from market prices in certain circumstances, particularly when an active market does not exist.

It seems unlikely that the latest round of guidance will satisfy the mounting criticism of fair value accounting. Yesterday, a bipartisan group of 65 House members sent a letter to Chairman Cox asking that the SEC immediately “suspend” mark to market accounting in favor of a “mark to value” mechanism that “better reflects the value of the asset.” The Congressmen state that until new guidance is put in place, the fair value of assets should be estimated by “using the best available information of the instrument’s value, including the entity’s intended use of that asset, from the point of view of the holder of that instrument.”

Some opposition to the suspension of fair value is emerging. Last week, Federal Reserve Chairman Bernanke told the Senate Banking Committee that abandoning fair value “would only hurt investor confidence because nobody knows what the true hold-to-maturity price is” (as noted in this Reuters article), while this article by Judith Burns of the Dow Jones Newswires reports that US accounting firms are now opposing calls for rescinding mark to market accounting.

The Rise of Sovereign Fund Investing

Tune in tomorrow for this DealLawyers.com webcast – “The Rise of Sovereign Fund Investing” – and hear about the role of sovereign wealth funds in this crisis marketplace and more:

– G. Christopher Griner, Partner, Kaye Scholer
– Michael Hagan, Partner, Morrison & Foerster
– Jerry Walter, Partner, Fried Frank Harris, Shriver & Jacobson
– Steven Wilner, Partner, Cleary Gottlieb Steen & Hamilton

– Dave Lynn