Monthly Archives: April 2009

April 30, 2009

Survey Results: D&O Questionnaires

We recently wrapped up our Quick Survey on D&O Questionnaires practices. Below are our results:

1. When we update our D&O questionnaire each year, the following groups review it before it’s sent to the D&Os:
– Outside law firm – 37.1%
– Independent auditor – 5.7%
– Finance department – 1.4%
– General counsel – 57.1%
– Executive compensation department – 4.29%

2. Our _______ has overall responsibility for the “master” D&O Questionnaire to be sent out each year:
– Legal department – 64.9%
– Finance department – 0%
– Corporate secretary – 21.1%
– Outside counsel – 14.0%

3. Before we distribute our D&O Questionnaires, the company “pre-completes” responses in the following sections for review and acknowledgement by each individual respondent:

– We ask respondents to provide all information without pre-completing – 9.0%
– Compensation information, except for the perks – 16.7%
– Compensation information, including the perks – 16.7%
– Equity ownership, including beneficial ownership – 53.9%
– Section 16 compliance – 24.4%
– Biographical information – 59.0%
– Related-party transactions – 18.0%
– Independence – 16.7%
– Audit committee financial expertise – 18.0%

4. To assist respondents in identifying related-party transactions, we provide the respondents with a list of the company’s vendors, customers or other counterparties:
– Yes – 14.6%
– No – 85.5%

5. To assist in identifying related-party transactions, we compare known information about respondents’ affiliations with a list of the company’s vendors, customers or other counterparties:
– Yes – 59.6%
– No – 40.4%

6. After sending the D&O Questionnaire, the company’s follow-up with respondents consists of:
– Reviewing responses with all respondents individually – 1.8%
– Reviewing some responses with respondents individually if questions or issues arise – 86.0%
– Answering questions from respondents about particular questions or issues if they arise – 66.7%
– Little or no interaction with the respondents – 10.5%

7. After receiving the D&O Questionnaire responses, the company reviews the responses (or a summary report) with the following:
– Full board of directors – 23.4%
– Governance and nominating committee – 57.5%
– Compensation committee – 4.3%
– Disclosure controls committee – 14.9%
– Relevant departments – 36.2%
– Outside counsel – 42.6%

8. Our company retains the D&O questionnaire responses for a period of:
– Until the proxy statement is filed (we essentially don’t retain them) – 1.8%
– For about one year (roughly until the next year’s questionnaire is drafted) – 5.3%
– Between 1 and 3 years – 21.1%
– Between 3 and 5 years – 19.3%
– Between 5 and 7 years – 28.1%
– More than 7 years – 24.6%

Use of Corporate Plane for Directors to Attend Board Meetings

As we are reminded by this recent note from the “The Race to the Bottom” Blog – and this DealBook piece on how Verizon is ending free plane use for ex-CEOs ahead of next week’s shareholders meeting – personal use of corporate aircraft continues to be a controversial issue. But what about when outside directors get flown to – and/or from – board meetings? How do companies deal with that?

That is the subject of our latest “Quick Survey – Corporate Airplane Use by Outside Directors.” Please take a moment to answer the question posed.

“4th Annual Proxy Disclosure Conference”: Early Bird Follow-Up

The early bird offer that expired Friday resulted in great momentum, with a record number of members signed up so far for the “4th Annual Proxy Disclosure Conference” (whose pricing is combined with the “6th Annual Executive Compensation Conference”) – that will be held in San Francisco and via Live Nationwide Video Webcast on November 9-10th.

Our New “Early Bird” Rates – Expires May 22nd: Still recognizing the hard economic times we face—and in response to requests from members who were not able to submit their registrations by the deadline—we are offering a reduced rate for the Conferences through May 22nd.

For example, you can attend in San Fran for only $995 if you register by May 22nd (reg. rate is $1295) – and it’s only $495 if you also attend the “17th Annual NASPP Conference” (which starts right after the Proxy Disclosure Conference). Here is the Conference registration form – and here is the agenda.

With Congress poised to consider legislation mandating say-on-pay (expected to be introduced by Sen. Schumer soon) – and SEC Chair Schapiro recently stating that there will be new proposals to change the executive compensation rules in the near future – this year’s Conferences are a “must.” Register now and take advantage of these favorable rates.

– Broc Romanek

April 29, 2009

Tripping the PPIP – and TALF – Fantastic

Many are still figuring out whether – and how – to do deals under the new “Public-Private Partnership Investment Program.” And only a handful of deals have been done so far under TALF. Join these experts tomorrow in our webcast – “Tripping the PPIP – and TALF – Fantastic” – as they analyze the issues presented under both government programs:

Alan Beller, Partner, Cleary Gottlieb Steen & Hamilton LLP
Tony Nolan, Partner, K&L Gates LLP
Meg Tahyar, Partner, Davis Polk & Wardwell

How to Repay TARP Funds

One of the hot TARP topics is how can companies repay them if they so wish – quite a few companies have already expressed an interest in repaying. Last week, Treasury Secretary Timothy said that Treasury will support early repayment of Capital Purchase Program funds and will apply standards that consider the banking industry’s financial health and lending levels (despite evidence that Treasury is taking its time in assessing applications to repay once they are submitted).

Last month, Treasury posted a form of acknowledgement of repurchase equity to be utilized for public companies desiring to make such repurchases – although any repurchases must be approved by the institution’s federal regulators (here are Treasury’s FAQs about repayment; here is the form to repurchase warrants). It’s unclear from the form of agreement whether Treasury will impose some minimum requirement for partial repurchases of an institution’s preferred. In our “TARP” Practice Area, we have posted memos specifically about repaying TARP funds.

John Grossbauer on Delaware’s Final Legislation

In this podcast, John Grossbauer of Potter Anderson provides some follow-up to his podcast from last month now that the new Delaware legislation has been finalized. We have been posting numerous memos analyzing these amendments in our “Delaware Law” Practice Area.

– Broc Romanek

April 28, 2009

Tabulating Voting Results: Apple Pulls a “Yahoo”

Yesterday, Apple announced that it filed a corrected Form 10-Q to clean up some “human errors” that happened during the course of tabulating voting results from its recent annual shareholders meeting. The reversed error now shows that Apple received a majority vote on a non-binding shareholder proposal that sought to have the company to conduct say-on-pay votes. The company incorrectly counted abstentions as “no” votes. [As an aside, some proxy statements say some strange things about effect of abstentions. But that’s a story for another day.]

Apple initially claimed victory in its initial Form 10-Q filed last week. Now with egg on its face – and in the wake of two consecutive years of a majority vote in favor of doing so – the company says it will place say-on-pay on the ballot next year. The reversal comes on the heels of the tabulation math being examined by Mercury News’ “SiliconBeat” on Friday.

Unfortunately, bad tabulation math happens all too often after annual meetings (eg. last year’s Yahoo meeting). Once again, I urge all those that deal with annual meetings to read this important piece from last Fall’s issue of “An Insider’s Perspective: How to Avoid a Yahoo-Like Tabulation Nightmare.” You can get receive it for free – you just need to input some basic contact information.

Voting results have become too important for companies to not have truly independent tabulators (often, a company’s transfer agent serves as the tabulator). And I believe that the SEC should adopt rules requiring companies to file voting results on a Form 8-K within 4 business days of the results being certified (or at least requiring disclosure on a press release or posted on corporate websites within that timeframe).

The existing standard of having shareholders wait until the next Form 10-Q is simply too long – for many of the calendar-year companies that hold their annual meetings in April and May, we won’t see voting results until mid-August. If I make an effort to vote, it’s nice to know the results as soon as possible – it’s a vital part of the voter experience. Think election night.

And clearly people really need to evaluate how they treat tabulation from a disclosure controls and procedures perspective – and make sure the disclosure committee is involved in the process. Don’t just rely on the tabulators if you value your job (not to imply that the tabulators were at fault in Apple; we don’t yet know what the “human error” was)…

Corp Fin Updates Numerous CD&Is

On Friday, Corp Fin updated a bunch of its “Compliance and Disclosure Interpretations,” including some in these categories: ’33 Act Sections; ’33 Act Rules; ’33 Act Forms; ’34 Act Rules; Section 16 Rules & Forms; ’34 Act Forms; Form 8-K; and Regulation S-K. The Staff has marked each of the specific CD&Is that have been updated. I imagine Dave might provide us with analysis about some of these changes when he blogs towards the end of next week.

FINRA’s New Limited Representative Category for Investment Bankers

A few weeks ago, the SEC approved FINRA’s rule change that creates a new limited representative category – Limited Representative-Investment Banking – for persons whose activities are limited to investment banking, including those who work on the equity and debt capital markets and syndicate desks. The new registration category, which has long been requested by the securities industry, permits persons who function solely in the investment banking area to avoid having to pass the Series 7 examination.

– Broc Romanek

April 27, 2009

Here It Comes! Schumer’s Major Governance Legislation

According to this WSJ article from Saturday, Sen. Schumer intends to introduce legislation this week that would overhaul a number of governance areas. This is the legislation that we all have been expecting since the financial crisis broke – and, with a few exceptions, its components should come as no surprise since most of them have been proposed before in one form or another before.

According to the article – whose authors saw a draft of the legislation – it will include these significant provisions (bear in mind that actual proposals could change from the draft):

1. Say-on-Pay – require companies to give shareholders an annual nonbinding vote on executive pay practices
2. Say-on-Severance – give shareholders a nonbinding vote on severance packages for executives following mergers or acquisitions
3. Proxy Access – buttress potential SEC rules that would make it easier and cheaper for investors to nominate their own directors (article says SEC is considering a number of “proxy access” techniques and could issue a proposal in mid-May)
4. No More Classified Boards – require companies to hold annual director elections rather than putting only a portion of the board up to vote each year
5. Majority Vote Standard for Director Elections- require directors to resign if they don’t win a majority of shares voted
6. Independent Board Chairs – require board chair to be independent
7. Risk Management Board Committees – require boards to appoint special committees to oversee risk management

The article says that House Financial Services Committee Chair Barney Frank is working on say-on-pay legislation as well. And we already have seen SEC Chair Schapiro’s ambitious agenda for governance rulemaking that will take place in the near term.

This is all quite notable, particularly when combined with the high likelihood that the SEC will approve the NYSE’s proposal to eliminate broker non-votes in director elections which, according to this WSJ article, may come as soon as this week!

It will be interesting to see how hard corporate lobbying groups will fight the pay components of Schumer’s bill. There are numerous examples that reflect little change in executive compensation practices. For example, see today’s Bud Crystal note on Six Flags.

And speaking of Sen. Schumer, he and Sen. Shelby introduced an amendment to an existing anti-fraud bill last week that would increase the SEC’s budget by $20 million to allow it to hire 60 additional Enforcement Staffers and upgrade its technology.

Ca-Ca-Catfight! Banc of America vs. the Gov

Good heavens, who knows where to start commenting on the latest mess related to fixing this crisis. According to this WSJ article from Thursday, BofA’s CEO Ken Lewis says he was urged to lie to investors as part of testimony before New York Attorney General Andrew Cuomo. The NY AG’s office has released a slew of documents related to this testimony, including this letter to Congress.

Probably best to just fire off a few quick thoughts (mine and others) and not drone on:

– The obvious: If proven true, it would mean the Treasury Secretary and Federal Reserve Chairman urged a CEO to break US federal securities laws. And if true, these type of actions taken by senior government officials raise serious questions as to whether citizens can trust their government, and what can be done to hold them accountable and increase transparency such that they can no longer engage in such actions behind closed doors, even during a financial crisis.

– On December 4th, then-SEC Chair Chris Cox delivered this speech, in which the he warned of the danger of such actions by the government and how it would undermine the enforcment and regulatory regime in the US. It is notable this speech came during the timeframe the questionable practices were alleged to have occurred.

– WSJ’s article entitled, “Are Ken Lewis, Ben Bernanke and Hank Paulson Heroes or Goats?”

– D&O Diary’s blog entitled, “Ken Lewis, BofA and the Fed Strong-Arm: Ten Questions”

– This might have happened more than once. Last month, this Washington Post article outlined how the head of FHFA (which oversees Fannie Mae, Freddie Mac and the FHLB) urged Freddie and Fannie to make misleading disclosures.

– BofA, under the leadership of the CEO, has the ultimate responsibility for ensuring compliance with its obligations to provide disclosure to investors. Notwithstanding what he was told to do by government officials, it was ultimately the company’s decision as to whether or not to break the law. In the Freddie and Fannie case, it appears that they chose not to break the law and did make the required disclosures.

– Don’t leave the investigating to Congress or even the NY AG in this case. The SEC should investigate, subpoena all people in the discussions and all the relevant emails, documents and telephone records and get to the bottom of this and get us the truth. Anyone, including any government officials, that are found to have broken securities laws, should be held accountable by the SEC so they can ensure the investing public that this is not a rigged market.

– BofA’s annual shareholder meeting – to be held this Wednesday – surely will be one for the ages! Ken Lewis – and other BofA directors – already were the subject of a “just vote no” campaign before this latest maelstorm.

Here is a video clip of the “Seinfeld” scene where Kramer goes into his “catfight” routine. Classic. Perhaps not as good though as this “Friends” catfight. Or if you want some “cat love,” this “Christian the Lion” reunion video will surely make you weep with joy.

The Bank Stress Tests: Fed’s White Paper Outlines Standards

On Friday, the Federal Reserve issued a “Design and Implementation” White Paper, which includes the stress test standards for the 19 banks that are being subjected to the tests. While the stress test results will not be released until next Monday, the White Paper helps us somewhat understand how those tests are being carried out – particularly Table 1 which spells out the scenarios, etc. I indicate “somewhat” because some critics say the White Paper is too vague (eg. Bloomberg’s article, “Fed’s White Paper Leaves Questions Unanswered, Analysts Say.”).

For the most part, it seems like the government’s tests are based on two potential economic scenarios – a baseline scenario – based on a early ’09 consensus among economic forecasters – and a more “worser case” scenario, based on a longer, more severe recession. Here is the Fed’s related press release – and here is a list of the 19 banks.

Condolences to those that knew Professor Louis Lowenstein, who passed away last week and was a founder of Kramer Levin. Here is an obituary from the NY Times.

– Broc Romanek

April 24, 2009

The Coming Battle: Aggregation of Ownership to Meet SEC Thresholds

With the SEC’s reconsideration of shareholder access looming (which would likely include a minimum ownership threshold to place nominees on a ballot), the issue of whether one investor can combine ownership of multiple shareholders to meet a minimum threshold under the SEC’s rules becomes an increasingly important issue.

So far, this issue has been debated mostly in the Rule 14a-8(b) context, where a number of companies have sought exclusion of shareholder proposals submitted by individuals represented by John Chevedden. I have heard complaints from a number of members who worry that the combined effect of recent no-action responses may lead to potentially abusive results.

With a few exceptions in prior proxy seasons, the Corp Fin Staff consistently has rejected arguments that nominal proponents are merely strawmen and that the “agent” is the real party-in-interest. And the Staff often allows (eg. this recent AMR no-action letter) co-proponents – none of whom owned sufficient shares to qualify under Rule 14a-8(b) on their own – to aggregate their shares to satisfy the minimum requirements. Remember that the Staff’s no-action responses depend on the particular facts presented – and the arguments made.

I’m hearing from a lot of members worried about the risk that these Staff positions impose, particularly a position that could be viewed to allow anyone to essentially “borrow” shares from passive individual shareholders and submit a proposal on behalf of those holders. In addition, they are worried that anyone can – via the representation of other shareholders – submit multiple proposals to the same company in a single year. These members note that these activities arguably violate Rule 14a-8.

Given that the SEC will likely address this issue in its upcoming shareholder access rulemaking (as it has done as part of its prior access proposals), it seems appropriate that the SEC request comment on this issue in both the Rule 14a-8 and shareholder access contexts due to its importance.

A First: Reincorporating to North Dakota

Thanks to Michelle Leder of for pointing out the first company – American Railcar – to reincorporate to North Dakota. Here’s the proposal from the company’s preliminary proxy statement; note that Carl Icahn owns a majority stake in the company.

As we have blogged about before, North Dakota changed its laws in ’07 so that they are among the most shareholder-friendly. And some shareholders have urged a group of companies to reincorporate there, through the shareholder proposal process, etc.

Last Day for Early Bird Rates: “4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference”

You need to register by the end of today to obtain the very reasonable Early Bird rates our popular conferences – “Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference” – that will be held in San Francisco on November 9-10th (and via Live Nationwide Video Webcast). Warning: These reasonable rates will NOT be extended beyond today!

Here is the Conference registration form – and here is the agenda. These Conferences have been accredited by RiskMetrics for director education.

– Broc Romanek

April 23, 2009

Yes, There Were Regulatory Failures: Now What?

With so much going on, it’s hard to keep up. Here is another worthy development that hasn’t been addressed yet in this blog – this GAO report from March about the role of regulators in the current financial crisis, particulary regarding risk assessment by the banking and securities regulators. GAO’s report provided little in way of surprise, but it is another document that folks will consider when deciding how our regulatory structure will look like after the coming reform.

The battle for this reform is being waged now and it’s probably the most important one since the major reforms instituted during the Great Depression. Last month, SEC Chair Schapiro urged the Senate to not sacrifice investor protector (nor the SEC’s role) as Congress considers creating one entity to oversee all risk in the financial system (see the related Reuters article). There clearly are high stakes involved in this debate.

By the way, I found it interesting that Jon Stewart had Elizabeth Warren, head of the TARP oversight board, on The Daily Show last week (here is the archived video). Overall, I wasn’t too keen on her commentary – but I did like her closing remarks, when she highlighted how important it was to not continue watering down our regulatory framework. She explained how this country went through 150 years of “boom and bust” cycles and how those disappeared for 50 years after FDR instituted strong regulations during the Great Depression. Then those cycles reappeared in the form of the late ’80s S&L crisis, the late ’90s Long Term Capital scare, the Enron and related frauds in ’02 and now this serious credit meltdown. She believes the last 20 years of boom and bust can be attributed to weaker regulations. Food for thought…

I can relate to Elizabeth’s senior moment when she forgot what PPIP stood for! She can take a refresher during next Thursday’s webcast – “Tripping the PPIP – and TALF – Fantastic” – featuring Alan Beller of Cleary Gottlieb, Tony Nolan of K&L Gates and Meg Tahyar of Davis Polk.

Today’s Webcast: “XBRL: What Lawyers Need to Know”

Please print off these “Course Materials” prior to catching today’s webcast: “XBRL: What Lawyers Need to Know.” John Huber and Dave Lynn will go over what types of issues lawyers need to know – then, Louis Matherne of Clarity Systems will give a short demo tailored to lawyers so you can see how XBRL will change the document production workflow for creating disclosure documents.

As I mentioned in this blog on Monday, companies will need to change their 10-Q and 10-K cover pages, even if they aren’t impacted by the XBRL rule changes yet – there continues to be a lot of follow-up questions in our “Q&A Forum” on this topic. And on Tuesday, XBRL US published its 2009 version of the US GAAP XBRL taxonomies.

Special Meetings Called By Shareholders: GE Lowers Its Threshold

Been meaning to blog about this WSJ article entitled:“GE Gives Shareholders More Power.” The article notes that the company has reduced the threshold allowing shareholders to call a special meeting from 40% to 25%. And even though a 25% threshold for a company the size of General Electric is huge, it’s still a notable development. Here’s GE’s Form 8-K regarding the change.

As noted in this article, it looks like GE’s annual meeting held yesterday had a bit of drama when one of Fox News’ employees used the microphone reserved for shareholders to ask questions – without identifying himself as a reporter. When it comes to concerns about old-style journalists being replaced by bloggers, I also get worried about them – but then I think about incidents like this to remind me that there are so many folks pretending to be journalists in the mainstream press these days that the glory days of that medium clearly are long gone.

I know it’s late, but I’ve been meaning to gloat about my March Madness picks. Not only did I pick three of the Final Four (only missed Duke), I did pick North Carolina to win. Check out this bracket that captures the expected average salaries of graduates from schools that were in the tourney field.

– Broc Romanek

April 22, 2009

The Art of Selling Your Lawyering

In recognition of the many changes impacting the practice of law, we will be devoting more resources to helping you cope – and keep abreast – of how the changes will impact your career. For example, tune in next month for our webcast: “Looking Out for #1: How to Manage Your Career.” We’ll also be expanding the resources in our “Career Development” Practice Area.

In this podcast, Mike O’Horo, Founder and President of Sales Results, provides some insight into how lawyers can best position themselves to gain clients, including:

– What is your general training philosophy?
– If lawyering skills are sales tools, what can lawyers do to best use them to sell?
– What do you recommend that young lawyers do to sell themselves?

PCAOB Staff Weighs In: Auditor Considerations for Fair Value, Etc.

Yesterday, the PCAOB Staff issued this Staff Audit Practice Alert to inform auditors about the potential implications on reviews of interim financial information and annual audits caused by the FASB’s three recently-issued Staff Positions on fair value measurements and OTTI.

Closings Then and Now

On the Blog, John Jenkins of Calfee Halter & Griswold continues to provide some great analysis of recent developments. Below is a more personal anecdote that he recently blogged that rang true to an old-timer like me:

I started practicing law in 1986, but so much has changed since then that I often feel like I’m a complete relic. For instance, it boggles my mind when I think about the fact that there’s an entire generation of lawyers out there who’ve never hand-marked an SEC filing, never dealt with trying to clear Blue Sky merit review, and never hand-delivered a filing package to the SEC reviewer and then raced to the bank of pay phones next to the file room to let the rest of the team know that the deal was effective.

Those events were rites of passage for generations of young deal lawyers, and I think that today’s lawyers have actually missed out on something by not being able to take part in them. Sitting bleary-eyed in the Judiciary Plaza Roy Rogers forcing down another cup of coffee while waiting for the SEC’s file desk to open – along with a bunch of other sleepy junior associates toting overstuffed deal bags – was a shared experience that built a kind of camaraderie among young deal lawyers. Regardless of where you worked, misery loved company, and after a couple of all nighters at the printer, those early mornings at Judiciary Plaza were definitely miserable!

But I think the biggest thing that most young lawyers miss out on today is what an epic event a deal closing used to be. Today, it seems every closing is done by e-mail and overnight delivery. I can’t tell you the last time that I went to a closing or sent someone to physically attend a closing. Closings with actual people signing actual documents are increasingly rare events. Things were sure different back in the day.

Closing a public offering wasn’t a big deal – the closing was over in a couple of hours at most, and was pretty anti-climactic in light of everything that came before it. However, there was nothing anticlimactic about the closing of a big M&A transaction. These closings were elaborate, multi-day, round-the-clock affairs that involved lots of paper, little sleep, all the boredom, stress, caffeine, and nicotine that you could handle, and all the cold pizza and warm deli trays you could eat.

Oh yeah, I almost forgot – this drama usually played itself out across a bunch of dreary conference rooms that featured fluorescent lighting that sometimes looked like it came straight out of the office scene in Joe Versus the Volcano (okay, maybe it just seemed that way at the time). The M&A people were in one room, the Bank people were in another, then there were often war rooms and usually a much nicer room where the client’s executives were ensconced. This last room was definitely for the grownups. Aside from the client’s senior people, nobody who wasn’t a senior investment banker or partner spent much time in this sanctuary. You only went into this room to get signature pages signed, and you rarely spoke above a whisper.

Today, closing a deal still involves a tremendous amount of work, but most of the time is spent writing and responding to e-mails, revising closing documents at your desk and generally staring at a computer screen. Sure, there may be cold pizza and caffeine involved, but there’s definitely no nicotine unless it’s contained in a stick of gum. What’s more, there’s just not the commotion. No conference rooms full of people, nobody rushing around calling back to their office to find out what happened to the tax clearance certificate from Massachusetts, no big shot partners arguing face-to-face over last minute changes to somebody’s legal opinion (or an eleventh hour request for a new opinion).

Of course, all of those things still happen; it’s just that they happen in cyberspace or on conference calls. In many respects, that’s a real benefit. Don’t get me wrong; 99% of everything I’ve just described stunk worse than Battlefield Earth, but the other one percent represents the kind of shared experience that helps lawyers develop a little empathy for one another. Personally, I think we could use more of those kinds of experiences.

How Do You Feel About Deal Closings?

You can provide more than one answer to this one:

Online Surveys & Market Research

– Broc Romanek

April 21, 2009

Last Chance for Early Bird Rates: “4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference”

You need to register by this Friday, April 24th, to obtain the very reasonable Early Bird rates our popular conferences – “Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference” – that will be held in San Francisco on November 9-10th (and via Live Nationwide Video Webcast). Warning: These reasonable rates will NOT be extended beyond this Friday!

We know that many of you are hurting in ways that we all never dreamed of – and going to a Conference is the last thing on your mind. But with huge changes afoot for executive compensation and the related disclosures, we are doing our part to help you address all these critical changes—and avoid costly pitfalls—by offering a “half-off” early bird discount rate for those that attend in San Francisco and nearly half-off for those that attend via the Web (both of the Conferences are bundled together with a single price). Here is the Conference registration form – and here is the agenda.

The Latest TARP Oversight Report: Concerns Over Fraud

As we all know too well, where there is money – there is bound to be fraud. Yesterday, Neil Barofsky, TARP’s Special Inspector General sent a 247-page quarterly report to Congress detailing a long list of concerns about government efforts, including the lack of safeguards in handing out the money. Unlike the Congressional Oversight Panel led by Harvard Professor Elizabeth Warren, Barofsky’s office is focusing on criminal and civil wrongdoing in addition to more general recommendations and audits.

As this Washington Post article notes, the report states that Treasury Department lawyers have determined that companies participating in a $1 trillion program to relieve banks of toxic assets could be subject to limits on executive compensation (see page 110 of the report), contradicting the Obama Administration’s public position. It will be interesting to see what Treasury Geithner says about the report this morning when he testifies before TARP’s Congressional Oversight Panel (this letter was sent to the Panel ahead of the hearing).

Man, this report was hard to find. Treasury makes a big splash announcing its new “” site – but it doesn’t bother to timely post its own reports. Rather, I found it on the SIGTARP site.

Update: Attorney Liability Under Rule 10b-5

From Keith Bishop: Some may believe that in light of the U.S. Supreme Court’s holding in Central Bank of Denver v. First Interstate Bank of Denver, lawyers may not face liability under Section 10(b) and Rule 10b-5. While the Supreme Court did hold that a private plaintiff may not maintain an aiding and abetting suit under Section 10(b), it also said “Any person, or entity, including a lawyer, accountant, or bank, who employs a manipulative device or makes a material misstatement (or omission) on which a purchaser or seller of securities relies may be liable as a primary violator under 10b-5, assuming all of the requirements for primary liability under Rule 10b-5 are met.” 511 U.S. at 191. In a decision issued recently, the Ninth Circuit Court of Appeals illustrates how lawyers may face liability.

In Thompson v. Paul (9th Cir. No. 06-15515, Oct. 27, 2008), the plaintiff entered into a settlement pursuant to which she received stock of an issuer. The plaintiff alleged that she did so based on the false representation that there was no criminal investigation of the issuer’s CEO. These attorneys jointly represented the issuer and CEO but withdrew before the final settlement agreement was signed. After new attorneys were found, the settlement agreement was signed and three days later the CEO was indicted on 29 counts fraud, conspiracy, money laundering and orchestrating a ponzi scheme.

The Ninth Circuit applied federal law to hold that “An attorney who undertakes to make representations to prospective purchasers of securities is under an obligation, imposed by Section 10(b), to tell the truth about those securities. That he or she may have an attorney-client relationship with the seller of the securities is irrelevant under Section 10(b).” While this case seems to be a straightforward application of the Supreme Court’s statement regarding primary liability, it should serve as a warning that a bar card is not a license to misstate facts to the other side – particularly when securities are being purchased and sold.

It should also be noted that the attorneys have not yet been found liable – the Court of Appeals was considering an appeal from the attorneys’ successful motion to dismiss. It remains to be seen whether the plaintiff can prove her allegations. It is also interesting to consider whether attorneys in this situation could be liable if they had simply failed to disclose, rather than affirmatively misrepresented the facts.

– Broc Romanek

April 20, 2009

The Impact of XBRL: Cover Page Changes to Forms 10-Q and 10-K

With the effective date of the SEC’s XBRL rules coming up for larger companies fairly soon, it’s time to bone up on their impact. Lawyers are mistaken if they don’t think XBRL will impact their practice. Not only are there new liability standards to learn, but XBRL will change how they conduct due diligence and deal with internal control issues. Even more fundamental – there might be a change in the workflow process of how disclosure documents get drafted.

All lawyers should tune into our webcast on Thursday – “XBRL: What Lawyers Need to Know” – to hear John Huber and Dave Lynn go over these types of issues; this program will not be a re-hash of the SEC’s new rules. In addition, I’ve asked Clarity Systems to give a short demo tailored to lawyers during the webcast, so you can see the potential changes in document production workflow for yourself (ie. it will not be a demo about how to set XBRL up, rather it will cover how it looks when it’s up and operating; course materials for the demo will be posted on Wednesday).

At a minimum, lawyers need to be aware of the new rules because they impact the cover pages of Forms 10-Q and 10-K. Effective April 13th, the SEC added a new box to the cover page of those forms regarding compliance with the XBRL rules (the purpose of the statement is so third parties can determine whether Rule 144 is available). Thanks to Amy Seidel of Faegre & Benson, we have updated the Form 10-Q cover page – which is in a Word file – posted in our “Form 10-Q” Practice Area (as well as the 10-K cover page in our “Form 10-K” Practice Area).

What should you do with the box now since the rules won’t impact filings until June? Tune into the webcast to learn how to deal with this – or read the chain of answers in #4743 of our “Q&A Forum” if you want to learn about how to deal with this issue now…

Recently, the SEC published this “Small Entity Compliance Guide” on XBRL. It’s just a summary of the new rules, akin to a law firm memo – we have plenty of those posted in our “XBRL” Practice Area.


I recently received this note from a member: I’m finding that it is a Sisyphean task to try to keep up with all of the exchange name changes. The most recent change in appellation occurred on April 13th, when the NYSE Alternext US LLC changed its name to the “NYSE Amex LLC.”

You may recall that the NYSE Alternext US LLC was christened only last Fall, when the SEC approved the acquisition of the American Stock Exchange by NYSE Euronext. Apparently, the NYSE has now decided that – for “branding” purposes – it is a good idea to retain the AMEX moniker. Another recent, albeit less drastic name change, was the change last April from “Pink Sheets LLC” to “Pink OTC Markets Inc.” That change reflected the change from a limited liability company to a corporation.

Noisy Withdrawals: Factor in Stanford Bust?

From Linda DeMelis: Although details are still somewhat murky, the SEC’s recent enforcement action against Allen Stanford may have been triggered by the withdrawal from representation of one of Stanford’s attorneys (as noted in this article). In a Memorandum of Law accompanying the complaint, the SEC cited the withdrawal, together with the attorney’s statement that he and his law firm disaffirmed all prior written and oral representations with respect to Stanford, as a basis for emergency action. The SEC did not mention the attorney by name, but he was later identified.

As this article points out, prior to Sarbanes-Oxley, attorneys in this situation often had to deal with a confused, and sometimes contradictory, morass of state laws and bar regulations covering attorney-client confidentiality. As part of its rulemaking after passage of Sarbanes-Oxley, the SEC proposed the option of a “noisy withdrawal,” where the attorney would notify the SEC of a withdrawal from representation. The “noisy withdrawal” proposal generated some controversy when it was proposed – and it was never adopted. But just such a withdrawal might have been the “tipping point” for the SEC’s enforcement action in this case.

– Broc Romanek

April 17, 2009

NYSE Finally Moves to Scrap Compulsory Press Releases

In the lead-off piece of our “Spring ’09 Issue” of entitled “Facing an Unpredictable World: How to Change Earnings Guidance Practices,” I mention how the NYSE recently filed a proposed rule change that would amend Section 202.05 and 202.06 of the Listed Company Manual to allow listed companies to comply with its “immediate release policy” by disseminating the information “by any Regulation FD compliant method.” This follows a similar change that the Nasdaq made back in ’02 (as discussed in #4777 of our “Q&A Forum” yesterday). The NYSE’s rule change is immediately effective subject to a 30-day operative delay – since it was filed on April 8, I suppose the operative delay will elapse on May 7.

In his IR WebReport Blog yesterday, Dominic Jones picked up the ball on this story and ran. Check it out.

More Sample Documents Posted

We’re constantly post new sample documents in our various Practice Areas, we well as in our “Sample Documents” Portal. For example, we recently posted a sample memo to companies considering repurchasing their own stock in our “Stock Repurchases” Practice Area. And in our “IPOs” Practice Area, we’ve posted a bunch of documents, including a sample lock-up agreement and a sample confidential treatment request. As always, our sample documents (and everything else on our site) come with a disclaimer that you need to make your own legal analysis.

Feeling Glum About Life?

At least you don’t have over 1000 rejection letters from the past few months, this poor – and motivated – third-year is having troubles. If you have some free time, check out this blog’s list of 25 free tools to find out “who knows what about you.”

I’m thinking of doing a webcast on how lawyers can use technology in their practice, including using it to network and find a job. Here is a poll to see if there is any interest:

Online Surveys & Market Research

– Broc Romanek