January 18, 2010

Non-GAAP Financial Measures: SEC Reinstates Old FAQ By Changing New CDIs

On Friday, the SEC reversed course and reinstated old non-GAAP FAQ 23, as CDI 105.07 of the new non-GAAP CDIs that had been released last Tuesday (which had updated the SEC’s FAQs on this topic from 2003). At the same time, the SEC also deleted new CDI 105.4.

It appears that in initially issuing CDI 105.4 last week, the intent was not to change the meaning of old FAQ 23 – but to make it clearer. In doing so, the new CDI omitted the key fact that the earnings release was not furnished on a Form 8-K before the conference call. To correct this, the SEC deleted new 105.4 and reissued old FAQ 23 as new C&DI 105.07, omitting the Reg FD sentence since nothing in that fact pattern raises an FD concern.

Courtesy of Davis Polk, here’s a redlined version of how the ’03 FAQs compare to the new CDIs, including this latest change.

SEC Agrees to 2-Year Stay of Rule 151A

Even though I don’t typically cover the indexed annuity products area, I thought this development was interesting because I don’t recall a situation where a court postponed the implementation of a SEC rule for two years (although I imagine it has happened before). Here is a summary of this development drawn from this Morrison & Foerster memo:

On December 8, 2009, the Securities and Exchange Commission (the “SEC”) stated in a filing with the U.S. Court of Appeals for the District of Columbia Circuit (the “Court”) that it agreed to stay of the effective date of Rule 151A for “two years after completion of all proceedings on remand, to run from publication of a retained or reissued Rule 151A in the Federal Register.” Compliance with Rule 151A is therefore postponed. Companies would have two years from that new publication date to comply with Rule 151A, or any reissued version of the rule.

The filing was made in response to petitions filed by various insurance industry participants requesting the Court to reconsider its remand order that it issued on July 21, 2009 and void Rule 151A. The Court had previously ruled that the SEC failed to properly consider the effects of Rule 151A on efficiency, competition and capital formation in the insurance industry and remanded the issue to the SEC for reconsideration.

More on “The Mentor Blog”

We continue to post new items daily on our new blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Becoming an “Outlier”: Leveraging Social Media
– What Level of Due Diligence Should a Placement Agent Conduct?
– Where the Action Is: CEO Searches
– Legal Implications of Cloud Computing
– More on “Collectively Stupid: A Way of Life?”

– Broc Romanek