February 9, 2010

DC’s Big Blizzard(s): Will the SEC Still Declare Your Filings Effective?

I won’t whine since I grew up in Chicago, but a second blizzard is expected today in Washington as federal government offices are closed here for a second straight day as we dig out from the first. As I blogged on Friday, federal government closings due to weather doesn’t shut down EDGAR – so filings can continue to be made despite the snow storm (so yes, Form 10-Qs are still due today).

But has “snowpocalypse” panic spread to underwriters and the securities bar as they wonder whether there will be any bodies in Corp Fin to declare their deals effective? The markets are still open and having registration statements declared effective is particularly important this week, as the staleness date for calendar year-end financial statements fast approaches.

Fortunately, the answer is “yes.” Corp Fin has procedures in place to help as Staffers are available to assist with filings even though the government is shut down by the storm. When OPM shuts down the government in DC, emergency personnel (ie. “essential”) still must show up for work – and as a result there will be Corp Fin staffers available to ensure that essential operations continue.

The most important thing when faced with this situation is getting in touch with someone at the SEC – leaving a message with the examiner assigned to your filing probably isn’t going to be sufficient. Rather, you will need to work the phones to get in touch with (or leave a message for) the Assistant Director of the group that is handling your filing, or call the Corp Fin Front Office. These numbers are available in our constantly-updated “Corp Fin Staff Organization Chart.” To play it safe, you should attempt to make contact with the Staff as soon as possible if you anticipate a need to go effective this week so that any last minute issues can be resolved.

If you are expecting comments from Corp Fin and there is no urgent need to go effective, you may experience some delay in the processing of your filing thanks to the snow. There is no need to contact the limited Staff available to ask about the status of your comments, because they probably won’t be able to step in and move the process along, particularly right now. The Staffers that are available during the government shutdown are really there to deal with the most urgent situations, so bogging them down with less urgent matters is not the best idea…

Thanks to Dave who wrote the bulk of this entry, as he fondly remembers being “essential” himself and trudging to be one of the few folks in the government at work during a snow day…

Feedback: SEC’s Settlement with BofA

Below is some feedback on my recent blog regarding the SEC’s settlement with Bank of America from Brink Dickerson of Troutman Sanders:

Interesting settlement between BOA and the SEC, but I think that it reflects some worrisome practices by the SEC:

– The concept of “effectiveness,” which is the standard that the SEC proposes for the auditor attestation report, is not directly applicable to disclosure controls. It is uniquely a SOX 404 concept. Rather, for disclosure controls the test is whether they “are designed” to assure compliance, not whether they are effective. See Rule 13a-15(e). While the effectiveness determination is only one of five items that he auditor is to review, it is the one that stands out as not being mandated by the 1934 Act and, more critically, is almost impossible to fulfill.

– I doubt that an audit firm is qualified to assess disclosure controls without relying on a report from special counsel. If anyone could do the report solo, it would be a law firm, and for an audit firm to do it, it is going to have to rely on someone with the necessary disclosure expertise. In the Sony settlement the SEC did require that an audit firm “audit” Sony’s MD&A, but that is a much easier requirement.

– Having management certify as to the accuracy of a proxy statement, although understandable in the context of the disclaimers by BOA management with respect to their familiarity with the document, seems a bit odd, particularly given the absolute liability – i.e., no scienter required – provisions of Section 14(a). In the Tyco litigation, the SEC thought that Section 14(a), on its own, was strong enough to go after a CEO for misstatements in a proxy statement. I do not think that anything has changed, and worry from a policy perspective whether the SEC should be suggesting that a certification is necessary in order for there to be liability of the part of a CEO.

– Requiring “super” independence for the compensation committee members and their advisors seems little more than window dressing given the progression toward that independence standard by most large companies for all purposes and the new compensation advisor disclosure rules. But at least this one will not cost the shareholders anything.

– Most of our larger clients already have well-considered, written compensation principles. It is increasingly hard to write a good CD&A without them. So, again, hopefully something this is something that will not cost the shareholders anything.

– Requiring a “say on pay” advisory vote, even though just advisory, appears to be meddling by the SEC in corporate governance (again!), rather than their sticking to their disclosure mandate. I find the proposed order’s comments on the governance implications of advisory votes – “shall not be binding on the BAC Board of Directors and shall not be construed as overruling a decision by such Board, nor will it create or imply any additional fiduciary duty by such Board” – interesting, and hope that the plaintiffs’ bar believes them too.

In short, in order to craft an outcome that will get Court approval (this time), I think that the SEC may have gone a bit too far down the wrong path.

Dave & Marty on Capital Raising, Rule 163 Proposal, and Conference Hot Spots

In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion regarding capital raising, Rule 163 proposal and conference hot spots.

– Broc Romanek