As I blogged a few days ago, there are over 200 amendments proposed for the Dodd bill in the Senate. There is a lot happening on the Senate floor daily right now (and continuing into the night) and it’s hard to separate fact from rumor (I’m not even sure that those on the Senate floor can keep track). For starters, some people report that President Obama wants to sign a bill by the end of June; some say he wants it by Labor Day.
There are so many proposed amendments, it would be hard to discuss even a fraction of them in this blog, particularly since the ground moves daily beneath the bill. But here are two that you may want to be aware of – thanks to the “heads up” from Rick Hansen of Chevron: the Byrd (#3880) and Rockefeller (#3886) amendments. Both of these would significantly expand the disclosure obligations of ’34 Act companies – principally because they contain no meaningful disclosure thresholds (i.e. materiality), and in the case of the Byrd Amendment, would significantly expand the bases upon which directors and officers may be found personally liable for failures to disclose.
1. The Byrd Amendment
Amends Securities Exchange Act of 1934 by inserting new Section 21B. Health and Safety Disclosure Violations. Requires issuers subject to the Securities Exchange Act of 1934 to disclose, at least annually:
– “any pending litigation concerning a health or safety condition or violation under Federal or State law involving the issuer, other than ordinary, routine litigation that is incidental to the business of the issuer, as determined by the [SEC]”;
– “any significant health or safety condition, or significant health or safety violation, at any business unit of the issuer in which routine activities pose a risk of loss of life”;
– “any significant health or safety condition, or significant health or safety violation, at any business unit of the issuer in which routine activities pose a risk of accident or fatalities, injuries, or illnesses, the occurrence of which could cause reported financial information not to be necessarily indicative of future financial condition of the issuer, or which could cause a negative effect on operating results of the issuer or any subsidiary thereof”; and
– “any trend in health or safety conditions or violations under Federal law, at any business unit of the issuer, that may change the relationship between cost and revenue for the issuer or any subsidiary thereof.”
Permits the SEC and stockholders to file claims in federal court “whenever it shall appear that any issuer has violated” the disclosure requirements. The SEC or stockholders may seek equitable relief or civil penalties “to be paid by the senior executive officers or members of the board of directors” of the issuer “(i) who knew about such violations; or (ii) whose duties and decisions affected matters regarding production or safety and therefore had reason to know about such violation.”
Key defined terms include:
– “pending litigation” means “any civil action or administrative proceeding for a penalty for violating a federal or state health and safety law that (i) is being contested before an administrative law judge under the Occupational Safety and Health Review Commission or the Federal Mine Safety and Health Review Commission; or (ii) is being otherwise contested or appealed under a state review board or other body.”
– “significant health or safety condition” means “a condition that a certified worker or manager could identify as reasonably likely to be cited, were the condition to be observed by a Federal inspector, as (i) a significant and substantial health or safety violation under the Federal Mine Safety and Health Act of 1977; (ii) a serious or repeated violation under the Occupational Safety and Health Act of 1970; or (iii) another health or safety related violation carrying a high degree of gravity under Federal law.”
– “significant health or safety violation” means “(i) a significant and substantial health or safety violation under the Federal Mine Safety and Health Act of 1977; (ii) a serious or repeated violation under the Occupational Safety and Health Act of 1970; or (iii) another health or safety related violation carrying a high degree of gravity under State or Federal law.”
2. The Rockefeller Amendment
Requires issuers who are subject to the Securities Exchange Act of 1934 and that are an operator, or that have a subsidiary that is an operator, “of a coal or other mine” to disclose in the issuer’s quarterly and annual reports:
– For each coal or other mine, (a) “the total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a coal or other mine safety or health hazard under section 104 of the Federal Mine Safety and Health Act of 1977,” (the “Act”) (b) “the total number of orders issued under Section 104(b) of the Act”; (c) “the total number of citations or orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under section 104(d) of the Act”; (d) “the total number of flagrant violations under section 110(b) of the Act”; (e) “the total number of imminent danger orders issued under section 107(a) of the Act”; and (f) “the total dollar value of proposed assessments from the Mine Safety and Health Administration under the Act”;
– A list of each coal or other mine that received written notice from the Mine Safety and Health Administration of(a) “a pattern of violations of mandatory health or safety standards” or (b) “the potential to have such a pattern”; and
– “Any pending legal action before the Federal Mine Safety and Health Review Commission involving such coal or other mine.”
Requires issuers who are subject to the Securities Exchange Act of 1934 and that are an operator, or that have a subsidiary that is an operator, “of a coal or other mine” to file a current report on Form 8-K with the SEC disclosing the following:
– “The receipt of an imminent danger order issued under section 107(a)” of the Federal Mine Safety and Health Act of 1977;” or
– “The receipt of a written notice from the Mine Safety and Health Administration that the coal or other mine has (a) “a pattern of violations of mandatory health or safety standards” or (b) “the potential to have such a pattern.”
Key defined terms include:
– “Coal or other mine” means a coal or other mine as defined in section 3 of the Federal Mine Safety and Health Act of 1977.
– “Operator” has the meaning given that term in section 3 of the Federal Mine Safety and Health Act of 1977.
A Fake SEC? The “U.S. Securities and Equities Administration”
Just when you get old enough to think that you’ve seen everything – something new comes along. Yesterday, the SEC issued this alert to note that “an entity calling itself the “U.S. Securities and Equities Administration” and other similar names, including the “U.S. Securities Administration” or the “U.S. Securities Bureau.” In conversations with members of the public, the entity may have represented that its address is 225 Franklin Street, Boston, Massachusetts. The entity also claims to operate a website at www.gov.ussea.us. It appears that this entity may be requesting up-front fees to remove purported restrictions on shares of stock that investors own, or to release funds purportedly being held by the U.S. government on investors’ behalf.”
I wonder how much this fake “SEA” pays a Staff attorney these days – I imagine a lot as they could just pay in Monopoly money…
Short Selling: A New SEC Enforcement Priority
In his “SEC Actions” Blog, Tom Gorman explains how the SEC’s Enforcement Division took action against individuals for short-selling, as compared to other recent cases that involved market professionals and hedge funds.
Last Chance for “Early Bird” Rates: For one more day, we are offering a $200 discount for all registrations received by the end of tomorrow. This is a great savings and we won’t be able to extend this deadline, so don’t wait to register.
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Suppose you are a high ranking executive who is participating in an analyst call with a colleague and your colleague makes a misstatement. Can you go to jail if you don’t jump in and correct the misstatement? What if you fail to rectify the misstatement in SEC filings? Recently, the Third Circuit Court of Appeals – in US v. Schiff – said that “the plain language of § 10(b) and corresponding Rule 10b-5 do not contemplate the general failure to rectify misstatements of others.” The Court also rejected the government’s argument that the defendant’s position as a “high corporate executive” imposed a general fiduciary duty requiring disclosure. In doing so, the Court observed a number of problems with such a theory.
For example, would such a duty potentially rope in all corporate officers based on a single misstatement by another officer? Although the government was not successful under either a duty to disclose or fiduciary duty theory, it still has other prosecutorial arrows in its quiver – for example, criminal conspiracy and aiding and abetting. Also, the case does not exonerate an executive from state corporate law claims of breach of fiduciary duty.
Mailed: March-April Issue of The Corporate Counsel
The March-April issue of The Corporate Counsel includes pieces on:
– Staff Provides Relief on the Need for a No-Action Letter When Suspending Section 15(d)
– Reporting Obligation under Rule 12h-3
– Revised Non-GAAP CDIs–Staff Seeks Consistency in Issuer Communications
– PIPEs Revisited–The Staff Dials Back the 1/3 of Public Float Guideline
– Roth IRA Conversion–The Soup, Nuts And Bolts
– California Still Householdless
– Beware, Congress Delving into the Accredited Investor Thresholds
Act Now : Get this issue on a complimentary basis when you try a 2010 no-risk trial today.
We now have over 200 amendments to the Dodd bill in the Senate and we’re still bound to get some more. With so many amendments they cover a large swatch of issues, including exempting small companies from Sarbane-Oxley’s Section 404 regarding internal controls (egs. #35 – Vitter Amendment 3764 and #56 – Hutchinson Amendment 3785) and removing proxy access from the bill (#157 – Carper 3887, as noted in this blog).
As is typical on the Hill, some amendments are unrelated to financial reform (eg. #62 – Brownback Amendment 3791 re: the Congo conflict), including one that eliminates cost-of-living increases for members of Congress (#1 – Feingold Amendment 3730)! Perhaps not an appropriate item to bury in a financial reform bill (but I get the idea).
Here’s the Senate Banking Committee’s 251-page report on the Dodd bill from April 30th – and here’s where you can find the list of the 205 amendments (click on “Amendments” in 2nd column). This list is useful as it links to the text of each amendment – but unfortunately you have to drill down to the text of each amendment to determine its subject matter since each is merely described as “Purpose will be available when the amendment is proposed for consideration” in the index.
The Reasons for Last Week’s 1000-Point Plunge: Maybe We’re Better Off Not Knowing?
Yesterday, SEC Chair Schapiro delivered this testimony before the House Capital Markets Subcommittee on the causes of last Thursday’s severe market disruption. As noted in this Washington Post article, the regulators now believe they have a handle on the confluence of events that precipitated the “blip” (but they still don’t know what caused that day’s volatility). A member sent in this commentary about the situation as known so far:
The collective facts so far from the regulators: at 2:32 pm, a CME trader sells heavy S&P 500 futures contracts (an “e-mini”) as part of a “bona-fide hedge,” per the CME. By 2:40, the cash equity markets are off 4% and near 10% a few minutes later.
The SEC says the NYSE institutes market steadying protocol when the selling gets off-the-hook, which has humans take over for electronic orders being routed to NYSE. The automated exchanges read this as a flaw and stop sending orders to NYSE. Market makers (“liquidity providers”) that are tasked with standing in and keeping the cash markets liquid (i.e. order flow) instead withdraw as the high-frequency trading programs go haywire. This is the where the “no bid” period establishes itself.
In other words, when the sh#% hits the fan, we can count on the Wall Street Army to retreat and let the tent fold, while they head for the hills with the cash. Mad Max, or what?
Floyd Norris’ Response: A Rebuttal to “SEC’s Rating Agency Regulatory Scheme Heighten Risk of Insider Trading”
Floyd Norris of the NY Times provides us with this response to a rebuttal to one of his columns noted in yesterday’s blog:
I just saw yesterday’s blog which allows that I don’t know what I am talking about. I think I was misunderstood. Let me take it slowly:
1. The rating agencies are exempt from Regulation FD; they can get info the rest of us don’t have.
2. That has led some people to think the ratings are based on superior information, and that Moody’s (or S&P’s or Fitch’s) opinion is worth more than some other analyst’s – not because of relative skill in analysis, but because of an information gap.
3. Why not end the exemption? If a company feels it is necessary to tell the rating agancy something, let it tell everyone else too. At least that can be done as soon as the new rating is published. (That allows for mergers and other major corporate changes. Effectively, it says that if an agency has inside info – it cannot disclose it until it becomes public.)
4. The fact that Moody’s discloses its rating is irrelevant to this analysis, contrary to what the member quoted says, so long as it (or the company) does not disclose the inside info on which the rating is based.
Your member thinks we are better off to have Moody’s know more, because it can then give us the results of that knowledge. I think we would be better off to have a level playing field, in no small part because it would take away the agencies’ aura, and that if companies knew they would be seen in a better light – and pay lower interest rates – if they released information, it would be released.
Obviously, his (or her) forecast of the future may be better than mine. But how does that prove I do not know what I am talking about?
Recently, the Deloitte Forensic Center released a study about which executives most frequently get named in SEC enforcement actions during 2008. The results were a little surprising to me – the financial executives (ie. CFOs, chief accounting officers and controllers) collectively represented only 44% of the individuals named. In comparison, CEOs represented 24% and directors and general counsel were named 4% of the time. All in all, nearly one third of the individuals named were not CEOs or financial executives!
Speaking of studies, here is an interesting one regarding SEC enforcement against investment banks and brokerage houses – it suggests that the SEC favors defendants associated with big firms compared to defendants associated with smaller firms in three ways.
Trouble in California: Attorney General’s Lawsuit Against Placement Agents
Last week, the big news here in California was the Attorney General’s action against two individuals who allegedly made millions of dollars in placing private equity fund investments with CalPERS, as noted in this article. One of the defendants is the former CEO of CalPERS.
Interestingly, the complaint relies heavily on violations of California’s broker-dealer law (alleging unlicensed activity and securities fraud by a broker-dealer). This case is an example of potential problems under Blue Sky laws for unregistered or unlicensed “finders,” even when doing business exclusively with institutional-type clients.
A Rebuttal to “SEC’s Rating Agency Regulatory Scheme Heighten Risk of Insider Trading”
A while back, a member sent me the rebuttal below to Floyd Norris’ piece on the SEC’s rating agency proposals (which I included in this blog long ago):
Floyd Norris doesn’t know what he is talking about and is confusing Regulation FD and non-public information with insider trading. The rating agencies do not disclose the information they are provided; they use it in developing their ratings and then they (at least Moody’s, Fitch and S&P) publicly announce their rating (so again, no inside informational advantage to their customers). If the explanation of the rating is dependent on disclosure of non-public information (such as a merger), they will not issue their rating until the information is disclosed (so they get an advance peek to be able to get up to speed).
The problem that will result will be that in the absence of an understanding or even a contractual undertaking (and particularly if the Regulation FD exemption is repealed) from the rating agencies, the companies will not provide confidential information to rating agencies because they will no longer have any assurance as to non-disclosure when it goes to the Egan-Jones of the world, so the ratings will be less useful.
The bottom line is that it’s not right to present this as principally an insider trading issue, except in the case of the customer-paid example, where Egan-Jones does not publicly announce it’s ratings. Want a good example of a customer-paid model, look at RiskMetrics’ ISS – are people happy with their objectivity?
Just last week, I blogged how Motorola became the first US company to fail to obtain majority support for say-on-pay. Now, Occidental Petroleum becomes the second company, as shareholders voted on this measure at its annual meeting on Friday according to this WSJ article. The actual numbers weren’t announced at the meeting nor has the Form 8-K been filed yet with the voting results.
Two rejections of pay in a week is a lot. In the United Kingdom, I believe it took over five years to reach two after say-on-pay was mandated for all of its companies…
The Myth: “Fat Finger” Trader Triggers 1000-Point Dow Drop
So far, it appears that the regulators, stock exchanges and the media haven’t been able to ascertain the cause(s) for the wild 16 minutes of trading last Thursday. In fact, it appears that perhaps the only thing they do now know is that the rumor of a massive, erroneous trade touching off the chaos was not a cause.
Too bad because the image of a single human accidentally sending the market into the tank is much more comprehensible that the tangled web of computers which likely is the cause. Here’s my romanticized version of the myth:
“Big Bob” Hunter strolled back from his daily routine of a quick late lunch, polishing off his two half-smokes within minutes of grabbing them from Tony, the corner vendor from whom Bob has frequented daily for over a decade. In fact, their nearly unspoken bond had become so great that Tony was one of the few people that Bob included on his Christmas list each year.
Nervous about the debt situation in Greece, Bob broke from tradition and also ordered a large carton of fries. As he settled back into his desk for another round of trading for his firm – Acme Big Bank – Bob casually poked at the fries as he glanced at one of his favorite “money honeys” on the cable newshow talking on the TV across the room. He chuckled about her quip regarding one of his favorite stocks as he placed a client’s sell order for Procter & Gamble.
Within seconds, he noticed a flash on the ticker as P&G began to plummet. “What in the devil?,” he thought. With horror, he realized that his greasy finger slid two keys from the “M” to the “B” when he had placed his P&G order. “Tarnation!,” he exclaimed as he wiped his brow and called his manager over. It was going to be a long day.
Here’s a press release from the SEC/CFTC on Friday noting that they are still investigating and promising to report what they find, when they find it…
And here’s a funny story from my good friend Mark Coller: “Honest truth, each year I try to pick a Kentucky Derby winner based on which horse’s name matches prevailing current events. It’s worked fairly well. For example, remember when War Emblem won in ’02 – owned by a lower level Saudi prince no less – that the naive public was gung ho on “getting Saddam” and everyone displayed flags on their houses and cars.
So this year I considered the eventual winner Super Saver – but discarded him because our national savings rate is still not stellar. I decided Devil May Care seemed to fit best – but alas, the filly came in 10th…”
Poll: What Was the Primary Cause for the Big Market Drop?
In the anonymous poll below, weigh in on what you think the primary cause of the market drop:
Yesterday felt like science fiction, with the humans finally realizing that machines have long taken over the financial world. Of course, there are humans behind those machines (traders call them “the box”) – but it will be interesting to see if the regulators (see SEC/CFTC’s press release) and journalists will be able to figure out what truly went wrong. I doubt that even the quants behind those machines can figure it out.
I don’t have a lot of confidence in the stock market being “fair” these days. And the fact that millions of trades will be busted due to yesterday’s “trader error” doesn’t help. I’ll be curious to see who gets bailed out by busting these trades. I imagine some quants will be saved, while others will be angry that their big bargain buys will be cancelled. Good news for some lawyers I imagine.
Don’t forget this morning is Goldman Sach’s annual meeting – that is sure to bring some fireworks. And if you’re wondering where I got the “millions” for the title of this blog, it was drawn from the end of this WaPo article..
The Status of the Senate’s Financial Reform Efforts
With over 100 amendments offered on the Dodd bill over the past two weeks, it’s impossible to know the shape of the bill that the Senate ultimately will pass (although two of those changes were officially tacked onto the Dodd bill on Wednesday). And those 100-plus proposed amendments were made before yesterday’s chaos – that craziness is sure to bring out a few new amendments.
Debate on the bill is expected to continue for at least another week. Note that some of the amendments do seek to strip proxy access and mandatory majority votes from the bill, as noted in Ted Allen’s blog.
Are Tattoos Appropriate for Professional Women?
Thanks to the many for their kind words on my 8th blogging anniversary this week. It got me thinking about how many lawyers now blog (I’m still convinced we’ve barely scratched the surface on how many lawyers will be blogging soon enough; read my piece to figure out what it takes to be a blogger). All sorts of legal blogs have emerged. For example, in this blog, Corporette answers the question: “Are tattoos appropriate for professional women?”
Here is something I blogged earlier this morning on CompensationStandards.com’s “The Advisors’ Blog“:
As we await mandatory say-on-pay’s fate on Capitol Hill, here are a few recent developments worth noting:
– RiskMetrics’ Ted Allenreports that Motorola received just 46% support during the company’s May 3rd annual meeting, marking the first time that a US company has failed to earn majority support from shareholders during a non-binding vote on compensation (here is Motorola’s Form 8-K). Mark Borges just blogged about this as well.
– Remember that brokers still get to cast discretionary votes on management say-on-pay proposals (although one of the sections of the Dodd bill would eliminate this, as I noted in this blog). Thus, Motorola’s level of support would have been even lower if these broker votes were not included. As an example, see Ted’s notes about American Express’ recent meeting (and see AmEx’s Form 8-K) – he quotes someone from the AFL-CIO who estimates that the company’s 63% level of support would have been reduced to 58% (and Wells Fargo’s level of support would have dropped from 73% to 67% without the broker votes).
– Ted reports that say-on-pay shareholder proposals received 51% support at EMC, a 47.9% vote at Johnson & Johnson, and 45.3% support at IBM. The number of votes exceeded the support levels for the same resolutions at the three companies last year. Note these are proposals from shareholders to put say-on-pay on the ballot going forward; they are not management say-on-pay agenda items like the situations noted above.
– Ted also reports that SuperValu received no-action relief – under the (i)(9) “conflicts with management’s proposal” basis – from Corp Fin to exclude a say-on-pay shareholder proposal because the company had already adopted a “triennial” approach to say-on-pay. The proponent wanted an annual vote instead of every three years.
The SEC’s Porn Story: My Reluctant Ten Cents
In all my years, I’ve never been asked so much about a story related to the SEC than the countless media reports that made the rounds a few weeks back regarding the SEC’s Inspector General’s report over misuse of the SEC’s computers to view porn. Here’s a summary of the report; note that I can’t find the actual report on the IG’s webpage (nor even the summary for that matter, I found that on a Washington Post web page).
Note that the story first broke out back in early February and it was written up by the mass media back then (eg. this article). Thus, it’s odd that the same story recycled a few months later – perhaps the public’s fascination with the Goldman investigation convinced the media that it was “newsworthy” again? Or maybe because more information was made available to the media? I don’t know, nor do I care.
In my opinion, this is a non-story since this type of stuff happens in every government agency as well as every company in the private sector. It’s the “few bad apples” syndrome. The problem for the SEC is the story comes at a delicate time for the agency. And the specific details – which I’m not convinced really needed to be divulged – are quite repugnant.
For me, the big surprise in this story was reading that some SEC Staffers make as much as $222,000 these days (as noted in the summary)! A far cry from the pay levels when I left a dozen years ago. I think my salary was in the low 70s when I left – and I worked for a Commissioner at the time. Next week, I’ll be blogging about working at the SEC.
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net 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:
– Time (Off) Well Spent
– Pink Sheets Changes Into the “OTCQBTM Marketplace”
– More Women on Boards? Conflicting Survey Results
– Mark Cuban Says SEC Tampered With Witness
– Rule 10b-5(b): Securities Professionals Must Actually ‘Make’ a Statement
Lately, I’ve heard grumblings that the SEC – when it adopted new rules requiring the reporting of voting results in a Form 8-K within four business days after the end of the meeting at which the vote was held – only required companies to just provide raw voting data, information that most shareholders would not know how to interpret. In other words, Item 5.07 of Form 8-K doesn’t require companies to include voting percentages.
At first, I thought this was an oversight during the rulemaking process since reporting percentages – instead of totals – was not one of the questions asked by the SEC in its proposing release – nor does it appear that the issue was raised during the comment process either (we checked a number of comment letters from shareholder groups and didn’t see anyone suggest adding this type of requirement).
But after mulling the issue – and conferring with those who know better than me – perhaps the SEC may have been wise to not require such disclosure since quite a few practitioners (including inspectors of election and tabulators!) have had trouble calculating percentages themselves. This is tricky business, figuring out whether – and how – abstentions count towards the vote calculations for shareholder proposals. Those rules differ depending on a company’s state of incorporation. For example, New York and Delaware have different rules on this (and to dig deeper for Delaware companies, there are the state law percentages – and then there is the Rule 14a-8 approach, which is the approach that shareholder proponents use, that looks only at votes cast).
Another factor is how the company’s bylaws are drawn up – oftentimes with language agreed to many years ago and whose intent is long forgotten. Carl Hagberg, our “go-to” independent inspector of elections, tells me that he has seen many mistakes by practitioners when they report on percentages because they have not read or interpreted the bylaws correctly. As I’ve noted before, Carl’s article from his “Shareholder Service Optimizer” on the basics on inspectors of elections is a “must” read (it’s posted in our “Annual Stockholders’ Meetings” Practice Area).
Notably, there are some companies that have figured out how to make the calculations for themselves and provided valuable voluntary disclosure. Recently, IBM filed its Form 8-K with voting results and they voluntarily included percentages for the shareholder proposals on its ballot, in addition to the required raw data. It will be interesting to see if other companies will follow IBM’s approach going forward…
Ban on Blackberries in the Boardroom?
Take a listen to the audio archive from a recent BBC program. The relevant segment starts at minute #11, in which a professor calls for banning blackberries in board meetings – and that companies should publicly disclose that they have a “no wireless device” policy in the boardroom. He discusses that plaintiff attorneys could use a record of a director’s emailing and phone calls during a board meeting as evidence of breach of duty of care (ie. inattention to meeting).
PS – I’m no litigator, but I doubt a plaintiff could get the phone company/ISP records of phone and email calls that easily?
Latest Developments in Director Diligence
In this podcast, Jim Rowe of the James Mintz Group discusses the latest developments for diligence practices during the director recruitment process, including:
– What does the Mintz Group typically do to vet a board candidate?
– How has diligence for board candidates changed over the past few years?
– Any surprises these days about the board vetting process?
Today marks eight years of my blither and bother on this blog (note the DealLawyers.com Blog is nearly seven years old – not shabby!). It’s one time of the year that I feel entitled to toot my own horn – as it takes stamina and boldness to blog for so long. A hearty “thanks” to all those that read this blog for putting up with my personality. I’m sure I won’t get more refined with age.
Someone recently asked me how I came to be one of the first lawyers to blog (if I remember correctly, the few other lawyers with a blog at that time blogged solely about marketing for lawyers; not the law itself). Back in early ’02, I was reading one of the dying tech magazines – the ones that disappeared with the Internet bust – and the term “blog” was mentioned in passing. I looked it up and downloaded the blogging software to give it a try. I never imagined it would amount to much as I wondered who would want to read my “diary.” For the first few years that I blogged, I had to constantly explain to folks what a “blog was…
To celebrate, I thought I’d share a groovy video of a classic song circa 1970 (I love the dancing near the end):
SEC Rule 163 Proposal Stalled – But Request for Fixed Income Offering “Speed Bump” Gets Traction
At a meeting of the ABA Subcommittee on Securities Regulation recently, Tom Kim, Chief Counsel, SEC Division of Corporation Finance, indicated that the SEC’s proposed amendment to Rule 163 under the Securities Act has lost momentum as a result of negative feedback received from investors. The proposed amendment, which was generally supported by corporate issuers, underwriters and their counsel, would have allowed underwriters or dealers acting on behalf of well-known seasoned issuers (WKSIs) to offer securities before the filing of a registration statement, enabling WKSIs to better gauge investor interest in their securities before publicly launching an offering.
Mr. Kim also noted that the SEC staff is paying attention to fixed income investors’ concerns that they are being asked to make corporate bond investment decisions too quickly. The Credit Roundtable, a group of fixed income investors, has asked the SEC staff to consider imposing a “speed bump” or delay of at least one hour in the corporate bond offering process in order to improve investors’ ability to conduct diligence before books are closed. The Credit Roundtable’s other recommendations for the corporate bond offering process include increased access to management conference calls and easier access to disclosure documents through the use of hyperlinks.
Mr. Kim indicated that because these timing and disclosure concerns go to the “core” of the SEC’s investor protection mission, they are being taken very seriously by the staff. The staff plans to hold a roundtable in the fall of 2010 to discuss these issues and is unlikely to act on the recommendations before then. Interested parties are encouraged to contact the Division with their views.
On Friday, the SEC issued its first fee advisory for the year (along with this methodology). Right now, the filing fee rate for Securities Act registration statements is $71.30 million (the same rate applies under Sections 13(e) and 14(g)). Under the fee advisory, this rate will rise to $116.10 per million, a hefty 63% price hike – and the largest one-year rate hike in my experience. The new fees will not go into effect until five days after the date of enactment of the SEC’s 2011 appropriation – which often is delayed well beyond the October 1st start of the government’s fiscal year, as Congress and the President battle over the government’s budget.
You might be asking, “How are the SEC’s fees set?” Or more importantly, “Will the rate hike help the SEC’s push for more resources?”
The SEC sets its filing fees annually under the “Investor and Capital Markets Fee Relief Act of 2002.” The SEC’s budget is not dependent on its fees as it’s not a self-funded agency. All of the fees go to the US Treasury. But perhaps the higher fees could convince Congress to allow the SEC to receive the requested 12% increase in its budget. On Friday, SEC Chair Schapiro testified before a subcommittee of the Senate’s Appropriations Committee and she noted:
It is important to note that the proposed increase in spending would be fully offset by the fees we collect on transactions and registrations. In FY 2011, we estimate that we will collect $1.7 billion — an increase of $220 million over FY 2010.
It will be interesting to see if – and how – the higher level of fees impacts the SEC’s push for self-funding. Learn more how the filing rate-setting process works in this blog.
FINRA Issues FAQs for its New Same-Day Clearance Process for Shelf Filings
Last week, FINRA’s Corporate Financing Department supplemented its new “COBRADesk Same Day Clearance Guide” by issuing FAQs regarding the “Same-Day Clearance Option” with FAQs related to the process (the FAQs are at the end of the guide).
As you may recall, the new same-day option is for shelf takedowns that have an accelerated effective, pricing or launch date. At the recent ABA Business Law Section Spring Meeting, Paul Mathews, Director of FINRA’s Corporate Financing Department, stated that 60% of the Department’s shelf filings already were being submitted using the same day option and indicated that the process was working well for the companies seeking quickly access to the capital markets.
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