July 26, 2010

Corp Fin Issues “Accredited Investor” CDI

On Friday, Corp Fin issued a new CDI 179.01 (as well as an identical CDI 255.47) regarding the situation where mortgage indebtedness may exceed the value of a primary residence (you may recall that the withdrawn CDI on Thursday also related to accredited investors due to a conflict with Section 413(a) of Dodd-Frank). The new CDI reads:

Question: Under Section 413(a) of the Dodd-Frank Act, the net worth standard for an accredited investor, as set forth in Securities Act Rules 215 and 501(a)(5), is adjusted to delete from the calculation of net worth the “value of the primary residence” of the investor. How should the “value of the primary residence” be determined for purposes of calculating an investor’s net worth?

Answer: Section 413(a) of the Dodd-Frank Act does not define the term “value,” nor does it address the treatment of mortgage and other indebtedness secured by the residence for purposes of the net worth calculation. As required by Section 413(a) of the Dodd-Frank Act, the Commission will issue amendments to its rules to conform them to the adjustment to the accredited investor net worth standard made by the Act.

However, Section 413(a) provides that the adjustment is effective upon enactment of the Act. When determining net worth for purposes of Securities Act Rules 215 and 501(a)(5), the value of the person’s primary residence must be excluded. Pending implementation of the changes to the Commission’s rules required by the Act, the related amount of indebtedness secured by the primary residence up to its fair market value may also be excluded. Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the investor’s net worth. [July 23, 2010]

One member emailed me wondering whether, as part of the subscription agreement, folks are going to start requiring home appraisals to determine fair market value? And Joe Wallin in his “Startup Company Blog” poses another question that has arisen with the new accredited investor definition (his second query is addressed in the new CDI)…

80% of Pay Unmerited: Feinberg’s Final Bankers Compensation Report

Everybody is kung fu fighting. Quirky I know, but I couldn’t shake that song in my head as I read this NY Times’ front-page article on Friday about Special Master Ken Feinberg’s report about how 17 financial companies paid a total of $1.58 billion in executive compensation during the heart of the economic crisis. I probably should have been singing “Rich Girl” instead. Looking at the Special Master’s web page, I guess this is all there is – a 3-page report.

For the most part, Feinberg didn’t “name names” and his power is fairly limited since 11 of the 17 companies have repaid their TARP funds. Feinberg had conference calls with each of the companies over the past few weeks to lay out his proposals about how their compensation structures could be “fixed” – but as this WSJ article notes: “None of the firms contacted Friday said they would adopt the proposal on its face, with most saying they needed to study it, receive more detail or declining to comment. Others pointed out that they have already instituted similar procedures designed to claw back undue compensation.”

You Want More Change? How About Shareholder Approval of Political Contributions?

This morning, I posted a blog on our “Proxy Season Blog” about new state bills that would require shareholder approval of political contributions, as well as some Congressional efforts in this area.

The heat is rising here as the House Financial Services Committee will meet in open session tomorrow (and possibly subsequent days) to consider, among other things, H.R. 4790, the “Shareholder Protection Act of 2010.” This bill was introduced in the House on March 9th. This bill would require shareholder approval, disclosure and board approval of political contributions. This type of bill has gotten floated regularly over the past decade – but some real legislative movement is more probably post-Citizens United

– Broc Romanek