July 12, 2011

The 8th Say-on-Pay Lawsuit

Last week, the 7th company that failed to garner majority support for their say-on-pay was sued – Cincinnati Bell in a federal district court in Ohio (here’s the complaint). For reasons I’m not sure of myself, I count this as the 8th say-on-pay related lawsuit even though this one didn’t involved a failed SOP. We continue to post pleadings from these cases in’s “Say-on-Pay” Practice Area.

SEC Filings: What is the Difference Between a “Schedule” and a “Form”?

As noted in this article, Warren Buffett recently filed his latest Form 13F to disclose his latest portfolio holdings and the Form notes that some information has been omitted since its confidential. This 1998 form letter from the SEC gives some indication of the standards required for 13F filers to receive confidential treatment.

I know these Form 13F filings are closely followed by some investors, particularly those filed by Warren’s Berkshire Hathaway. But for me, it raised this esoteric securities law question in my mind: Why does the SEC call some of its forms a “Form” and others a “Schedule”?

It seems odd that investment managers are required to file a “Form 13-F” and not a “Schedule 13-F” – particularly since Schedules 13D and13G are required to be filed by shareholders once they cross a certain percentage of ownership in a company. All of these filings are made by shareholders to report holdings – why don’t their filings have the same “label”?

I don’t know the answer. At first, I thought that the difference would be based on the language used in the statute that creates the obligation. That could be the distinction, but I’m not sure. Looking at Section 13(f)(1) of the ’34 Act, the SEC has been delegated to create a Form 13-F filing obligation under this language: “…shall file reports with the Commission in such form…” In comparison, Section 13(d)(1) and Section 13(g)(1) creates the filing obligation of a “statement.”

So although there is no mention of “Form” or “Schedule” in the statute, a distinction may exist because the statute requires that a “report” be filed under 13(f) – and that a “statement” be filed under 13(d) and (g). If someone out there knows if this is a distinction that matters, please fill me in. I struck out with my research (even Louie Loss) and asking old-time’ish colleagues. Maybe the difference comes down to some sort of authority or Administrative Procedures Act king of thing? Dunno.

From the perspective of the SEC’s rulemaking process, I understand that the main difference between a Form and a Schedule is that a Schedule is usually codified as part of the Code of Federal Regulations – whereas with a Form, only the description is codified as part of the CFR (as the Form is maintained separately and doesn’t appear in the CFR). That’s a nice tidbit but it still doesn’t explain how we got here in the first place. Not that this difference matters one iota in real life but it seems like good food for thought for securities law purists…

Webcast: “Understanding the Private Company Trading Markets”

Tune in tomorrow for the webcast – “Understanding the Private Company Trading Markets” – to hear Annemarie Tierney of SecondMarket, Dave Lynn of and Morrison & Foerster, Sharon Hendricks of Gunderson Dettmer and Kim Kovacs of OptionEase discuss the current environment for secondary sales in private companies like Facebook, and what policies and record-keeping procedures companies considering these programs should adopt to ensure compliance with the securities laws.

One of the most interest things going on (besides the liquidity aspect of all this and the related impact on equity compensation) is the emergence of new businesses building on top of the secondary trading markets. For example, there are equity research firms who are commencing research on private companies – and data companies who are mining through Delaware filings to reverse engineer private companies’ cap structures. This is a fundamental shift in the world in which private companies operate, including their expectations of confidentiality. There are also endless technical issues beyond the obvious ones, including how these new markets affect the various definitions of “public trading market” used under tax and securities laws (280G, 409A, Reg S) and how this can impact private company valuations. Tune in to learn more…

– Broc Romanek