Monthly Archives: August 2011

August 31, 2011

The SEC Uses Stop Orders Against Two Chinese Companies

Recently, I have blogged about the risks involved in some Chinese companies, more recently because the US exchanges have listed questionable companies even when the Chinese regulators would not. So it’s noteworthy that the SEC’s Division of Enforcement recently issued two stop orders to prevent effectiveness of the registration statements of two Chinese companies (whose auditors had resigned and trading had been halted several months earlier). Stop orders are fairly rare but certainly seem warranted in this case (here’s stop order for China Century Dragon Media and here’s stop order for China Intelligent Lighting and Electronics).

What might a Chinese company – one incorporated in the Cayman Islands – do when accused of fraud? How about move the assets to another company and leave 8000 employees stranded…

The Problems of Chinese Reverse Mergers

In this podcast, Matt Orsagh of the CFA Institute talks about reverse mergers for some Chinese companies that have implications for investors:

– What has the PCAOB said about Chinese reverse mergers?
– What do you think is the biggest risk for investors in these companies?
– How should investors go about analyzing these companies?

Enforcement Actions: Compare PCAOB vs. SEC

In a trio of recent enforcement actions, the PCAOB recently barred three certified public accountants for 2-3 years. It is a positive development to see the PCAOB take action against CPAs in such instances. In one of the actions, an audit partner was fined $50,000 for providing misleading documents to the PCAOB and not being truthful with respect to whether documents had been changed. The PCAOB can fine an individual up to $750,000 and a firm up to $15 million. In this case, the fine for misleading the PCAOB was 1/15th of the maximum. It will be interesting to see if the state boards of accountancy take action.

Lynn Turner notes “the enforcement actions do not name the company being audited. That is in contrast to SEC enforcement actions which do often name the company. I don’t believe there is anything in Sarbanes-Oxley that prevents the PCAOB from informing investors as to the name of the company. IT will be interesting to see if that is a trend.”

– Broc Romanek

August 30, 2011

New Bill Would Moderate the Dodd-Frank Whistleblower Provisions

Here’s the latest on attempts in Congress to tweak Dodd-Frank, courtesy of this alert by Cooley’s Cydney Posner which is repeated below:

They’re at it again! H.R. 2483, the ”Whistleblower Improvement Act of 2011,” takes another stab at remaking Dodd-Frank, this time by modifying the whistleblower provisions set forth in Section 21F of the Exchange Act. The bill would require, as a prerequisite to receiving a whistleblower bounty, that the employee first report the matter to his or her employer. The bill was introduced at the end of last week by Representative Michael Grimm (R-NY) and is co-sponsored by four other Congressman, Reps. John Campbell (R-CA), Bill Flores (R-TX), Scott Garrett (R-NJ) and Steve Stivers (R-OH). The bill was referred to the House Committees on Financial Services and Agriculture.

The bill is designed to address the most contentious aspect of the SEC’s final whistleblower rules – the SEC’s decision not to mandate internal compliance reporting, prior to or contemporaneously with SEC reporting, as a prerequisite to eligibility for a whistleblower bounty. Critics charged that mandatory internal reporting would deter many whistleblowers, while advocates contended that allowing whistleblowers to bypass companies’ internal compliance programs would have a corrosive effect on these programs (including those mandated by SOX) and undermine companies’ ability to address the wrongdoing. The SEC’s decision not to mandate internal reporting arose out of its concern that employees could be hampered in internal reporting if, for example, management were involved in the misconduct.

The bill would amend Section 21F to require that, to be eligible for a whistleblower award, an employee who provides information relating to a violation of the securities laws that was committed by his or her employer (or by another employee of his or her employer), must first report the information to his or her employer before reporting to the SEC and then must report that information to the SEC within 180 days after internal reporting.

However, the bill does attempt to address the SEC’s concern regarding potential deterrents to internal reporting. Under the bill, whistleblowers who did not comply with the internal reporting requirement could still be eligible for awards if the SEC determined the following:

– that the employer lacked either a policy prohibiting retaliation for reporting potential misconduct or an internal reporting system allowing for anonymous reporting; or
– that internal reporting was not a viable option for the whistleblower based on either (i) evidence that the alleged misconduct was committed by or involved the complicity of the highest level of management, or (ii) other evidence of bad faith on the part of the employer.

The bill would also amend Section 21F to make ineligible any whistleblower who had legal, compliance or similar responsibilities and had a fiduciary or contractual obligation to investigate or respond to internal reports of misconduct or violations (or to cause the entity to do so), if the information learned by the whistleblower in the course of duty was communicated to the him or her with the reasonable expectation that he or she would take appropriate steps to respond.

Currently, Section 21F requires that awards be at least 10% and no more than 30% of the total monetary sanctions collected on an action. The bill would eliminate the minimum award requirement and cap awards at 30% of the amount collected. Also, under Section 21F, any whistleblower convicted of a criminal violation related to the matter is ineligible for an award. The bill would expand the exclusion from eligibility for culpable whistleblowers to include civil liability or other determination by the SEC that the individual committed, facilitated, participated in or was otherwise complicit in the misconduct.

Under the bill, the SEC would be required to notify the entity prior to commencing any enforcement action related to a whistleblower complaint to enable the entity to investigate the alleged misconduct and take remedial action, unless, based on evidence of bad faith or complicity in the misconduct at the highest levels of management, the SEC determined that notification would jeopardize the investigation. If the notified entity responded in good faith, which may include conducting an investigation, reporting its results to the SEC and taking appropriate corrective action, the SEC would be required to treat the entity as having self-reported the information and its actions in response to the notification evaluated accordingly.

With regard to the anti-retaliation provisions of Section 21F, the bill would make clear that employers would not be prohibited from enforcing any established employment agreements, workplace policies or codes of conduct against a whistleblower, and that any adverse action taken against a whistleblower for violation of those agreements, policies or codes would not be considered retaliation, as long as enforcement was consistent with respect to other employees who were not whistleblowers.

The bill would also make corresponding changes to Section 23 of the Commodity Exchange Act.

Be sure to tune into our upcoming webcast – “Preparing for the SEC’s New Whistleblower Rules: What Companies Are Doing Now” – on September 13th. We will be joined by Sean McKessy, Chief of SEC’s Office of the Whistleblower, as well as a great panel of outside counsel.

FINRA’s New Social Media Guidance: Guidance for Companies?

From Suzanne Rothwell: Recently, FINRA issued updated guidance to broker/dealer firms on social networking websites in Regulatory Notice 11-39. This Notice supplements guidance issued early last year in Regulatory Notice 10-06. Although the FINRA requirements are specific to the regulatory environment for broker-dealers, companies may nonetheless find some of the guidance useful in developing a social media policy for themselves – particularly where employees use social media sites for business purposes – and in reviewing the company’s website.

The most recent FINRA Notice clarifies that broker-dealer employees may use smart phones or tablet computers and other personal communication devices to access the firm’s business applications so long as the business and personal communications can be separated on the device thereby enabling the firm to retrieve and supervise the business communications without accessing the employee’s personal communications.

In addition, a principal of the broker-dealer firm must review prior to use any social media site that an associated person intends to employ for a business purpose. A broker-dealer firm is responsible for training its associated persons on its social media policies and must follow up on “red flags” that might indicate non-compliance with firm policies.

FINRA points out that some firms require that associated persons annually certify compliance with the policies and some firms randomly spot check the websites of associated persons to monitor compliance with firm policies. The Notice also warns that a broker/dealer firm is responsible for ensuring that a data feed to the firm’s website does not contain inaccurate information and should not include a link on its website to a third-party site that the firm knows has false or misleading content (for which the firm will be responsible if it endorses the content on the third-party site).

SEC Decides to Rescind Form F-9

Recently, as noted in this Paul Weiss memo, the SEC decided to eliminate Form F-9, effective as of December 31, 2012. Form F-9 is the SEC’s Multijurisdictional Disclosure System form used by some Canadian companies to register investment grade debt and preferred securities. One of the reasons for the SEC’s decision is Dodd-Frank’s Section 939A that directs the SEC to propose alternative criteria to replace rating agency criteria. Thus, Form F-9 had become largely duplicative of Form F-10. Still, it’s notable because it’s pretty rare that the SEC rescinds a form.

– Broc Romanek

August 29, 2011

Corp Fin Comments on Fracking: A Special Disclosure Review Project?

Last week, the WSJ ran this article about how Corp Fin is peppering oil & gas companies with comments about fracking. Members were quick to ask: “Is Corp Fin pulling the ’34 act reports for all oil & gas companies as part of a special targeted review project?”

Personally, I don’t think that these is a “special” review project and that these comments are being delivered in the normal-course review process. Clearly, this has been a big topic for the oil and gas industry for some time. For example, the Interfaith Center on Corporate Responsibility ran this press release on Friday noting the WSJ article and that an investor coalition has been pressing 2 dozen companies on this issue through shareholder proposals since ’09. So it’s become a high profile issue and perhaps Corp Fin’s actions will help head off any Congressional action in this area.

Here are some random examples of comment letters that Corp Fin has sent recently:

Lone Pine Resources
Bill Barrett Corp.
Cabot Oil & Gas

Proxy Access: CII Urges SEC to Appeal Court Decision

As noted by Ted Allen in ISS’s Blog, the Council of Institutional Investors has sent this letter to SEC Chair Schapiro urging the agency to seek an en banc rehearing from the full US Court of Appeals for the D.C. Circuit over the adverse decision by a 3-judge panel of the DC Circuit Court last month. The SEC has until September 6th to decide whether to appeal the Business Roundtable/Chamber of Commerce case.

More Thoughts on Proxy Access and Judicial Review

I’ve blogged several times recently about the DC Circuit’s proxy access decision in the Business Roundtable/Chamber lawsuit and its implications far beyond proxy access. Here’s some thoughts on the topic – as well as proxy access itself – from Prof. Larry Hamermesh of the Widener University School of Law, fresh off his stint as a Corp Fin Fellow at the SEC.

– Broc Romanek

August 26, 2011

Dodd-Frank: Mitt Romney Looking for a Repeal

The leading Republican contender for his party’s nomination – Mitt Romney – apparently would like to roll back the clock, take another swing at regulatory reform and repeal Dodd-Frank, or at least parts of the year-old law. Here are excerpts from a recent Boston Globe article:

In the past, Romney has criticized the bill for creating uncertainty in the financial industry and causing bankers and the financial service employees to pull back. Today, he went further and said he would repeal Dodd-Frank, if he were elected president. “The extent of regulation in the banking industry has become extraordinarily burdensome following Dodd-Frank,” Romney told a roundtable of 18 businessmen at The Common Man Restaurant.

“I’d like to repeal Dodd Frank, recognizing that some revisions make sense,” Romney said. In July, Romney was unable to name specific parts of the bill that he liked or disliked. When asked, he said only, “It’s 2,000 pages. I’m sure there’s something in there that’s good…I’d be happy to take a look at it perhaps line by line at some point and lay out the provisions that I think are unfortunate.”

Today, he was more specific. Romney said he believes it does make sense to regulate derivatives. He said it also makes sense to have different capital requirements if someone is holding a home mortgage compared to someone holding high-risk securities. “Some features have to be addressed,” he said. At the same time, he said, the 2,000 pages of the bill are “overwhelming” for community banks and the fact that pages of rules must still be written creates too much uncertainty.

It’s always fascinating to see which business issues become focal points in the Presidential campaign. Last time around, CEO pay became a high profile issue and that may well happen again. I’m not sure why the length of Dodd-Frank itself should be an issue. I suppose it has to do with the “smaller & less intrusive government” movement – and the sheer length of a bill somehow becomes a proxy for its true impact. Candidate Herman Cain initially wanted bills to be limited to 3 pages!

I guess Romney is betting that most of the voting public won’t recall that it took Congress over two years to pass anything in response to the financial crisis (not that I think that Dodd-Frank is perfect by any stretch of the imagination). So the question remains: “How long a piece of legislation did that near-Depression warrant?” Take the poll below…

In more political news, according to this LA Times article, Rick Perry will be hamstrung by new SEC rules that inhibit donations from financial services company employees to sitting governors.

The PCAOB’s Upcoming Roundtable on the Auditor’s Reporting Model

Yesterday, the PCAOB announced that it will host a roundtable on September 15th to discuss its recent concept release on possible changes to the auditor’s reporting model. Here’s the related briefing paper. Here’s some thoughts from Jim Peterson’s “Re:Balance” Blog on the concept release.

Poll: Congressional Legislation & Does Size Matter?

Please take a moment for this anonymous poll:

Online Surveys & Market Research

– Broc Romanek

August 25, 2011

More on “The PCAOB’s New Concept Release on Auditor Rotation & Independence”

Last week, I blogged about the PCAOB’s concept release on mandatory audit firm rotation – which essentially floats the idea of mandatory firm rotation every 10 years, at least for large companies. Here’s some thoughts from a Forbes’ article penned by Francine McKenna. And here’s a reaction from an inhouse member:

The thing that surprised me the most as I read through this release is that it essentially admits that not only have the regulators not found any correlation between audit failures and long-term audit firm tenure — but academic studies essentially have found the opposite. On a related note, the concept release quotes heavily from a detailed GAO study issued in 2003 that recommended against mandatory rotation for a variety of reasons, including estimates that initial year audit costs would increase by over 20% and that there would be an increased risk of audit failures in the early years of the audit. The concept release even admits that based on its experience conducting inspections since the GAO report, the PCAOB believes that audit quality has improved since then — yet they still put out this release, stating generally that “more can be done to bolster auditors’ ability and willingness to resist management pressure.”

In light of all this, I have to believe that some comment letters will be tempted to quote from the recent proxy access decision, to remind the regulators that they must adequately consider the effect of any new rules upon efficiency, competition and capital formation. In addition, that case reminds the regulators that they must rely on sufficient empirical evidence when claiming benefits of a new rule – the agency must examine the relevant data and articulate a satisfactory explanation for its action, including a rational connection between the facts found and the choices made. I understand that we are just at the concept release phase – and do not even have proposed rules never mind final rules to fight at this stage. But I think the PCAOB really has an uphill battle on this one, and I can’t figure out why they are pursuing something like this at this time.

Voluntary Early Disclosure of Material Events: Is it OK to Stop?

I just finished reading the July-August issue of The Corporate Counsel that was just mailed and I was struck by this question because it’s something I’ve often been asked. In other words, whether an issuer that chooses to report under Item 8.01 of Form 8-K material events that are not required to be reported on Form 8-K has created a duty to continue filing voluntary 8-Ks when similar events occur in the future? The theory is that the duty would be based on an implied representation to investors that such events will be disclosed promptly rather than after the end of the quarter, on Form 10-Q/K. This question is different from the question of whether an issuer has a “duty to update” previously disclosed information. Check out your copy of the July-August issue to read Alan Dye’s analysis on this challenging topic (or if not yet a subscriber, try a “Rest of 2011 for Free” when you try a ’12 No-Risk Trial).

Mailed: July-August Issue of The Corporate Counsel

The July-August issue of The Corporate Counsel was just mailed to subscribers. This issue includes important practical guidance on:

– What You Should Be Doing Now With Respect to Proxy Access
– Staff Confirms/Clarifies 8-K and S-K Item 401 Interpretations
– Disclosure of Broker Non-Votes on the Say-on-Frequency Proposal
– Use of Non-GAAP Financial Measures to Demonstrate (vs. Explain) Pay for Performance
– The CSX Case–Still Not Clear Whether Cash-Settled Equity Swaps Confer 13(d) Beneficial Ownership
– Voluntary Early Disclosure of Material Events–Is it OK to Stop?
– Whither the Devon Energy Corp. 701 No-Action Letter?
– Communications with Auditors: Citing the Right Auditing Standard

Act Now: Get the “Rest of 2011 for Free” when you try a ’12 No-Risk Trial now.

– Broc Romanek

August 24, 2011

Earthquake! SEC’s EDGAR Temporarily Suspended!

Wow. Two earthquakes in a year over here in DC. After none for the first three decades that I have lived here. Maybe not a big deal for those out in California, but yesterday’s quake scared this bald guy (and broke a few vases). Many workers were sent home early after being evacuated, making the commute a real mess. And some national treasures suffered damage, like cracks in the Washington Monument and broken spires on the National Cathedral.

Even the SEC felt the “shakes,” as this notice was posted on the agency’s home page last night:

The SEC has temporarily suspended operation of its EDGAR filing system as a precautionary measure due to Tuesday’s earthquake activity in the Washington, D.C. area. The system will be available tomorrow (Wednesday, 8/24) during regular business hours. For specific filer questions, SEC staff will be available to provide filer support for those filers attempting to submit documents during the temporary shutdown. Please contact Filer Support at 202-551-8900 for assistance.

At this point, it’s unclear if any “live” filings were impacted by the Edgar suspension since this notice was posted after the 5:30 pm cut-off. So, we don’t know at what time Edgar went off-line. If there were any missed filings that need backdating, sometimes the SEC allows for a blanket exemption – and sometimes requests for relief are needed. I imagine that the SEC will advise on this today.

Earthquake: The Aftershock Picture

Many pictures have been posted in the wake of what was a historical event in DC (“where were you during the quake of ’11?”). Here is my aftershock “crazy-eyes” picture:

broc shock 2.JPG

Poll: What Caused the Quake?

Please take a moment for this anonymous poll regarding what caused the DC earthquake:

Online Surveys & Market Research

– Broc Romanek

August 23, 2011

The Future is Here! E-Forums for Shareholders Meetings

Want to hear some mind-blowing numbers when it comes to shareholder participation for an annual meeting online? In this podcast, Jared Brandman of The Coca Cola Company describes his company’s experience using an e-Forum for an annual shareholders meeting for the first time, including:

– What was your first year’s experience with the e-Forum like?
– How much work did the Forum end up being, both before and after the annual meeting?
– How hard was it to convince senior management to try the e-Forum?
– For those out there considering a Forum, what pointers would you give them now?

The “Man U” IPO: Singapore Bound!

Although relatively rare, there certainly are precedents for sports teams to sell stock to the public (egs. Green Bay Packers; Florida Panthers). But it’s big news that the most popular team in the world – Manchester United, a UK football (ie. soccer) team – is selling a minority interest in an IPO. No, this high profile company will not be listed in the US – nor will it be listed in the United Kingdom. The owners have chosen Asia – but not even Hong Kong. It will be Singapore as noted in this Business Insider article.

Did you know that the Boston Celtics even sold securities to the public at one point in time? It was structured as a limited partnership, but the LP owners were all bought out in ’02 when the team’s controlling ownership changed hands. The Cleveland Indians were also publicly traded for a time in the ’90s.

SEC Adopts Rules to Suspend Duty To File Asset-Backed Reports Under Section 15(d)

Last week, the SEC adopted rules under Section 942(a) of Dodd-Frank to provide certain thresholds for suspension of the reporting obligations for asset-backed securities issuers.

– Broc Romanek

August 22, 2011

A Disturbing Trend: Congress Forcing Corporate Disclosure for Social Issues

On Friday, I blogged a member’s negative reaction to the obscure provision in Dodd-Frank that requires the SEC to adopt rules eliciting disclosure regarding “conflict minerals” in the Congo. Many corporate lawyers and others in the corporate community (which includes many shareholders) share that member’s reaction. Now, Rep. Carolyn Maloney (D-NY) has introduced a House bill entitled the “Business Transparency on Trafficking and Slavery Act” (H.R. 2759) that would require companies to disclose efforts to identify and address the risks of human trafficking, forced labor, slavery and child labor in their supply chains.

Although these bills are well-meaning, attempting to solve the world’s problems through SEC filings simply is the wrong – and very expensive – way to go. How in the world did Congress start thinking they should influence foreign policy, as well as domestic social and environmental issues, through SEC filings to the determent of shareholders? Well, before Dodd-Frank, Rep. Frank Wolf (R-Va.) used an omnibus appropriations bill in early ’04 to require companies to disclose business activities in countries designated by the State Department as sponsoring international terrorism (Wolf particularly was targeting Iran). Corp Fin’s “Office of Global Security Risk” was born.

And even before that, the SEC’s Y2K interpretive release in ’98 that elicited MD&A disclosures regarding risks associated with potential computer problems (yours truly is the contact person on that release!) was essentially forced upon the agency behind closed doors by some members of Congress. And before that, I would imagine there have been other closed door situations (perhaps the SEC’s interpretive guidance in ’88 that elicited disclosure of illegal or unethical activities relating to government defense contract procurements).

These older examples, however, didn’t involve actual legislation and thus could be quickly unwound by the SEC if found problematic. In comparison, the SEC doesn’t have any leeway to change a legislative provision that elicits unwarranted – and expensive – immaterial disclosures. When it comes to foreign policy or social issues, Congress should leave the disclosure process alone and not try to stick its pet projects on the backs of companies and their shareholders!

Rating Agencies Under Fire: Former Moody’s Analyst Breaks Silence

On top of the DOJ and Congressional investigations of S&P in the wake of the downgrading of the United States – one can only wonder how all three of the credit rating agencies have not been fully investigated in the years since the subprime crisis hit tilt – it appears that a former senior Moody’s analyst, William Harrington, has blown the whistle on his former employer in the form of his 78-page comment letter submitted to the SEC (read beyond the odd cover page), as described in this Business Insider article. Here is an excerpt from that article:

We’ve included highlights of Harrington’s story below. Here are some key points:

– Moody’s ratings often do not reflect its analysts’ private conclusions. Instead, rating committees privately conclude that certain securities deserve certain ratings–and then vote with management to give the securities the higher ratings that issuer clients want.

– Moody’s management and “compliance” officers do everything possible to make issuer clients happy–and they view analysts who do not do the same as “troublesome.” Management employs a variety of tactics to transform these troublesome analysts into “pliant corporate citizens” who have Moody’s best interests at heart.

– Moody’s product managers participate in–and vote on–ratings decisions. These product managers are the same people who are directly responsible for keeping clients happy and growing Moody’s business.

– At least one senior executive lied under oath at the hearings into rating agency conduct. Another executive, who Harrington says exemplified management’s emphasis on giving issuers what they wanted, skipped the hearings altogether.

Will Corp Fin Comment on XBRL Exhibits?

Jill Radloff of Leonard Street & Deinard reports the following in her “ Blog“:

A review of many comment letters issued to date indicates so far the SEC has not routinely issued comments on the interactive data file, or XBRL, exhibits. The most frequent comment we found was regarding incorrectly checking the XBRL question on the cover page of Forms 10-K or 10-Q. Some of the other comments we found are set forth below.

Hyatt Hotels


Please tell us how you determined you are not required to submit electronically and post on your corporate Web site, Interactive Data Files pursuant to Rule 405 of Regulation S-T. Refer to Item 601(b)(101) of Regulation S-K.


Item 601(b)(101) of Regulation S-K states that an Interactive Data File is required to be submitted to the Commission and posted on a registrant’s corporate Web site based on the phase-in schedule outlined in Item 601(b)(101)(i)(A – C). Item 601(b)(101) of Regulation S-K also states that an Interactive Data File first is required for a periodic report on Form 10-Q.

Reference is made to Question 105.07 of the Commission’s Compliance and Disclosure Interpretations (“C&DIs”) of the Commission’s interactive data rules. The Company completed its Initial Public Offering in November 2009. As such, the Company first qualified as a “large accelerated filer” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2010. Following the guidance set forth in Question 105.07, because the Company did not qualify as a large accelerated filer until December 31, 2010 the Company was not required to submit Interactive Data Files until its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2011 (the “1Q2011 Form 10-Q”). The Company filed its 1Q2011 Form 10-Q with the Commission on May 3, 2011. The Company then filed Amendment No. 1 to its 1Q2011 Form 10-Q with the Commission on May 20, 2011, the sole purpose of which amendment was to furnish Exhibit 101 to Form 10-Q in accordance with Rule 405 of Regulation S-T. In accordance with Rule 405(a)(2) of Regulation S-T, Amendment No. 1 to the 1Q2011 Form 10-Q was filed with the Commission within 30 days of the filing date of the 1Q2011 Form 10-Q.

Amdocs Limited


We note that you did not file the certifications required under Rules 13a-14(a) and 15d- 14(a) of the Exchange Act with your amendment to the Form 20-F for the fiscal year ended September 30, 2010. Please tell us how you considered including the required certifications in your amended Form 20-F and the reason for omitting such certifications.


Pursuant to Rule 405(a)(2) of Regulation S-T, the Company filed the Amended Form-20-F solely for the purpose of submitting its interactive data file for the fiscal year ended September 30, 2010 (the “Interactive Data File”). The Interactive Data File was prepared under the same disclosure controls and procedures in place during the Company’s preparation of the Form 20-F and reflects the same information about the Company’s financial condition, results of operations and cash flows that was reported in the Form 20-F. The Company believes that the certifications filed as exhibits to the Form 20-F, pursuant to Rules 13a-14(a) and 15d- 14(a) of the Exchange Act, are also applicable to the disclosure contained in the Amended Form 20-F.

According to the Commission’s Compliance and Disclosure Interpretations, Question 130.1 related to Rule 405 under the Securities Act of 1933, as amended (issued May 29, 2009) (the “C&DI”), in an amendment filed for the sole purpose of submitting its interactive data file, the Commission requires an issuer to include the cover page, an explanatory note, the signature page, an exhibit index, and exhibit 101. The C&DI does not state that that new certifications must be filed with such an amendment. Lastly, although the Company acknowledges that the practices of other issuers are not dispositive, the Company’s review of other public filings suggests that numerous other issuers take the position that new certifications are not required to be filed with an amended filing filed for the sole purpose of submitting an interactive data file.

Dr. Pepper Snapple Group


We note you calculated the aggregate market value of common equity held by non-affiliates to be $5,382,637,225 as of June 30, 2009, and that you did not indicate by check mark whether you have submitted electronically and posted on your corporate Website, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T. Please tell us whether you have filed such interactive data, and if not, explain to us why you have not provided the interactive data files pursuant to Rule 405 of Regulation S-T.


As more fully discussed in our public filings, we became a public company on May 7, 2008 with the spin-off by Cadbury plc of its beverages business in the United States, Canada, Mexico and the Caribbean. We became a “large accelerated filer” on December 31, 2009 under Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934.

Under Regulation S-K (Item 601(b)(101)(i)) an Interactive Data File is required to be submitted to the Commission and posted on the registrant’s corporate Web site in the manner provided by Rule 405 of Regulation S-T by “a large accelerated filer that had an aggregate worldwide market value of the voting and non-voting common equity held by non-affiliates of more than $5 billion as of the last business day of the second fiscal quarter of its most recently completed fiscal year that prepares its financial statements in accordance with generally accepted accounting principles as used in the United States and the filing contains financial statements of the registrant for a fiscal period that ends on or after June 15, 2009”, except that an Interactive Data File is first required for a Form 10-Q.

Since we first became a large accelerated filer on December 31, 2009 and had market value in excess of $5 billion as of last day of our second quarter in calendar year 2009, under our reading of the above-noted rule, the first filing for which we would be required to file an Interactive Data File would be our Quarterly Report on Form 10-Q for the first quarter ended March 31, 2010 (“our next Form 10-Q”). As a result, we will file an Interactive Data File with our next Form 10-Q.

With respect to our decision to not indicate by check mark on the facing page of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 (“our 2009 Form 10-K”) whether or not we had submitted the Interactive Data File electronically and posted it on our corporate website, we relied on Question 105.04 of the Compliance and Disclosure Interpretations posted by the Division of Corporation Finance, which provides that “[a] company should not start checking the cover page box relating to Interactive Data File compliance until it is required to submit those files”. In our view, at the time we filed our 2009 Form 10-K, we were not then required to comply with Rule 405 for the reasons noted above. We will check mark the facing page of our next Form 10-Q to indicate our compliance with the Interactive Data File rules.

– Broc Romanek

August 19, 2011

A Little Debunking of the SEC’s Records Destruction: “What is a MUI?” & More?

Yesterday, I blogged about the story sweeping the mass media about how a SEC Enforcement attorney had blown the whistle to Sen. Grassley regarding how the agency had been routinely destroying records relating to MUI’s that hadn’t panned out for formal investigations. A lot of sexy components to this story, but when you stop and think about it, it seems like a “made for the media” story based on the facts as reported so far. Below are a few of my thoughts (in addition, here’s thoughts from Prof. David Albrecht and Bruce Carton).

1. What is a MUI? – To best understand what the hubbub is all about, it’s essential that one knows exactly what a MUI is. A MUI – stands for “Matter Under Inquiry” – is simply a database entry by a SEC Enforcement Staffer anytime a Staffer comes across anything remotely suspicious. It plants a flag for the rest of the SEC Staff to know that someone else came across something about the same incident/person – this enables the Staff to avoid duplication of effort and allows for coordination. In the vast majority of cases, the MUIs are really nothing at all – some Staffer read a newspaper article perhaps that sounded a little curious and inputted it into the database in case another Staffer comes across something more suspicious.

2. Gary Aguirre’s Involvement – One interesting angle is that the complaining SEC lawyer – Mr. Darcy Flynn – is being represented by none other than former SEC lawyer Gary Aguirre, who you may recall was the rabble-rouser who kicked off the whole firestorm over the Pequot/John Mack insider trading fiasco several years ago and ended up getting a big dollar settlement from the SEC to resolve his claim of wrongful and retaliatory termination (with a lot of help from the grandstanding of Grassley & Co.). I guess Gary has been around the block as a SEC whistleblower and maybe he’ll be representing all SEC Staffers who bring allegations to light?

3. Some Oddities Do Exist – While my overall sentiment is that there doesn’t appear to be anything too nefarious about this situation as reported, it does raise the legitimate question of whether the SEC has been complying with federal record retention laws when it comes to MUIs. I have no idea what those laws require, but presumably they exist (see today’s NY Times’ article that says the National Archives and Records Administration has written 3 letters to the SEC since July 2010 on the matter) – and it does seem odd that the Enforcement Staff would routinely discard documents relating to MUIs immediately upon closing the matter out. You’d think they’d want to keep them in case a week later another complaint comes in about the same subject matter or company, and the new complaint is convincing that the matter deserves closer scrutiny after all.

4. 60-Day Lifespan for MUIs – Note that under current SEC Enforcement policy, a MUI has a maximum life span of only 60 days (unlike the old days when I was there when I think the lifespan was indefinite). Within the first 60 days, the Staff must either close the case or convert it to an “investigation” (either formal or informal), or the computer system automatically converts it to an “investigation” at 60 days. Once it becomes an investigation (regardless of how), I assume the record retention policy is a bit more strict. For general and official background on MUIs and their conversion to investigations, see Section 2.3 of the Enforcement Manual.

How Congress Devastated the Congo

A member sent this reaction to this NY Times op-ed while I was away (also see this Cooley alert):

While I do understand and agree with the laudable intentions of its proponents, I believe that the “conflict minerals” section of Dodd-Frank is the worst securities law I have ever seen. I think it is unwise to try to address this issue through a disclosure law. When the NY Times (not The Wall Street Journal) publishes an editorial that states that the law is hurting rather than helping the people it is supposed to benefit, it makes me doubly angry.

I do appreciate that many well-intentioned activists in the environmental and social causes communities believe that they should have a way to pressure corporations and their boards to consider their views, some of which I share. The conflict minerals law, however, is a quantum leap from the social activism inherent in much of the Rule 14a-8 process. The law seeks to use the US securities regulatory regime to solve a problem it is ill-equipped to solve, with unforeseen and unintended consequences and unjustifiable costs. That the problem is horrendous does not mean that securities disclosure is the way to address it.

Nuggets from “The Advisors’ Blog”

We continue to post new items daily on our blog – “The Advisors’ 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:

– Senate Bill: An End to Tax Breaks for Stock Options?
– SEC Commissioners Reject Enforcement Staff Proposal to Settle Clawback Case
– Clawbacks: Open Issues for the SEC
– Senate Democrats Defend Pay Equity Disclosure Provision
– View from the Equilar Conference Summit

– Broc Romanek

August 18, 2011

Not a Good Headline: “SEC Destroyed Files on Wall Street Probes”

Going through the news headlines as I return from vacation, I can see that it’s more of the same for the SEC: getting pummeled in the press. The latest is a story broken by “Rolling Stone” magazine – of all things – about how the Enforcement Division destroyed thousands of documents when things didn’t pan out on a MUI (“matter under inquiry”). The story broke due to an investigation led by Sen. Grassley – who’s been gunning for the SEC for quite some time – after he learned of revelations by a current Enforcement Staffer who works in the records preservation area of the Division and who’s claiming protection under whistleblower laws.

This excerpt from an article in today’s NY Times tells the story as we know it so far (here’s the WSJ article fyi):

An enforcement lawyer at the Securities and Exchange Commission says that the agency illegally destroyed files and documents related to thousands of early-stage investigations over the last 20 years, according to information released Wednesday by Congressional investigators. The destroyed files comprise records of at least 9,000 preliminary inquiries into matters involving notorious individuals like Bernard L. Madoff, as well as several major Wall Street firms that later were the subject of scrutiny after the 2008 financial crisis, including Goldman Sachs, Lehman Brothers, Citigroup and Bank of America. The S.E.C. is the very agency that is charged with making sure that Wall Street firms retain records of their own activities, and has brought numerous enforcement cases against firms for failing to do so.

The agency’s records were routinely destroyed under an S.E.C. policy, since changed, that called for the disposal of records of a preliminary inquiry that was closed if it did not get upgraded to a formal investigation, according to Congressional records and people involved in inquiries into the matter. The agency believes that both the original policy and the new rules comply with federal document-retention laws. John Nester, an S.E.C. spokesman, said that while the agency was not required to retain all documents, it changed its policy last year regarding destruction of files for “matters under investigation,” the category of initial inquiry by the S.E.C.’s enforcement division that is the subject of the current scrutiny.

Changes were made to the S.E.C. policy after questions about the document destruction were raised in early 2010 by Darcy Flynn. Mr. Flynn, an employee of the S.E.C.’s enforcement division for 13 years, began a new job in January 2010 helping to manage the disposition of records for the division. Mr. Flynn, who continues to work at the S.E.C., has sought protection under federal whistle-blower laws.

Dodd-Frank: Business Groups Targeting Next Batch of Rules to Attack in Court

As I blogged several weeks ago, the DC Circuit’s proxy access decision in the Business Roundtable/Chamber lawsuit could have implications far beyond proxy access. This article from today’s NY Times notes that business groups have been meeting in DC – one meeting was dubbed “Dodd-Frank Excesses” – to determine which rules to haul into court next, with the SEC’s new corporate whistleblower program and a provision surrounding the extraction of oil and natural gas from foreign countries being identified as two potential targets. According to the article, the SEC will be hiring 8 economists over the next 2 years to help with its new burdens during the rulemaking process.

How Much Time Did the SEC Spend on Proxy Access Rulemaking? 21,000 Staff Hours

As I blogged two weeks ago, a trio of House Representatives sought information about how many SEC Staff hours were spent on proxy access rulemaking via this letter. Now, the SEC has responded that 21,000 Staff hours – valued at $2.2 million – were spent writing the rule and $315,000 defending it against a court challenge, as noted in this Bloomberg article.

– Broc Romanek