Monthly Archives: October 2012

October 31, 2012

Filing Boo-Boo Stories: “Have You Heard About the One…”

Good scary Halloween stuff, loosely based on the attention placed on the impact of Hurricane Sandy on EDGAR (see my blog about that from Monday). I have heard a few stories about errors in SEC filings recently such as these (please send your own stories – I will keep them confidential unless you tell me otherwise):

– The error in this exhibit to a SEC filing was likely caused by a disgruntled employee (or maybe someone at the financial printer was having fun) as the second resolution in this amendment to City National Bancshares’ certificate of incorporation has swear language buried in the midst of it to the effect of: “you f__ing new when i asked you liartors…”

– Reminds me of a time around 20 years ago when someone I was working with did the same thing and filed an S-4 with the “Securitzed Exchange Ommission.” Never occurred to anyone to read the very first line of a 200 page document.

– A fake Silicon Valley Form S-1 from a company called “Ponzify, Inc.” with lots of comedy such as: “For instance, “Our company is built upon a viable revenue model” is a forward-looking statement.”

And here is an excerpt from the fake Business Section: “Our primary measurement of revenue is a non-GAAP accounting principle known as Adjusted Consolidated Assumed Income (ACAI). ACAI is an ancient accounting remedy that can slow the aging process of most balance sheets and rejuvenate the face of any company, no matter what the medical community or the FTC might tell you.”

– I scared myself when I plugged the “F” word into Edgar’s search engine and got some hits. But that’s because the prospectus for Audience Productions includes the screenplay for a movie entitled “Lydia Slotnick Unplugged.” I’m not sure why the screenplay was filed but there you have it…

CII’s Halloween Request to Top Bar Associations: No More “Zombie” Directors

Last week, CII issued this press release indicating that it wrote letters to the American Bar Association and the Delaware Bar Association urging them to revise their voting standard to a majority vote. In the letters, CII provided draft language and supporting commentary.

Recently, CII members approved revisions to their clawbacks policy and an anti-forced arbitration clause policy.

More on “The Mentor Blog”

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

– Earnings Call Disruptions: Why Don’t They Happen More Often?
– NLRB’s New Restrictions on Social Media Policies
– Food for Thought: The Audit Committee’s Dilemma
– Sarbanes-Oxley and Audit Reform
– Insider Trading: Open Window Trading Periods Not Mandatory

– Broc Romanek

October 29, 2012

Anatomy of Another Groovy Proxy Statement: Microsoft

Recently, Microsoft filed its 2012 proxy statement. The upshot is that the company continues to evolve its approach, although most changes year-over-year are mostly cosmetic. But put 2011 and 2012 side-by-side and they look quite a bit different. Here are some of the changes:

1. Adopted the graphical look and feel of new corporate-wide branding guidelines (e.g., font, color, captioning). Moved to 2-column text for improved readability.
2. Continued to work on organization of content so that it flows more naturally and related parts are grouped together.
3. Highlighted on the cover that for the first time they are moving to proof of ownership for admission. They emphasize the point several other places.
4. Included an easy-to-understand table showing the vote needed for ballot items and effect of abstentions and uninstructed votes (pg. 3)
5. Described a political contributions disclosure policy (pg. 6)
6. Revised the graphical presentation of charts and graphs that they had used previously:
– Microsoft operating income vs. total direct compensation (pg. 25). The table illustrates that changes in total direct compensation for NEOs generally have tracked changes in our operating income over the last 5 years.
– Microsoft’s position relative to peers on three measures — revenue, market capitalization and headcount – (pg. 27). The chart represents the company’s current position relative to combined peer companies on three dimensions, to demonstrate the complexity and scope of their responsibilities.
– Pay mix versus peers (pg. 28). The chart provides information about the company’s fiscal year 2012 target pay mix for our NEOs (excluding Steve Ballmer) compared to the non-CEO NEOs of their Dow 30 and Technology peers companies.
– CEO pay comparison (pg. 29). The table illustrates Steve Ballmer’s compensation opportunity for fiscal year 2012 compared to his peers.

The SEC’s (& EDGAR’s) Status During Hurricane Sandy

On days like this – where the SEC’s HQ is closed but it’s other office locations are open (at least those out of Sandy’s path) – I wonder whether there should be someone responsible for managing the SEC’s website and other communication functions outside of DC for these one-off situations. The SEC now has Hurricane Sandy info posted on its home page – and here is info for Edgar filers. Corp Fin is operating like during a snowstorm (see this blog) – which Dave has confirmed in response to a query in our “Q&A Forum” (#7393).

Alan Dye has addressed Section 16 filing deadlines in his Blog today. In addition, some members report they have been able to file on Edgar so far today – but note this statement on the SEC’s site:

During this weather emergency, we understand that filers may be unable to submit their filings. You should file when you are able. The Divisions will handle requests for filing date adjustments on a case by case basis.

As this article notes, it’s the first time in 27 years that the NYSE has been closed due to weather!

– Broc Romanek

October 26, 2012

Court Finds PCAOB’s Inspection Privilege Extends to Companies Too

Troutman Sanders’ Brink Dickerson gives us this news: Recently, a court in the Western District of Missouri held that the PCAOB privilege applies – not only to material exchanged with the PCAOB and records of exchanges – but also to internal documents of the corporate client that reflect development of material and information for the PCAOB audit or investigation, because those materials were created because of the PCAOB action. The privilege may be asserted by the subject firm, as well as the PCAOB. This Bennett v. Sprint Nextel & KPMG decision is important because it is contrary to Silverman vs. Motorola, a 2010 Northern District of Illinois case that held that the privilege covered only documents and information prepared specifically for PCAOB.

Note that under ยง7215(b)(5)(B), without loss of the privilege, the material may be shared with other federal and state regulatory and enforcement entities.

Check out Francine McKenna’s interesting piece in Forbes entitled “Is The SEC’s Ponzi Crusade Enabling Companies To Cook The Books, Enron-Style?

Federal Court Applies SOX/Dodd-Frank Whistleblower Protections to Non-Securities Law Circumstances

In his blog, Mike Melbinger notes how a federal court recently allowed a whistleblower case under Sarbanes-Oxley and Dodd-Frank to proceed even though it related to an employee’s complaints about a qualified pension plan – not a securities law area.

More on “The Mentor Blog”

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

– Even Domestic Bribery Falls within the SEC’s Jurisdiction
– Delaware Allows $600 Million Caremark Claim To Proceed Against Allergan Directors
– Large Auditors Lobby Like Never Before
– Insider Trading: Three Thoughts about Rajat Gupta
– SEC Approves FINRA Rule Requiring Filing of Private Placements

– Broc Romanek

October 25, 2012

Our New “Shareholder Proposal Handbook”: 206 Pages!

Spanking brand new. Posted in our “Shareholder Proposal” Practice Area, this comprehensive “Shareholder Proposal Handbook” provides a heap of practical guidance about Rule 14a-8. This one is a real gem – 206 pages of practical guidance. This is an update of a treatise that I co-authored with Beth Young and Bill Morley over a decade ago…

This Handbook doesn’t cover Corp Fin’s latest interpretative guidance (SLB #14G) – there are memos on that in our “Shareholder Proposal” Practice Area.

Where Should Lawsuits to Challenge a SEC Rulemaking Be Filed?

In the wake of the news of a lawsuit being filed against the SEC over its conflict minerals rulemaking in the US Court of Appeals for the DC Circuit, I received a few emails from members asking why this case wasn’t filed in the lower court like the resource extraction lawsuit a few weeks earlier.

That’s because the earlier resource extraction lawsuit also involved this emergency motion with the higher court to determine which court has jurisdiction. This emergency motion is slated to be determined on November 7th. This dual track approach over the resource extraction rules likely was taken due to the DC Circuit previously declining to exercise jurisdiction over a challenge to the CFTC’s position limits rule a few months ago. Recall that the proxy access lawsuit was filed with the higher Court of Appeals…

In the conflict minerals case, an amended petition for review was filed on Tuesday to add the Business Roundtable as a petitioner.

Announcing the NASPP Career Center

If you are looking to fill a job opening or a stock plan professional seeking a new position, check out the new “NASPP Career Center.” Any employer (NASPP member or not) can post an industry-related position – and active NASPP members can post a resume profile for visibility to employers looking to fill job openings; resumes are searchable by those with access to the Career Center.

– Broc Romanek

October 24, 2012

The Day the Earth Shook: Google’s Premature Earnings Release

Who would have thunk that the process by which companies Edgarize and file their documents with the SEC would make headline news? But here’s what the mass media ran on Friday:

WSJ’s ‘Human Error’ Rattles Markets With Early Release” featuring quotes from yours truly

NY Times’ “An SEC Filer’s Nightmare: Making It Public Too Soon”

Reuters’ “Google results miss; shares dive after premature report”

DealBook’s “Google’s Earnings Incident Shines Light on a Stealth Industry”

Some of these articles are better than others – and there were others written that were not worth linking to. Personally, I don’t think bringing the process in-house will necessarily reduce the risk of human error. In that case, you are taking the process away from someone who files documents with the SEC all day long on a daily basis – and giving it to someone who might be doing it just a few times per quarter. That is safer? I think the upshot of this incident is that it’s amazing this type of error doesn’t happen more often. Note it happens several times per year, just never this highly publicized.

Financial printers haven’t gotten this much press since the release of the “The Financial Printer Diaries” (a new installment coming soon).

Can a Financial Printer Be Liable for Filing Your Document Early?

One paragraph in this NY Times article states:

It is not clear how much liability R. R. Donnelley might bear for any losses Google incurred because of the early release of the report. Some have suggested that it will not be much because the earnings reported were accurate. But James Plumb, a longtime filing agent in Massachusetts, said he knew of at least one case in which an agent had to pay for its error, though it was two decades ago. “Could you get sued? Sure,” he said. “The way I look at it, yes, if I make a mistake, I’m responsible.”

My personal take is that your filing agent isn’t liable if it accidentally jumps the gun and files your document before you wished. Particularly if the agent was smart enough to say so in it’s contract when it was hired…

Transcript: “Evolution of M&A Executive Pay Arrangements”

We have posted the transcript for the recent webcast: “Evolution of M&A Executive Pay Arrangements.”

– Broc Romanek

October 23, 2012

Industry Groups Sue to Kill Conflict Minerals Rules

Not surprising given the lawsuit filed by the Chamber of Commerce and others a few weeks ago against the SEC’s resource extraction rules, a lawsuit was filed on Friday by the Chamber and the National Association of Manufacturers over the conflict minerals rules in the US Court of Appeals for the DC Circuit. As noted in this WSJ blog (and Bloomberg article), the petition for review is bare-boned and poses no arguments as its basis for challenge. We have posted the petition for review in our “Conflict Minerals” Practice Area.

In this Compliance Week blog, the next steps are listed as “the first batch of documents, including procedural motions, if any, and a “statement of issues to be raised” are due by Nov. 21, 2012. Dispositive Motions, if any, are to be filed by Dec. 6.” Here is the court’s Scheduling Order.

Is SEC Chair Schapiro a “Short-Timer”?

This Bloomberg article entitled “Schapiro’s SEC Reign Nears End With Rescue Mission Unfinished” provides a critique of the Chair’s tenure and notes that she is likely to depart after next month’s election. In this Reuters article, the Chair denies she is planning to leave before her term ends in mid-2014.

More on our “Proxy Season Blog”

We continue to post new items regularly on our “Proxy Season 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:

– Canadian Court Rules on Voting By Phone Case
– Open Investor Letter to ALEC and Heartland Member Companies
– Human Rights Activism: Big Win at a Mutual Fund
– Canada Considers Regulation of Proxy Advisors
– Recent Proxy Access Proposals by Chevedden and Steiner Survive SEC Challenge

– Broc Romanek

October 22, 2012

Beware! Fraudsters Looking to Rip Off Companies By Seeking “Annual Report” Fees

Brad Wood of Bass Berry gives us this news:

Please be aware that fraudulent solicitation letters are being sent to California businesses stating that such businesses are required to provide completed documentation – which looks very similar to state-required statements of information/annual reports – and submit an annual fee to a third party processor rather than directly to the Secretary of State office. I have not yet heard whether it has been happening in other states, but I wouldn’t be surprised if that were the case.

Board Portal Limits

During last week’s “Secrets of the Corporate Secretary Department” webcast, there was some interesting discussion regarding board portals – including their limits. In this podcast, Steve Shapiro of Pircher, Nichols & Meeks also describes the advantages – and limits – of board portals, including:

– What are the potential limitations of board portals that you see?
– Is there any way to compensate for those limitations?
– What advice would you offer for in-house governance professionals whose company has – or plans to use – a board portal?

Nasdaq Proposes Changes to Disclosure of Non-Compliance with Listing Standards

Recently, Nasdaq proposed to modify certain disclosure requirements surrounding a company’s non-compliance with the listing rules. Here’s a Blank Rome blog about its implications called “Has Your Company Received a Delisting Notice? Announce It Properly or Nasdaq May Announce It For You.”

– Broc Romanek

October 19, 2012

Transcript Now Available: “Getting Beyond Denial: Conflict Mineral Rules More Important (and Apply Sooner) Than You Thought”

I have posted the transcript for the popular webcast on the SEC’s conflict mineral rules. I believe Corp Fin continues to collect questions ahead of providing some interpretive guidance in this area. Here is a postscript note I added to the transcript about a common question on Form S-3 ineligibility:

Note that the question of whether a late Form SD will impact adversely a registrant’s eligibility to file a new Form S-3 or update an effective Form S-3 for purposes of Section 10(a)(3) remains unresolved.

The Form S-3 eligibility requirements provide that a registrant must be both current and timely. Specifically, Form S-3 is available only to a registrant that (i) has filed all material required to be filed pursuant to Exchange Act Sections 13, 14 or 15(d) for a period of at least twelve calendar months immediately before the filing of the Form S-3; and (ii) timely filed all reports required to be filed during the twelve calendar months and any portion of a month immediately preceding the filing of the Form S-3. For purposes of Form S-3, the SEC staff historically has interpreted these “reports” and “materials” to include only Sections 13(a) and 15(d) reports and Sections 14(a) and 14(c) materials. See Securities Act Forms C&DI 115.04.

Because the new Form SD is prescribed by Exchange Act Sections 13(p) and 13(r) and the rules promulgated thereunder, it is arguable that a late Form SD should not impair Form S-3 eligibility (and, thus, also not make the registrant an “ineligible issuer” under Securities Act Rule 405 or cause the public information requirement under Securities Act Rule 144(c) not to be satisfied). The SEC Staff has been asked for its views on this question, but to date the Staff has not weighed in with definitive guidance. Hopefully this topic will be in addressed in any Staff guidance issued on the new Form SD filing rules.

Note this Cooley news brief about the pressure these rules are placing on smelters and refiners.

JOBS Act: FINRA Adopts Changes Research Analyst Rules

Last week, the SEC published a FINRA rulemaking that changes Rule 2711 and incorporates NYSE Rule 472 to conform to the JOBS Act so that EGCs can raise capital with reduced restrictions related to communication between EGCs and research analysts at investment banks and eliminate the research quiet period after an EGC’s IPO or secondary offering.

As noted in this White & Case memo, the rule amendments are effective immediately with retroactive effect to April 5, 2012 (with an exception to retroactive implementation for the termination of the restriction on publishing research for 10 days after a secondary offering by an EGC and on publishing research during the 15 days following the termination of a lock-up agreement related to an EGC; this is not retroactive since it’s not JOBS Act-related). We have posted memos in our “Analyst Research” Practice Area – and here is a MarketWatch article noting how these rules may bring back conflicts…

The PCAOB’s Roundtable on Auditor Independence & Rotation

Yesterday, the PCAOB posted statements from the speakers ahead of its auditor independence and rotation roundtable that was held yesterday.

– Broc Romanek

October 18, 2012

Five More Compensation Committee Proposals from Exchanges

Rightfully so, all of the attention over the Rule 10C-1 rulemaking has been on the NYSE Euronext and Nasdaq National Market proposals. In all of the excitement, I forgot to note the five other proposals from these exchanges, several of which were released just last week (these are posted in’s “Compensation Committee” Practice Area):

NYSE MKT Proposal

NYSE Arca Proposal

Nasdaq OMX BX Proposal

CBOE Proposal

BATS Exchange Proposal

SEC’s Study: Ability of SEC to Enforce ‘ 34 Act Registration Thresholds

As required under Section 504 of the JOBS Act, the SEC has sent its Special Study to Congress on its ability to enforce Exchange Act Rule 12g5-1 and Subsection (b)(3). Check out Prof. Larry Hamermesh’s reaction to the study, particularly to footnote 70.

Yesterday, the SEC posted the “Third Report on the Implementation of SEC Organizational Reform Recommendations.” Learn more about the structure – and inner workings – of the SEC during our upcoming webcast: “How the SEC Really Works.”

It’s Done: 2013 Executive Compensation Disclosure Treatise

We just mailed the Lynn, Borges & Romanek’s “2013 Executive Compensation Disclosure Treatise & Reporting Guide” to those that ordered a hard copy. The thing is huge at 1200-plus pages – on the verge on needing to be two volumes.

How to Order a Hard-Copy: Remember that a hard copy of the 2013 Treatise is not part of a membership so it must be purchased separately – however, members can obtain a 40% discount by trying a no-risk trial now.

And note there an additional 40% off when you purchase this Treatise in combination with the just finished Romanek’s “Proxy Season Disclosure Treatise & Reporting Guide.”

– Broc Romanek

October 17, 2012

ISS Releases Draft 2013 Policy Updates

Yesterday, ISS posted its draft 2013 Policy Updates, with a comment deadline of Halloween. That’s just two weeks – so no time to procrastinate. Mike Melbinger has posted a chart of the significant proposed changes in his blog. And Ning Chiu has summarized them in her blog – and here is a Gibson Dunn memo

By the way, ISS now has FAQs about how its research department works…

Corp Fin Issues a New “Shareholder Proposals” Staff Legal Bulletin

As it often has in recent years about this time of the year, Corp Fin issued a Staff Legal Bulletin relating to shareholder proposals yesterday. Some new Rule 14a-8 guidance just before companies start preparing no-action requests.This year’s installment – Staff Legal Bulletin No. 14G – covers these topics: ownership verification; informing proponents of failure to prove ownership and use of website references in proposals and supporting statements. Here are memos from Gibson Dunn and O’Melveny & Myers on the guidance.

Transcript: “M&A Deal Protections: The Latest Developments and Techniques”

We have posted the transcript from our recent webcast: “M&A Deal Protections: The Latest Developments and Techniques.”

– Broc Romanek