Monthly Archives: August 2013

August 30, 2013

PCAOB May Soon Require Engagement Partners Be Named in Audit Report

Here’s an excerpt from Cooley’s Cydney Posner from this news brief:

You might recall that, among many changes designed to enhance audit accountability and transparency, the PCAOB had contemplated requiring the audit engagement partner to sign his or her name to the audit report. However, concerns were raised that a signature requirement would minimize the firm’s accountability and role in conducting the audit. As a result, in 2011, the PCAOB proposed instead that registered accounting firms be required to disclose in the audit report the name of the engagement partner responsible for the most recent period’s audit and the names of other accounting firms and other persons not employed by the auditor that took part in the audit (including the internal control audit). This article in Compliance Week reports that the PCAOB is now planning to move forward on the proposal in September, although it is not known whether the PCAOB will issue a final standard or revise its current proposal.

Investors had originally advocated that engagement partners be required to sign the audit report – similar to the signing of certifications by CEOs and CFOs and common practice in the UK–to reinforce their “ownership” of audit reports. According to the article, given the demise of the signature requirement, investors are now “even more fervent in their call for the engagement partner’s name.” They point to the allegations of insider trading by one Big Four engagement partner, as well as “a recent academic study by a former member of the PCAOB’s own Standing Advisory Group show[ing] that the signature requirement adopted in the United Kingdom has been followed by an improvement in some key indicators of audit quality. Those include a reduction in abnormal accruals, an easing on the part of preparers to try to meet earnings targets, and an increase in the issuance of qualified audit reports. The study also points out a significant increase in audit cost after the signature requirement took effect. The study doesn’t establish a cause-and-effect link to the signature requirement, but [the study’s] author…speculates that people act differently when they know they are going to be publicly identifiable.” (An excerpt from the paper is copied below.)

Needless to say, most audit firms are opposed to the proposal, protesting “that even naming engagement partners would not improve audit quality or increase the auditor’s sense of accountability for the audit opinion, but would still expose them to added liability because they would be deemed ‘experts’ under SEC rules, therefore assumed to have certified the contents of the report. Their naming in the report would also complicate subsequent registration statements, firms said.” The audit firms were concerned that the engagement partners named might be viewed to have individually prepared or certified part of the registration statement and could be required to separately consent, resulting in exposure to “significant increased liability for engagement partners….” One of the Big Four firms protested that naming the engagement partner could lead “the trial bar in litigation or … others [to] associate the name with other publicly available information.” Other audit firms argued that the proposal would be ineffective and would not “stop certain rogue individuals from doing what they want to do”; the real “solution lies in more education about the appropriate conduct of audit engagements and the independence and ethics of accountants.”

One of the Big Four took a different approach, supporting the proposal if the PCAOB “could engage the SEC to address the liability issue.” While the firm doesn’t “see how the proposal would improve audit quality or give investors useful information, but they support the objective to increase transparency. In fact, they suggest the board take the naming of key auditors a little further. ‘In addition to naming the engagement partner responsible for the audit, a member or members of firm leadership should also be named in the audit report….Examples could include the firm’s audit/assurance leader and/or CEO/senior partner. Including the name and/or names of firm leadership will convey to the users of the financial statements that the accounting firm as a whole takes responsibility for the audit and alleviate any misimpressions that the audit report is the product of the engagement partner rather than the firm.'”

Also see this blog by David Scileppi that analyzes a variety of PCAOB proposals (and see my entry on “The Mentor Blog” from yesterday)…

Regulators Propose New Risk Retention Rule

In this blog, Steve Quinlivan notes that six federal agencies have issued a notice revising a proposed rule requiring sponsors of securitization transactions to retain risk in those transactions. The new proposal revises a proposed rule the agencies issued in 2011 to implement the risk retention requirement in Dodd-Frank.

Pranks: Warming Up for the Long Weekend

Here’s a hilarious prank at a NBA basketball game in this video. I think it is a copy cat of these two pranks that two friends did to each other – this prank that led to this one.

– Broc Romanek

August 29, 2013

NYSE: IPO Companies Gain Transition Period to Meet Internal Audit Requirements

Here’s a blog from Davis Polk’s Ning Chiu:

Companies listing on the NYSE in connection with an IPO, carve-out or spinoff transaction will have a one-year transition period to comply with the NYSE internal audit requirements. The SEC approved the proposed NYSE rule change on August 22, 2013.

Section 303A.07(c) of the NYSE requires a listed company to have an internal audit function to provide management and the audit committee with ongoing assessments of the listed company’s risk management processes and system of internal control. In July, NYSE proposed a one-year transition period for IPO, carve-out and spinoff companies to be consistent with the one-year transition period currently available to any company transferring from another national securities exchange.

Other national securities exchanges do not have a similar internal audit requirement, although Nasdaq had previously proposed adopting one. Nasdaq withdrew its proposal after comment letters to the SEC indicated a high degree of concern, as we previously discussed, primarily related to potential costs. According to one report, 40% of Nasdaq-listed companies with market capitalization between $75 million and $250 million do not have an internal audit function. Nasdaq is planning to resubmit the proposal.

Since the NYSE rules have specific requirements making the audit committee responsible for oversight of the internal audit function, several corresponding changes are being made to the audit committee standards, and the committee charter, for any company that wants to avail itself of this transition period, including:

– The audit committee will assist board oversight of the design and implementation of the internal audit function.
– The audit committee must meet periodically with the company personnel primarily responsible for the design and implementation of the internal audit function.
– The audit committee must review with the independent auditor a discussion of management’s plans with respect to the responsibilities, budget and staffing of the internal audit function and the company’s plans for the implementation of the internal audit function.
– The audit committee should review with the board management’s activities with respect to the design and implementation of the internal audit function.

SEC Takes Oddly Aggressive Stance on Payment of Monetary Sanctions

Check out David Smyth’s blog for news on this front:

When Mary Jo White was installed as the SEC’s chair in April, I had little doubt she would be well-suited for her new role. She is extremely well regarded in the securities bar, and doubts about “ties to Wall Street” compromising her effectiveness seemed overblown to me. I wondered, though, whether her tenure would change the Commission dramatically from that of her predecessor, Mary Schapiro. But four months in, the record has tangible evidence of real changes. Since she’s arrived:

– She has announced, and implemented in the form of a case against Philip Falcone and Harbinger Capital Partners, a policy change that will in some settled cases compel defendants to admit wrongdoing;
– The SEC has re-committed itself to pursuing accounting fraud matters against public companies, and created a task force to root them out;
– She has pushed the staff to write rules mandated by the JOBS Act and actually lifted the general solicitation ban for offerings under new Rule 506(c).

Last week brought another example. On Friday, the SEC filed an action in the Eastern District of New York to enforce an administrative order requiring payment of monetary sanctions that was all of six days old.

The underlying case arose from an alleged fraud at a small hedge fund. According to the SEC, Anthony Vicidomine misappropriated $189,000 from the North East Capital Fund in the form of unearned “incentive fees” and used the money to pay his own personal expenses. Vicidomine also allegedly made misrepresentations about his own investment in the fund, his use of procedures to mitigate investors’ risk of loss, and an independent audit of the fund. Vicidimone and North East Capital settled their case with the SEC on August 16th with an order to pay $346,000 in monetary sanctions within three days.

As it turns out, the SEC wasn’t kidding. But Vicidimone didn’t pay the judgment in three days. He didn’t pay the judgment in four or even five days. On the sixth day, Mary Jo White’s SEC had had enough, and sued in Brooklyn federal court to put an end to that nonsense. As the Commission’s application said on Friday, “The deadline for payment has passed, yet Respondents have not paid a cent.”

I have to say, this seems odd to me for several reasons. First, the SEC frequently requires payments to be placed in escrow before approving settlements, though it must not have done so here. Second, while the guidelines can shift with different Commissioners, the SEC has sometimes waived financial penalties against defendants who truly cannot pay them. It’s not a popular policy within the SEC, but it can allow cases to be resolved more quickly when defendants are plainly tapped out and will not be able to cover the losses they’ve caused. Third, when payments have not been escrowed but are still compelled, the Commission typically gives ten days to send a check covering the amount.

I don’t think I’ve seen a case where the SEC gives three days to pay, sees nothing, and files an action in federal court six days later to enforce the judgment. It almost makes me wonder if the Commission is trying to send a signal: ignore our orders and we’ll sue you again and get a federal judge to sort out the mess.

Last week, the plaintiffs in the Delaware Chancery exclusive forum bylaw case – Boilermakers Local 154 Retirement Fund and Key West Police & Fire Pension Fund – filed a notice of appeal to the Delaware Supreme Court. No word on timing of the appeal process…

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:

– New Standards for Judicial Approval of Deferred Prosecution Agreements
– FASB Proposes Going Concern Disclosure
– New SEC Case Emphasizes Importance of Internal Controls
– Compliance Training: True Entertainment Rather Than Forced…
– “End-User Exception” for Swaps: Governance Action Items for Companies

– Broc Romanek

August 28, 2013

Poll Results: CDIs vs. CD&Is vs. CD&Is, Etc.

A long while back, I conducted a poll regarding which nomenclature is most used by members when referring to Corp Fin’s “Compliance & Disclosure Interpretations.” Here are the results:

– C&DIs – 6.6%
– CDIs – 56.9%
– CD&Is – 7.6%
– Phone Interps – 20.8%
– What me worry – 8.1%

That’s good news as it aligns with what the Staff has been using when out speaking. Here is a comment that I received from a member:

Both CD&I and C&DI are jargon that obscure rather than illuminate meaning. “Staff Interps” is a better short-hand reference that is more consistent with the SEC’s Plain English initiative, and is easier to vocalize. Imagine you are training a new associate but in a hurry. Telling him or her to check the Staff Interps provides a lot more direction that “go to the CD&Is.”

Investment Advisers & Investment Companies Oppose Shortened 13F Filing Deadlines

Here’s a blog by Davis Polk’s Ning Chiu:

The Investment Adviser Association (IAA) and the Investment Company Institute (ICI) have written to the SEC, arguing against the rulemaking petition submitted by the NYSE, the Society of Corporate Secretaries and Governance Professionals, and the National Investor Relations Institute to change the deadline for 13F filings from 45 after the last day of each calendar quarter to two business days after the last day of each calendar quarter. We previously discussed the petition.

The letters claim that the deadline change would increase free-riding, by allowing other investors to capitalize on investment managers’ investment ideas or replicate successful proprietary trading strategies. Forcing the disclosure of this information earlier could also lead to front-running, trading for one’s own account ahead of trading for clients’ accounts in order to take advantage of advance knowledge of pending trades or otherwise profiting from anticipating fund trades. Larger funds with concentrated portfolios, funds that specialize in thinly traded stocks or when an extended time is needed to build or reduce positions could be especially vulnerable to front-running, the letters stated. Vanguard’s comment letter focused on the risks of front-running as well, and argues that the two-day reporting period would benefit short-term hedge funds or speculators at the expense of long-term investors, including mutual fund shareholders. IAA predicts that requests for confidential treatment would “increase drastically, perhaps by thousands each quarter.”

Advances in technology do not eliminate the operational components necessary to fully reconcile trades, including identifying and resolving different valuations allocated to the same securities in the same firm, and makes the proposed two-business-day reporting “virtually impossible in practice,” according to IAA. In addition, both organizations assert that the purpose of the 13F reporting system is not to help issuers identify their shareholders, but rather to create uniform reporting standards and centralize databases for investment managers. They recommend that issuers use other existing mechanisms to better communicate with shareholders, given the risk of expanding predatory trading practices if the petition succeeds.

More than 70 letters in support of the petition, with the vast majority from issuers following largely the same form, have also been filed.

An Australian Judge Holds a Whole Board Liable

How best to whip a board into shape? This excerpt from this old Agenda article gives us some pretty remarkable food for thought:

The Federal Court of Australia handed down a remarkable ruling last June that hasn’t gotten much exposure in the U.S. A judge there decided that an entire corporate board plus the CFO had breached their duties when they overlooked a huge mistake in the company’s financial statement.

Directors were held liable even though their external auditor had also missed the errors. The court decided that the embarrassing judgment was punishment enough and imposed only small penalties, and only on a few board members.

– Broc Romanek

August 27, 2013

Where is Crowdfunding?

Well over a year after the enactment of the JOBS Act, we still await movement on the SEC’s rulemaking under Title III, which provides the framework for exempt crowdfunding offerings to non-accredited investors, subject to a $1 million cap over a rolling 12-month period and dollar limits based on an investor’s financial position. As this Washington Post article notes, the SEC Staff has indicated that crowdfunding rules can be expected sometime this fall, however these would presumably be proposed rules, meaning that final rules could not be expected until well into 2014 at the earliest when you factor in the need for FINRA to also create a regulatory system for funding portals. As a result, the ability to do exempt crowdfunding offerings remains limited, except that many are anticipating the ability to do more accredited investor-only crowdfunding offerings once general solicitation is permitted under Rule 506 after the September 23, 2013 effective date of those JOBS Act mandated rule changes.

Meanwhile, the SEC’s proposed amendments to Regulation D and Form D in response to investor protection concerns arising from lifting the ban on general solicitation have been drawing fire as not being faithful to the JOBS Act’s goal of promoting capital formation. As noted in this letter from AngelList CEO Naval Ravikant, “[t]he proposed rules appear to be tailored to how Wall Street raises funds, not the startup community.” Ravikant goes on to note the significant consequences for startups of instituting a 15-day in advance filing requirement for Form D, as well as the temporary requirement to file written solicitation material and legending requirements. Founders of startups, angel investors and others in that community have echoed this sentiment in the comment file.

Despite the delays and debate, crowdfunding still goes on – either to accredited investors behind password walls or in transactions that don’t involve the offer and sale of a security. It has proven itself to not be just another internet-age fad, so it remains to be seen whether some workable securities laws can be implemented to make it a viable alternative for capital raising.

EB5 Visa Programs: Another Beneficiary of General Solicitation

One area of capital raising that has not, until recently, received a great deal of attention is the EB5 Visa program, which was created by Congress back in 1990 as a means to spur capital investment in the United States. Under the program, foreign nationals can get access to a green card by investing in certain projects that are targeted to create jobs and encourage economic development. In many cases, the regional centers that raise money under EB-5 programs have relied on a combination of Regulation S and Rule 506 of Regulation D as exemptions from registration under the 1933 Act, and as a result their marketing activities to foreign nationals was limited by the prohibition on general solicitation and general advertising, as well as the prohibition on directed selling efforts.

With the adoption of Rule 506(c) as a new alternative for exempt offerings, EB-5 investments could be marketed more freely in the United States to foreign nationals who are located here, which could provide a significant new source of capital for these projects. Due to the requirements for qualifying as an EB-5 program, much of the capital is directed into real estate projects, including public-private partnerships developing infrastructure projects. With lingering investor protection concerns around this market, I expect to continue to see a focus by the SEC and the USCIS on maintaining investor protections and combatting fraud, particularly given that a person’s immigration status and investment are both tied up in these types of offerings.

The SEC’s New Admission Policy in Enforcement Cases: Collateral Consequences

Last week, I mentioned how the SEC’s new policy requiring admission of misconduct was implemented in a case against Harbinger and Philip Falcone. In The D&O Diary blog, Kevin LaCroix notes some of the important collateral consequences that admission of guilt may have, including with respect to D&O insurance.

– Dave Lynn

August 26, 2013

SEC Delays NYSE Proxy Fee Changes

As Ning Chiu notes in the Davis Polk blog, the SEC has again decided to delay a decision on the NYSE’s proposal to change the fees paid for proxy distribution, now until October 20, 2013. Ning notes:

In April, the SEC extended its decision and received 4 additional letters. On May 23, the SEC initiated proceedings to decide whether to disapprove the rule change and solicited additional comments, after which it received 14 letters. A final decision was to be made on August 21, but according to the latest notice, the Commission is waiting until October because it needs a longer period to consider the “significant question” as to whether the NYSE has sufficiently justified its proposal.

Companies are required to pay broker-dealers or banks that hold securities in street name reasonable expenses incurred in forwarding proxy materials to beneficial owners. The current reimbursement scheme was adopted in 2002, and the proposed rule change represents recommendations made by the Proxy Fee Advisory Committee as established by the NYSE. Companies represented most of the members on the Committee, and estimated that they pay $200 million annually. The Committee believes that the proposed changes would decrease the overall fees by approximately 4%. As almost all of the brokers use Broadridge for proxy distribution, the Committee based its analysis largely on data provided by Broadridge.

The 60-page SEC order in May presents a detailed explanation of each aspect of the fee breakdown and specific questions raised by the SEC as to the rationale for each change, but ultimately the issue is centered on whether an independent third-party audit is necessary. The NYSE has responded to the points raised by the SEC and noted that the information available is limited since there is no common methodology for tracking these costs and much of it is aggregated with other costs rather than separated, therefore having a third-party review does not make sense. But some of the commenters, including those that would like to better compete with Broadridge, dispute the conclusion that the proposed changes would result in lowering the costs for companies, and claim instead that its own analysis shows an overall increase. Given the SEC’s own controversies regarding cost-benefit analysis, it would likely need to consider those criticisms carefully before ruling on the NYSE proposal.

Canadians Weigh in on the Proxy System

The Canadian Securities Administrators are now seeking feedback about the integrity of the proxy voting infrastructure in Canada, focusing specifically on vote reconciliation and vote confirmation. While the CSA consultation paper requests comments on these specific issues, it also seeks broader comments on the proxy voting system. Comments on the CSA consultation paper are due November 13, 2013.

We are posting memos on the CSA Consultation paper in our “Canadian Law” Practice 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:

– Is a CEO’s Divorce the Board’s Business?
– SEC Makes Second Whistleblower Order, Indicating More to Come
– Second Circuit Reaffirms SEC’s Standard for D&O Bar
– Significant Changes Proposed in Lease Accounting
– G4: The Future of Sustainability Reporting

– Dave Lynn

August 23, 2013

Stop Order! SEC Stops a 1933 Act Registration Statement Prior to Effectiveness

An SEC stop order under 1933 Act Section 8(d) is a rare bird for 1933 Act geeks such as myself. Every law firm associate working on public offerings knows the seemingly pointless exercise of confirming that there are no stop orders on a registration statement being used for an offering, and it seems so pointless because so few stop orders are ever issued. Yesterday, the SEC issued a stop order (pre-effectively) with respect to a registration statement of a company called Counseling International, Inc., based alleged misstatements and omissions regarding the former CEO of the company. This stop order is notable in that it stopped the registration statement prior to it becoming effective, whereas in some cases (as demonstrated in this list of recent stop orders compiled by the SEC) a stop order is sought to suspend the effectiveness of an already effective registration statement. The Counseling International stop order also includes as a remedy that, for a period of five years, the Respondent will not engage in or participate in any unregistered offering of securities conducted in reliance on Rule 506 of Regulation D, including by occupying any position with, ownership of, or relationship to the issuer specified in the recently adopted bad actor disqualification rules.

You might ask yourself, why didn’t the company just withdraw the registration statement rather than face the stop order remedy? The Commission has discretion in determining whether it would grant or deny a request to withdraw a registration statement, so once an investigation is underway it can become very difficult for an issuer with a registration statement pending to avoid the stop order proceeding.

Pay Ratio Rule: Details Emerge

A story in yesterday’s Wall Street Journal revealed more details about the upcoming SEC rulemaking to adopt the CEO pay ratio rule mandated by the Dodd-Frank Act. As Broc noted a few weeks back, the pay ratio rule is expected to be considered by the Commission in the very near future – as early as September. The WSJ article indicates that the rules requirements will be less onerous than what is contemplated by Dodd-Frank, allowing issuers to take the statistical sampling approach to determining median employee pay that some pre-rulemaking commenters had thoughtfully suggested. This is good news in terms of mitigating the potential cost and burden of compliance with the requirement, particularly for companies with large, multinational workforces.

Hear more about the pay ratio rule at our upcoming conferences, in DC and via webcast on September 23 and 24. Check out the agendas and register now!

Just Mailed: The Latest Issue of The Corporate Counsel

We just wrapped up the latest issue of The Corporate Counsel, filled with insight and analysis on the latest developments. This issue addresses:

– The Brave New World – “Private” Offerings Using General Solicitation
– The Compensation Committee–New Exchange Listing Requirements Effective July 1, 2013
– The Staff’s New Rule 144 Pledging CDI–A Follow-Up on Recourse
– Confirmation that Rule 144 One-Year Current Public Information Requirement for Gifts of Control Stock Runs from Donor’s Acquisition
– Alternatives To Registration Chart By Stanley Keller, Jean Harris and Richard Leisner
– D.C. District Court Vacates Resource Extraction Issuer Disclosure Rules
– D.C. Court Weighs in on “Executive Officer” Definition

Get your copy today and take advantage of our “Rest of ’13” No-Risk Trial to The Corporate Counsel

– Dave Lynn

August 22, 2013

Preparing for the Next Sandy: SEC, FINRA and CFTC Guidance

As we sit here in the middle of the Atlantic hurricane season (luckily with no major hurricanes or superstorms to date), the SEC, FINRA and the CFTC teamed up to provide guidance on business continuity planning for regulated financial firms. The guidance notes that Hurricane/Superstorm Sandy closed the equities and options markets on October 29 and 30, 2012, prompting the regulators to take a hard look at business continuity and disaster planning at regulated firms. The guidance includes useful observations and recommendations on dealing with widespread disruptions, alternative location considerations, vendor relationships, telecommunications services and technology considerations, communication plans, regulatory compliance considerations and testing and review processes.

While this guidance was based on examinations of financial firms and is largely targeted to them, some of the observations and recommendations are relevant to any company looking to implement or tune up its business continuity and disaster planning, especially in light of such a natural disaster with such widespread repercussions as Hurricane/Superstorm Sandy.

Admitting Misconduct in SEC Actions: Here Come the Cases

Broc noted back in June the Commission’s decision that Enforcement’s “settlement without admission” policy would undergo an incremental change, which would apply only to certain cases as determined on a case-by-case basis. It appears that the policy change is now coming to fruition in actual cases with the recent announcement of the SEC’s settlement with Phillip Falcone and Harbinger Capital. David Smyth of Brooks Piece notes in the Cady Bar the Door blog:

Earlier this summer, SEC chair Mary Jo White told a Wall Street Journal conference that the Commission would in some circumstances depart from its longstanding policy of allowing defendants to settle cases without admitting or denying wrongdoing. She didn’t let Labor Day hit before putting the new plan into action.

You may remember that the SEC had alleged in June 2012 that Philip Falcone improperly “borrowed” $113 million from his advisory firm Harbinger Capital Partners to pay his personal taxes, secretly favored certain customer redemption requests at the expense of other investors, and conducted an improper “short squeeze” in bonds issued by a Canadian manufacturing company. You may also remember that the SEC’s staff took a run at settling this matter last month, and the Commissioners rejected the effort by a 3-1 vote. On Monday, the SEC settled its case against Falcone and Harbinger Capital. In doing so, the SEC required the defendants to pay more than $18 million in monetary sanctions and admit wrongdoing. As a technical matter, the consent filed in the Southern District of New York included an annex, all of the facts in which Falcone and Harbinger admitted. Falcone also agreed to be barred from the securities industry for at least five years, though he is not barred from acting as an officer or director of a public company.

We continue to post memos on the SEC’s new admissions policy in our “SEC Enforcement” Practice 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:

– EU Consults on Promoting Long-Term Investment
– New SEC Software Identifies Potential Fraud
– SEC Commissioner Aguilar Weighs In on Diversity
– European Commission Provides Color On EU ‘Action Plan’
– Court Rules Dodd-Frank’s Wells Notice Deadline is Internal

– Dave Lynn

August 21, 2013

Lighting a Fire Under Dodd-Frank Implementation?

Independent financial regulators met at the White House on Monday to discuss the implementation of the Dodd-Frank Act, and as this Bloomberg article notes, the President conveyed a “sense of urgency” in fully implementing the yet-to-be-adopted Dodd-Frank rules. The participants included the Treasury secretary, Comptroller of the Currency, the Director of the Consumer Financial Protection Bureau,, the Acting Director of the Federal Housing Finance Agency, and the chairs of the Board of Governors of the Federal Reserve System, the CFTC, the FDIC, the NCUA, and the SEC.

In a statement released after the meeting, the White House noted that the topics discussed included progress on implementing Dodd-Frank to date and what remained to be completed, as well as potential improvements to the housing finance system. Not surprisingly, the participants discussed the challenges faced by the current budget environment and the importance of providing adequate funding for independent regulatory agencies to achieve their core missions.

Will this sort of meeting break the logjam on Dodd-Frank rulemaking at the various financial regulators? Maybe not, as the agencies have no doubt already felt the same sense of urgency that the President feels as we begin this fourth year after Dodd-Frank was passed. Much of what is left to be done includes the most difficult aspects of the legislation, and as we discuss in the just mailed May-June issue of The Corporate Counsel, the rulemaking process has never been harder.

FINRA Updates Private Placement Form

With the increased focus on private placements as Rule 506(c) of Regulation D comes online next month, FINRA recently published Regulatory Notice 13-26 to announce updates to FINRA’s Private Placement Form, which is required to be filed pursuant to FINRA Rules 5123 and 5122. The updates to the Form are consistent with FINRA’s efforts to improve member firm due diligence in private placements.

Nilene Evans notes in the MoFo Jumpstarter blog:

FINRA states that the Form assists FINRA in prioritizing its review of private placement reviews. It notes that firms can respond “unknown” to any of the questions, although we believe answering “unknown” is likely to trigger heightened scrutiny by FINRA, particularly because the questions address basic diligence questions. FINRA’s statistics show that since July 1, 2013, on average, 18% of filers have answered “unknown” to at least one of the six questions: of these, approximately 28% have answered “unknown” to the question regarding SEC, FINRA, or state disciplinary actions or proceedings or criminal complaints within the last 10 years; and approximately 8% have answered “unknown” to the question whether the issuer has independently audited financial statements available for its most recent fiscal year.

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:

– Study: Impact of Dodd-Frank on Community Banks
– Three Recent Surveys Provide Insights On Corporate Governance
– More on “Director Access to Attorney-Client Privileged Communications”
– Director Access to Attorney-Client Privileged Communications
– “End-User Exception” for Swaps: Governance Action Items for Companies

– Dave Lynn

August 20, 2013

A Social Media Update

There continues to be social media developments – both in the corporate finance & corporate governance areas. Although LinkedIn & Twitter both get leveraged by folks in our community, it is at nowhere near the levels of other professions. For example, I have 2500 followers on Twitter – but only a few dozen of them tweet regularly about things in our profession. But still, there are lots of cool things happening, such as this Adidas’s social media policy – in the form of cartoons.

Here are a handful of articles, etc. that you may find interesting:

WSJ’s “Building Social Media Disclosure Infrastructure”

First ranking of Top 30 CEOs on social media

IR Web Report’s “Survey finds social media gap between investors, companies”

IR Cafe’s “Buy side half-interested in social media”

Q4’s interview with me

John Palizza’s “Social Media, the SEC and Corporate Disclosure – a Wobbly Three Legged Stool

WSJ’s “Earnings Not Yet a Viral Sensation”

Financial News’ “Buyside leads the charge into Twittersphere

Social Media: What is Stockr?

In this podcast, Vinny Jindal of Stockr describes what his platform can do, including:

– What is Stockr?
– How does it compare to other social media platforms for investors?
– Can companies create a verifiable presence on it (here is the CVS channel and the NetSol channel)?

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:

– Proxy Access Proposals in 2013: Anybody Out There?
– The Impact of the ISS Policy Against Pledging
– 10 Trends from the Proxy Season
– The Empowered Shareholder
– Recap of the Proxy Season

– Broc Romanek

August 19, 2013

Director Disagreements & Resignations: JC Penney Flap

I’ve added this Form 8-K from JC Penney to my list of directors who resigned after they have disagreed with the board. This director resignation was big news for the company as hedge fund manager Bill Ackman is the one who left (also see this piece from the New Yorker – and this Money Talks podcast).

I bother to blog about this since it’s fairly rare that a 8-K is filed due to director disagreement – and it’s rare that a board speaks out because it believes the departing director has divulged confidential information as noted in this WSJ article. The company and Ackman have now reached an agreement for him to sell his stake in the company…

My “Director Resignation & Retirement Disclosure Handbook” remains popular…

NextGen Board Portals

The newest board portal vendor with about two years of experience under its belt – Pervasent – has a “flat rate for unlimited users” pricing model that may shake up the industry. In this podcast, Stuart Williams of Pervasent explains how his company’s board portals work, including:

– How is your “Board Papers” different than other board portals?
– What is your pricing?
– How can others within a company use your board portal technology?

Poll: Should Directors Ever Go Public With Disagreements (When They Don’t Quit)?

It is rare that a disagreement with fellow board members is made public, although it does happen when the director resigns as a Form 8-K is required in that situation. Here is an anonymous poll on the topic of director disagreements when the director doesn’t resign:

online survey

– Broc Romanek