As long rumored, late on Friday, the SEC calendared an open Commission meeting for this Wednesday, September 18th to consider proposing the pay ratio rules as required by Section 953(b) of Dodd-Frank. We will be providing full coverage as always.
– What This Means – There will be a lot of last minute registrations for our upcoming pair of executive pay conferences – which are being held the following week in DC and by video webcast. The keynote on Monday, September 23rd is Keith Higgins, the Director for the Division of Corporation Finance – amid 20 panels on pay disclosures in a single day. And there is a “how to implement pay disparity rules” workshop that is part of the last panel on Tuesday, September 24th. Register now.
Although the conference hotel is sold out, occasionally there will be an opening if someone cancels – so try them first. Otherwise, we have a back-up hotel nearby. Mention the conference if you talk to either to obtain a discount.
Executive Officer Determinations: Who is Our “Chief Financial Bear”?
Before I dive into Twitter’s “tweet-heard-around the world,” let me deal with this head-turner that came first. Last week, I was bemused by this Fox Business reporter’s take of a Twitter spokeperson’s response in an email of “…” (known as an “ellipsis”) as somehow confirming an IPO due to the logic that Twitter had previously refused to respond to questions about it. Here are four questions that came to mind:
1. What Does “…” Mean? – Since I use “…” at the end of my blog on a daily basis, you would think I know what it means. As it turns out, my use of it – in the context that I use it – seems to be spot on according to this blog. I asked a friend and he thought it means fill in the blanks with whatever forms the basis of your reality.
2. Is This Today’s Equivalent of “No Comment”? – As lauded in footnote 17 of the Basic case: “To be actionable, of course, a statement must also be misleading. Silence, absent a duty to disclose, is not misleading under Rule 10b-5. “No comment” statements are generally the functional equivalent of silence.” It may be the death of wit – but companies may want to stick to more traditional responses so as to avoid any perceived (whether justifiable or not) ambiguity or meaning in their responses.
3. Did the Journalist Ask the Proper Question? – As I read the article, the question wasn’t “Is Twitter doing an IPO in 2014?” – but rather if anyone at the company can chat about the IPO rumors? Thus, however the response may be interpreted, it wasn’t answering the question of whether there will be an IPO.
4. A Brilliant Law School Exam Question? – Definitely…
Some members asked if this tweet was permissible. As I blogged last year, a handful of companies relied on Rule 135 to announce a confidential IPO submission soon after the JOBS Act was enacted.
Although Rule 135 notices typically contain more content than the maximum of 140 characters that make up a single tweet, Rule 135 only requires a legend “to the effect that it does not constitute an offer of any securities for sale.”
The rest of Rule 135 simply lays out the type of information permitted in a Rule 135 notice – it doesn’t require all of that limited information. And I don’t find Twitter’s tweet to be misleading – it seems to provide all the facts that a Rule 135 notice would need to convey. Professor Davidoff analyzes this too in his DealBook column – and Professor Rodrigues also does so in the Conglomerate Blog. Any different opinions?
Miss the “Being Alan Dye” Spreecast? Catch It Now
The technology held up during yesterday’s spreecast with Alan Dye – except I had my microphone jacked up too high (lesson learned for next time). The archive is now available if you care to watch – already over 350 views!
Poll: Does Dot-Dot-Dot Mean “No Comment” to You?
Here is an anonymous poll on the topic of whether you think that a response of dot-dot-dot is the equivalent of no comment:
Come participate in the first spreecast in our field at 4 pm eastern today! During “Being Alan Dye,” Alan and I will be on video during which I will interview him (and you will have the chance to type in your input during the program). I expect the spreecast will last only 15 minutes – it should be fun! To access the spreecast, go here at 4 pm eastern.
Here are FAQs about how it works – but the upshot is you have to register for Spreecast first (although it’s possible to watch without registering if you close a prompt). Simply sign up by using an email address by clicking the “Or sign up via email” link in the upper right hand side of the site (it’s in small print under the “Connect with Facebook” logo).
Here’s the other spreecast that I have calendared: “More on Reg D Offerings Today.” It will be held this Tuesday, September 17th at 2 pm est – and it will include reactions to this week’s popular Reg D webcast, as well as cover topics that weren’t addressed…
More on “It’s Here: Crowdsourcing Offerings Through Mobile Phones & Tablets”
A few years ago, I blogged about a start-up named “Loyal3” which allows companies to create “Customer Stock Ownership Plans” through on an app. I hadn’t heard much since then so I wasn’t sure if the concept caught on – but the WSJ just ran an article identifying a Luxembourg company – Globant SA – as the first to use the platform for an IPO.
Someone was kind enough to dig around in Edgar to see if any customer stock ownership plans had been filed so far – and they came up with two (see Topic #6695 in our Q&A Forum). So it doesn’t look like a mad rush to use Loyal3 – but there is some movement…
Applying Forfeiture Estimates to Stock Plan Expense
We recently mailed the September-October Issue of The Corporate Executive and it includes pieces on:
– Applying Forfeiture Estimates to Stock Plan Expense
– Planning for FICA Obligations for Retirement-Eligible Employees
– Traps for the Unwary: Important Considerations and Common Mistakes in Estimating Future Forfeitures
– Plaintiffs Achieve Victories in Litigation Over Stock Plan Proposals
I keep hearing the theme song from the “Mary Tyler Moore” show in my head. “You can have a town, why don’t you take it, you’re gonna make it after all.”
Apparently, someone took the liberty of submitting this comment on the political contribution disclosure rulemaking petition using my name. Yes, me. Not Charlie Sheen or Ashton Kutcher (or someone from the SEC as I recently blogged about). My very own imposter (although I like to think of it as an impersonator)!
Actually, it’s surprising that this kind of thing doesn’t happen more often – or maybe it does? To submit a comment on a rulemaking, there is no real verification process – nor should there be in my opinion – since anyone can input false identification information easily enough. The closest thing to verification is that an e-mail address is required to be inputted – but there is no way for the SEC’s system to be able to distinguish e-mail addresses from persons claiming to be others.
And so, there you have it. My career highlight without me lifting a finger…
Not that I want to scare off my mysterious unknown friend – but one member sent in a note that perhaps this is a violation of 18 U.S.C. Section 1519:
“Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.”
Corp Fin Issues Rule 144 Interpretive Letter: Credit for Canadian Reporting!
Corp Fin doesn’t issue interpretive letters in the Rule 144 arena that often anymore. Yesterday, Corp Fin issued its first Rule 144 interpretive letter this year – this new one states the view that Rule 144 is available for the sale of securities of certain Canadian companies, notwithstanding the fact that those companies previously had been shells, within the meaning of Rule 144(i). Corp Fin gives credit to Canadian reporting!
Webcast: “The Use of Social Media in Deals”
Tune in tomorrow for the DealLawyers.com webcast – “The Use of Social Media in Deals” – to learn from K&L Gates’ Mary Korby; Kekst and Company’s Lissa Perlman and K&L Gates’ Cedric Powell about how social media is being used in deals and what that means for regulatory purposes, including:
– What are common examples of social media use in deals?
– How should social media communications be treated for SEC filing purposes? For Rule 425?
– What types of activities are permissible? Which are not?
– What is the best way to leverage social media in deals?
– Comments from EU Commissioner for Trade Karel De Gucht provide a six-point framework for the EU’s conflict minerals directive still under development.
– NGOs Enough and Responsible Sourcing Network, along with Socially-Reponsible Investment firms, published their expectations and specific recommendations for SEC filings on conflict minerals.
– A NY Times article exposing flaws in CSR audit practices – and a LinkedIn discussion explores the potential foreshadowing for conflict minerals audits.
Also see the answers in response to Topic #7765 in our “Q&A Forum” for some practical advice about how to handle the questionnaires (remember you can search by key word or topic number with the search tool in our Forum)…
A preliminary statement of issues filed by the National Association of Manufacturers, the Chamber of Commerce and the Business Roundtable on August 13 provided a glimpse of the arguments that will be made in their appeal of the district court decision to uphold the SEC conflict mineral rules, which we previously discussed here.
The appellants plan to address several areas where they believe the Commission erred in its conclusions and acted in an arbitrary and capricious manner. This includes the SEC’s conclusion that it lacked authority to adopt a de minimis exception, interpreting the statutory language “did originate” to mean “reason to believe, and including non-manufacturers who contract for the manufacture of products. In addition, the appellants intend to question the merits of providing a shorter transition period for larger companies, since larger companies will have to depend on smaller companies to comply with the rule. The adequacy of the economic analysis and free speech arguments also will be made.
Meanwhile, Ning blogs that a group of 44 investors, including many socially responsible funds, recently sent a letter to Chair White urging the SEC to defend the resource extraction rules that were struck down by the courts. However, the SEC stated that it won’t appeal (as the deadline for appealing was crossed) – the SEC intends to rewrite the rules instead.
Today, Conflict Minerals; Tomorrow, Conflict Wood and Conflict Water?
Loving this news brief from Cooley’s Cydney Posner: According to this article in Compliance Week, “New Breed of Regulations Won’t End With Conflict Minerals,” the Dodd-Frank provisions regarding conflict minerals and related SEC regulations may well just be the beginning of an onslaught of social-activist-driven legislation related to foreign conflicts and sustainability. (Legislation? Congress? Huh? ) Of course Congress is not the only source of legislation; state and international legislators also step in from time to time. Moreover, companies are often pressured by activists directly or indirectly to take action or cease certain conduct.
Below are some of the potential “problem materials” identified in the article that may hit the radar of legislators or regulators:
– ‘Blood Diamonds’: The sale of “blood diamonds” to finance violent rebel groups, particularly in Africa, was the impetus for development of the “Kimberley Process,” which provides conflict-free certifications intended to eliminate the use of blood diamonds. The Clean Diamond Trade Act, signed into law by President Bush in 2003, provided for U.S. participation in the Kimberley Process. However, the article reports that there have been “growing complaints… that the Kimberl[e]y Process is failing in its effort, [and, as a result,] additional regulations might lurk in the future.”
– ‘Death Metal’: Tin mined in Indonesia, particularly the Bangka Island region, “is controversial, not just because of ongoing human rights concerns, but for environmental reasons as well.” Military and police violence in the area “have long been concerns for human rights groups.” In addition, environmental protestors have targeted a number of electronics manufacturers regarding damage done to tropical rainforests from tin mining in the country.
– Palm Oil: Producers of palm oil, which is produced in Indonesia and elsewhere, are also under the gun for “environmental destruction and the abuse of human rights,” including alleged widespread child labor, human trafficking, violence against workers and slavery. Palm oil and its derivatives are found in many products, including cooking oil, soap, lipstick and fuel.
– Wood: According to the article, sustainability issues, such as biodiversity and deforestation, are becoming more prevalent in connection with the use of wood: “[w]here companies get their wood, and how they ensure that proper reforestation programs are in place, is a growing concern.” Furniture manufacturers have been under pressure from activists to bolster use of certified timber and avoid illegal logging.
– Cobalt: The article speculates that cobalt may eventually be added to the list of the four conflict minerals currently regulated under Dodd-Frank. Apparently, the DRC is the largest producer of the world’s cobalt supply, and the Enough Project, concerned regarding unsafe working conditions and child labor, estimates that 60% of that production comes from illegal mines. Cobalt is used as a blue pigment in many paints and is widely used as a component of lithium ion batteries, in tool construction and for artificial joints and limbs.
– Dirty Water: According to a commentator cited in the article, “‘[a] lot of people are talking about water footprints; it is not only about carbon footprints anymore…. Water is the reason for several wars around the world. There isn’t a lot of public reporting about that yet because companies really need to think about it before they announce all the problems they are causing with their water use.'”The article also suggests that, in addition, numerous other physical commodities could easily become subject to this type of regulation, including cotton, leather and some food items.
Poor sourcing practices may also lead to future legislation. For example, poor factory conditions, as illustrated by recent reports of harsh working conditions, including employee suicides in China and the fire at and collapse of a garment factory in Bangladesh, are of grave concern The article reports that “many retailers agreed to sign onto a legally binding European accord that requires retailers fund fire safety and building improvements at the Bangladesh factories they employ. A non-legally-binding effort spearheaded in the U.S. for its companies has been less successful…. Although federal legislation to force an EU type of agreement is unlikely, expect to see shareholder activists push a similar agenda.”
The article speculates that we may also see rules for public companies regarding human trafficking and slavery, based perhaps on the California Transparency in Supply Chains Act, which requires many companies doing business in California to disclose efforts they have taken to eradicate human trafficking and slavery from their direct supply chains for tangible goods offered for sale. The law applies to retail sellers and manufacturers with annual worldwide gross receipts exceeding $100 million that do business in California.
The article suggests that, in light of “the lengthy list of supply chain issues that could eventually spur new regulations, companies may want to leverage their ongoing conflict minerals efforts to gear up for what is to come.” That doesn’t mean, as one commentator noted, buying “a new technology solution for all upcoming legislation…. Instead, especially larger companies, should look to maintain a broader compliance perspective, and conflict minerals demands ‘should be seen as part of the bigger change in the regulatory environment.'” Companies may want to focus on these issues from a larger perspective as questions of risk management.
Tune in tomorrow for the 75-minute webcast – “Reg D Offerings: What Is Happening Now” – to hear WilmerHale’s Meredith Cross, Morrison & Foerster’s Dave Lynn, Calfee’s John Jenkins, Western Reserve Partners’ Dave Mariano and SecondMarket’s Annemarie Tierney analyze the SEC’s new rules and how market practice will likely develop in their wake.
SEC Brings First Reg FD Case In Nearly Two Years
On Friday, the SEC brought this enforcement case against the former investor relations head of First Solar, after he indicated in phone conversations with some analysts and investors that the company was unlikely to receive a much-anticipated loan guarantee from the Department of Energy. When First Solar broadly disclosed this material information in a press release the next morning, its stock price dropped 6%.
As noted by Davis Polk’s Ning Chiu in this blog, the SEC decided not to bring any action against First Solar because of the company’s “extraordinary cooperation.” The SEC determined that, prior to this violation, the company “cultivated an environment of compliance through the use of a disclosure committee that focused on compliance with Regulation FD.” The SEC’s press release noted that the company immediately discovered the selective disclosure and promptly issued a press release the next morning – and reported the misconduct to the SEC. The company also undertook remedial actions, including conducting additional Regulation FD training. The former IRO agreed to pay $50,000 to settle the SEC’s charges (see this Dick Johnson blog entitled “Reg FD: Does $50,000 get your attention?“).
SEC Issues Second Wave of Whistleblower Program Awards
As noted in this memo posted in our “Whistleblowers” Practice Area, the SEC recently announced that it expects to pay a combined $125,000 (which is 15 percent of monetary sanctions collected) to three whistleblowers who helped the SEC and DOJ stop the CEO of a sham hedge fund.
Meanwhile, this Courthouse News Service article notes that a SEC attorney in the New York regional office has sued the agency, alleging that the Commission retaliated against her after she complained that a supervisor blocked efforts to investigate investment managers.
As noted in this memo, this November, in Lawson v. FMR LLC, the Supreme Court will hear argument on whether “whistleblowers” employed by a privately held contractor or subcontractor of a publicly traded company are protected from retaliation by Sarbanes-Oxley. The Court granted certiorari to review the judgment of the U.S. Court of Appeals for the First Circuit in a case involving two self-proclaimed whistleblowers employed by private contractors performing services for publicly traded mutual funds.
As you know, I like to try out new ways to communicate – and so I am launching a series of spreecasts. It’s a cool new communication platform – you will be able to watch the speakers on video – while also being able to chat with others and ask questions of the speakers. Here are FAQs about how it works – but the upshot is you have to register for Spreecast first (although it is possible to watch without registering if you close a prompt). Simply sign up by using an email address by clicking the “Or sign up via email” link in the upper right hand side of the site (it’s in small print under the “Connect with Facebook” logo).
Reminder: Act Now for “End-User Exception” for Swaps Activities
Here is a reminder from this Gibson Dunn blog that starting on Monday, new CFTC rules will take effect for non-financial companies that use swaps to hedge or mitigate commercial risk. These rules will require the clearing of interest rate swaps and credit default index swaps unless an exception is available. One such exception is the “end-user exception,” and public companies planning to rely on this exception must take certain governance steps. These include obtaining approval from the board of directors or an appropriate committee to enter into swaps exempt from clearing.
Last week, Helen of Troy became the 59th company to fail its say-on-pay in ’13 – see the Form 8-K – with only 12% support, the 2nd lowest level this year.
And then we have Capstone Turbine who appears to be the 60th company with only 48% support – although its Form 8-K doesn’t quite characterize it either way, as it just provides the share data. However, the company’s proxy statement (pg. 2) states that abstentions have the effect of an against vote.
Thanks to Karla Bos of ING for the heads up on these!
Corp Fin Deputy Director Paula Dubberly has announced that she will soon be “retiring” – Paula is still young so I’m sure we will see her in our field in some capacity.
I have a soft spot in my heart for Paula. You probably wouldn’t be reading this if it wasn’t for her. Paula was my supervisor when I returned to the SEC for my second stint. She was a great leader who taught you much and fostered your development. She made the effort to champion me – something rare both in and outside the government . She has done that for many Staffers – reflected by the fact that many in Corp Fin leadership positions today used to work for Paula. Beyond that, Paula takes the time to really care about all those that work for her, including the support staff.
Paula also was the model SEC Staffer in that she firmly believes in the mission of the agency. Her breadth of knowledge is pretty remarkable – the range of rulemakings she has guided over the years is incredibly wide, from executive pay to asset-backed securitization. I’m sad to see her go as I know she will be missed by the Staff – but wish her luck on the next chapter in her life…
Study: 11 Years of Audit Fees
As noted in this study posted in our “Audit Fees” Practice Area, Audit Analytics found that for 2012 the ratio of audit fees over revenue was the lowest since 2004, the lowest since the implementation of Section 404, including:
– Non Audit Fees as Compared to Audit Fees: In 2002, non-audit fees represented 51% of the total fees paid by research population of accelerated filers, but after three years of steady decline non-audit fees appear to have leveled off at about 21% of total fees. To some extent, the drop in non-audit fees as compared to audit fees is attributable to the Auditor Independence Rules adopted by the SEC in 2001, which precluded the principal independent accountant from performing certain non-audit services to ensure auditor independence when performing the independent audit.
– Non-Audit Fees as a Percentage of Revenue: During 2002, the cost of non-audit fees paid by the research population for every million dollars in revenue was $387. After four years of substantial declines, the population paid only $146 of non-audit fees for every million dollars in revenue during 2006. Thereafter, for the next six years, the value leveled off somewhat with an overall gradual decline. The 2012 figure was the second lowest value calculated for the eleven years under review: $134 for every million dollars in revenue.
– Audit Fees as a Percentage of Revenue: The ratio of audit fees over revenue peaked in 2004 & 2005, when, for both years, the average amount of audit fees paid per $1 million of revenue was $592. After three consecutive years of decline the figure increased slightly in 2009, but the uptick is due to a decrease in revenues instead of an increase in fees. After another three years of decline, 2012 experienced the lowest value since 2004 (since the implementation of SOX 404): $472 of audit fees for every million dollars in revenue. The fees declined despite the extra work demanded of the auditors during the same period when more and more companies were required to obtain auditor attestations pursuant to SOX 404(b).
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net 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:
– Experiment: Paying Auditors From a Central Fund
– Crisis Management 101
– Delaware Chief Justice Discusses Emerging Law
– Disclosure of Material, Non-Public Information in Surveys?
– Even More on “Director Access to Attorney-Client Privileged Communications”
When you visit the 9-11 Pentagon Memorial, I highly recommend that you do it at night. Much less crowded – and much more powerful. This photo doesn’t do it justice…
How to Visit the Supreme Court
Another cool thing to do in DC is visit the Supreme Court (as well as the Library of Congress adjacent to it – and then walk the short tunnel from there to the Capitol). Although SCOTUS won’t be in session during our conference week, it’s still worthwhile – particularly the half-hour tour in the actual courtroom that happens on the half hour every hour (described as a “courtroom lecture”).
By the way, here’s a preview by Lois Yurow about three consolidated cases arising from Stanford’s Ponzi scheme that will be heard by SCOTUS…
The Supreme Court’s Basketball Court
Most lawyers know that a basketball court resides directly over the courtroom. The hoops court has been labeled with the moniker as the “Highest Court in the Land.” Here is a note that I received from a member about it:
Regarding your tweet about the basketball court, when I was in college, Justice White gave a lecture at my school. In Bob Woodward’s book about the Court – “The Brethren” – he talks about White playing basketball on that basketball court with his clerks. At a reception after his lecture, a couple of us asked Justice White about that and he confirmed that he used to do that, but that he had better judgment now that he was in his 70s (this was in 1983). Justice White was a very gracious and very modest guy – even in his 70s, I’m sure he could kick the butts of most of his clerks in just about any athletic endeavor you can name.
“Whizzer” White’s a football legend, but what many people don’t know is that he was also the star of Colorado’s basketball team – and led them to the finals of the very first NIT at the Garden in 1938. Here’s an old LA Times article referencing his basketball prowess.
On Friday, the SEC issued its 1st fee advisory for 2014 (along with this methodology). Right now, the filing fee rate for Securities Act registration statements is $136.40 million (the same rate applies under Sections 13(e) and 14(g)). Under the fee advisory, this rate will dip to $128.80 per million, a 6% drop. Nice to see a reduction after last year’s hefty price hike.
As noted in the SEC order, the new fees will go into effect on October 1st like the last two years (as mandated by Dodd-Frank) – which is a departure from years before that when the new rate didn’t become effective until five days after the date of enactment of the SEC’s appropriation for the new year – which often was delayed well beyond the October 1st start of the government’s fiscal year as Congress and the President battled over the government’s budget.