Recently, Twitter announced that it would take questions for its February 5th earnings call – the first since its IPO – via Twitter. This is not quite new ground as Zillow did it last year – but no company has done it since Zillow. To learn more about what Zillow did, check out the transcript from last year’s “Social Media: Parsing the Hypos” webcast that included a lawyer from the company…
Check out my “Proxy Season Blog” for info about more updated ISS & Glass Lewis policies…
JOBS Act Correction Passes the House: Savings & Loans Focused
As noted in this MoFo blog, the House passed H.R. 801, the Holding Company Registration Threshold Equalization Act of 2013, sponsored by Rep. Womack, by a vote of 417 to 7. The bill corrects a technical error in the JOBS Act, which raised the shareholder threshold for Exchange Act registration for banks and bank holding companies but not for savings and loan holding companies. The bill puts SLHCs on par with bank holding companies by increasing the shareholder registration threshold for SLHCs from 500 to 2,000, and the deregistration threshold from 300 to 1,200.
More on “The Mentor Blog”
I 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:
– Report: Fortunate Executive Stock Sales & Earnings Guidance
– The Equity Facade Of SEC Disgorgement
– Comparison: Director & Investor Viewpoints
– Report: More Audit Committee Transparency Encouraged
– DOL’s Electronic Delivery Guidance: Struggling to Go Forward
As blogged about by Duane Morris’ Oliver Rust, ISS issued FAQs yesterday explaining its views on director qualification/compensation bylaws. Here’s an excerpt from this Weil Gotshal memo:
ISS’ new FAQs discuss how it views a board’s adoption of a bylaw that disqualifies any director nominee who receives compensation from a third party (a “director qualification/compensation bylaw”), where such adoption was not approved or ratified by shareholders. According to the FAQs, ISS considers board adoption of director qualification/compensation bylaws without shareholder approval as a “material failure of governance because the ability to elect directors is a fundamental shareholder right…[and] [b]ylaws that preclude shareholders from voting on otherwise qualified candidates unnecessarily infringe on this core franchise right.”
Pursuant to its US proxy voting policy relating to “Governance Failures,” ISS may therefore issue a negative vote recommendation against directors individually, committee members or the entire board. In contrast, ISS stated in the FAQs that it will not recommend against directors at companies whose board has adopted bylaws precluding from board service those director nominees who fail to disclose third-party compensatory payments (for example, advance notice bylaws). According to ISS, such bylaws “may provide greater transparency for shareholders, and allow for better-informed voting decisions.”
In the event that a board seeks shareholder approval of a director qualification/compensation bylaw, ISS has stated that it will review the proposal “case-by-case…taking into consideration among other factors the board’s rationale for proposing the bylaw, whether the proposed bylaw materially impairs, and/or delivers any off-setting improvements in shareholder rights, and any market-specific practices or views on the underlying issue.” In the context of a proxy contest, ISS has stated that it considers compensation arrangements with director nominees as a factor in its case-by-case analysis.
Did the “SEC News Digest” Go Out of Business?
Here’s a blog from Stinson Leonard Street’s Steve Quinlivan noting that the “SEC News Digest” hasn’t been published in a month – and how the SEC’s response to his query about it was that it indeed may be done. Let me know your reaction. Are you okay with RIP?
Webcast: “The Latest Developments: Your Upcoming Proxy Disclosures”
Tune in tomorrow for the CompensationStandards.com webcast – “http://www.compensationstandards.com/Webcast/2014/01_16/index.asp” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance about how to overhaul your upcoming disclosures in response to say-on-pay–including the latest SEC positions–and the other compensation components of Dodd-Frank, as well as how to handle the most difficult ongoing issues that many of us face.
Recently, I was surprised to learn from Broadridge that 99 companies held “virtual-only” annual meetings last year (and there might even be a few more that didn’t use Broadridge’s platform). Since only a dozen or so companies conducted virtual shareholder meetings the year before that, it looks like 2013 was the one where this concept gained some traction. Are virtual-only meetings a good idea? Here’s my last blog on that debate. Let me know what you think.
Tune in tomorrow for the CompensationStandards.com webcast – “Executive Compensation Litigation: Section 162(m) Disclosures”” – to hear McDermott Will’s Andrew Liazos, Shearman & Sterling’s Doreen Lillenfeld and Winston & Strawn’s Mike Melbinger as they drill down on how Section 162(m)-related lawsuits are faring and what you can do to avoid them.
More on our “Proxy Season Blog”
We continue to post new items regularly on our “Proxy Season 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:
– CalPERS Adopts ‘Investment Beliefs’ to Guide Portfolio Management
– Survey: Environmental & Social Shareholder Proposals
– Shareholder Proposals: Corp Fin Allows Exclusion for Student Loan Repayment
– Engagement in the 2013 U.S. Proxy Season
– 5th Company Obtains Majority Vote for Proxy Access in ’13
Last week, Nasdaq announced that it has posted the final form of its compensation committee certification on its Listing Center. Anyone can view a blank form in the preview mode – and a Listing Center user can log in to complete the form online on behalf of a company. As I’ve blogged, Nasdaq previously had posted only a preview of the certification form…
Political Spending Disclosure: Congressional Pressure for a SEC Proposal
Recently, I blogged about how the SEC’s Reg Flex Agenda is aspirational and not really a good roadmap for upcoming rulemakings. This was in the context of political spending disclosure being left off the most recent Reg Flex Agenda after being placed upon it the prior year. In my opinion, whether it is on it – or off it – doesn’t really matter.
So just because it is now off it, that doesn’t mean the SEC will ignore the 2011 rulemaking petition that has garnered over 600,000 comments. That number will continue to swell, particularly with online forms like this one facilitating the process. Now a group of 79 members of Congress has written to SEC Chair White asking for a proposal, via this Senate letter and this House letter. Maybe that will start the ball rolling…
More on our “Proxy Season Blog”
We continue to post new items regularly on our “Proxy Season 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:
– Survey: Audit Committee Disclosures
– Shareholder Proposal: Open Competition for Board’s Voting Recommendations
– Walgreens Argues Proxy Access Shareholder Proposal Should be Excluded
– Shareholder Proposals: This Fall
– 20% Stake in Glass Lewis Sold to Institutional Investment Manager
As noted in this Gibson Dunn blog, ISS has revised its corporate governance ratings service – now “QuickScore 2.0.” Some basic information about the retooling was announced, with further details promised on January 27th.
More importantly for companies, from January 27th to February 7th, you can check the data that ISS will use in QuickScore 2.0 through the ISS Governance Analytics webpage before the launch…
By the way, no information about this development is online. ISS only sent an email to companies in their QuickScore coverage universe…
AICPA Conference Notes
I have posted a bunch of conference notes from the recent annual AICPA Conference. Here are some highlights, courtesy of WilmerHale’s Tom White:
– Accounting Firm Expansion of Non-Audit Businesses. PCAOB Chairman James Doty and SEC Chief Accountant Paul Beswick reiterated concerns expressed at last year’s conference regarding some accounting firms’ expansion into non-audit businesses. Noting that “[t]he public considers audit firms to be ‘gatekeepers,’ and not consultants, Mr. Beswick stated, “You earn the public’s trust by improving audit quality and by strengthening a firm’s audit function.” Mr. Doty stated, “We need roundtables and task force attention on the implications of the regeneration of non-audit consulting at the global firm.”
– Auditor Independence. Discussing auditor independence, SEC Deputy Chief Accountant Brian Croteau emphasized that responsibility for compliance with the auditor independence rules is a “shared responsibility” between the audit committee and the auditors, not, as some may think, primarily the responsibility of the auditor. He suggested improvements to policies and procedures be considered “to help ensure that services to be provided by the company’s auditor are appropriately evaluated by management and audit committees, in addition to auditors, prior to commencement.” In particular, Mr. Croteau noted that the independence rules require that the auditor be independent not just of the audit client, but also the client’s affiliates, and recommended that that policies and procedures make sure that the complete population of affiliates is known to the company and its auditors. He also suggested that when a company changes auditors, it consider maintaining the independence of the predecessor auditor for a period of time, in case it is necessary to audit a restatement of prior period financial statements.
– Mandatory Rotation. On the controversial issue of mandatory auditor rotation, PCAOB Chief Auditor Martin Baumann discussed the PCAOB’s pending proposal to require disclosure of auditor tenure in the auditor’s report. He alluded to the arguments about whether long auditor tenure can adversely affect audit quality. But neither he nor Mr. Doty suggested that the PCAOB expects to take any action on mandatory rotation other than the proposed disclosure requirement.
– Audit Quality v. Fee Reduction. SEC Chief Accountant Beswick urged audit committees, when deciding whether to hire or retain an auditor, to focus on audit quality and “not always choose the low cost provider.” He expressed concern that “audit committees may be focusing too much on the amount of the fee and not focusing enough on the expected audit quality.” Mr. Beswick suggested that in the event of an audit failure, if the audit committee was “solely fee hunting,” this might “raise questions about the diligence of the members of the audit committee in fulfilling their responsibilities.”
– Audit Quality Indicators. In a related topic, Greg Jonas, PCAOB Office of Research and Analysis Director, discussed the PCAOB’s ongoing audit quality indicator (AQI) project. As described by Mr. Jonas, the Board’s project seeks to answer two questions: “Can we develop a portfolio of quantitative measures that provide new insight into audit quality? If so, how can we deploy those measures in a manner that best promotes quality?” The PCAOB expects to issue a concept release on this topic in the first quarter of 2014.
– ICFR. Several speakers focused on internal control over financial reporting. Notably, Mr. Croteau suggested that PCAOB findings regarding inadequacies in audits of ICFR “are likely indicators of similar problems with management’s evaluations of ICFR, and thus potentially indicative of risk for unidentified material weaknesses.” Mr. Croteau also questioned whether all material weaknesses are being properly identified, noting that “[i]t is surprisingly rare to see management identify a material weakness in the absence of a material misstatement.” This view was echoed by members of the SEC Enforcement Division Staff.
M&A eDiscovery
In this DealLawyers.com podcast, Greg Houston of kCura and Geof Vance of McDermott Will discuss how eDiscovery is impacting M&A litigation, including:
– What is kCura and what services does it provide?
– How does kCura work for M&A litigation?
– Tell us about McDermott Discovery. Why was the practice created?
– Could you share a success story using predictive analytics in M&A?
Some of my most popular blogs have been about fake registration statements or prospectuses – whether they are signed by Presidents or selling stock in the Vietnam War (as noted in this blog). Meaghan Nelson of Gunderson Dettmer brought this Form S-1 filed by Xgains4keeps to my attention.
It seems likely that the filing was made on a dare – or is a ponzi scheme as its business model consists of “continuous function of cycling the extended equity known as ‘gains’ or its proceeds to the users and advertisers on its website.” Some of the Form S-1 is technically correct – but when it comes time to describe what the company does, etc., it falls into the Nigerian hoax-like camp. Here is an excerpt:
This company was founded by Ugochukwu Unamka and the objective was to add an incremental value to the utility derived by the internet user something slightly different from what other companies are doing. Here at Xgains4keeps we aim to deliver no matter how small some economic benefit from the use of the internet as it is now and as it will be in the near and distance future.
The company has not really started making money but advertising is expected be our principal source of revenue as well as equity and other investment transactions. We are confident that we will deliver real and tangible value to the users and profit for the investors going by the model we have adopted.
In the “Risk Factors,” the primary competitors appear to be Microsoft, Yahoo, Google and Facebook. Oddly, the company has a “company overview” page on Nasdaq’s site – as well as one on Bloomberg’s site. There is even a Facebook page and YouTube videos about the company…
The Fake Filing Cabinet: The Guy Holds 999 Billion Shares?
Here’s an excerpt from Michelle Leder’s blog on Footnoted.com:
Footnoted regulars know that we don’t usually pay much attention to insider-related filings – those Form 3s,4s and 5s – which make up roughly 1/3 of all filings made to the SEC. Instead, we prefer to focus our attention on the roughly 400,000 other filings for a number of reasons, but mostly because we think that human intelligence still has the edge when it comes to massive amounts of unstructured data, which is essentially what these filings are.
Still, we’re fascinated when we spot unusual filings and there’s really no other way to describe the 61 filings made by Johnny Earl Satterwhite since June 2 other than downright bizarre. Among the claims are that Satterwhite, who lives in Killeen, Tx, owns 999 billion shares of Microsoft (MSFT) and Exxon Mobil (XOM). We’re attaching a screenshot of a Microsoft filing made on June 14 since the filings have since been removed from the SEC’s site.
Here’s a fake Form 3 filed by Johnny Earl Satterwhite claiming that he holds 1 trillion shares of ExxonMobil. And this Dow Jones article is entitled “Recent Trillion-Dollar Filings Suggest Weakness In SEC System.”
Fake Filings: How Do They Sneak a Form ID Past the SEC?
In light of the wild fake filings noted above, a member posted this question in our Q&A Forum (#6601): As reported by Footnoted.com, someone filed fake Form 3s claiming fake ownership of major companies. If someone files a Form ID to get Edgar filing codes, etc, is that ever reviewed by a human at the SEC or is it all automated pretty much?
Here’s an answer posted by Ruth Kaufman of RR Donnelley:
When filing a Form ID to apply for Edgar codes, one must fax notarized authenticating documentation. The SEC’s Filer Support staff checks that all the required paperwork has been received before creating a CIK but does not research to confirm the person is who they claim to be. I believe that is the job of the notary.
Note that the Form ID doesn’t ask for a reporting owner’s affiliation or the number of shares one owns. The Section 16 filings are where one discloses a number of shares. One can be affiliated with one company when the initial application is made but to others (instead of “or” in addition to) later.
Yesterday, a hearing was held in the appeal over a district court’s decision upholding the SEC’s conflict minerals rules – and two members of the three-panel U.S. Court of Appeals for the District of Columbia Circuit repeatedly expressed concerns with the rules. In this Cooley news brief, Cydney Posner summarizes the highlights of this WSJ article and this Reuters article, who both sent reporters to the hearing. And here is a Compliance Week piece and a Gibson Dunn blog…
Tune in today for the webcast – “The ‘Former’ Corp Fin Staff Speaks” – to hear former Senior Staffers from the SEC’s Division of Corporation Finance Brian Breheny of Skadden Arps, Meredith Cross of WilmerHale, Marty Dunn of Morrison & Foerster, Tom Kim of Sidley Austin and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster address this latest development, as well as these topics:
– Reg A +
– Reg D interps & practices
– Bad Actor drill down
– JOBS Act implementation
– Proxy advisor oversight
– Iran sanctions disclosure
– Conflict minerals & resource extraction
– Proxy access proposals
– Cybersecurity disclosures
– Political contribution disclosures
Social Security a Ponzi Scheme? Dude Calls the SEC
Pretty funny video as this guy, Steven Crowder, looks up ponzi scheme on the SEC’s website and places a call to the SEC to discuss Social Security – but not by name (at 2:00 minute mark). Having been on that end of the phone when I served in Corp Fin’s Office of Chief Counsel returning calls, I think the SEC Staffer does her job admirably putting up with this guy…
Tune in tomorrow for the CompensationStandards.com webcast – “Executive Compensation Litigation: Proxy Disclosures” – to hear Pillsbury’s Sarah Good, Wilson Sonsini’s Ignacio Salceda and Dave Thomas and Fenwick & West’s Scott Spector discuss what is involved in the latest rash of executive compensation-related lawsuits, as well as how to handle them.
On the heels of reading about Corp Fin’s denial of a request by Apple to exclude a shareholder proposal based on “proxy” grounds, I learned of two lawsuits filed against John Chevedden in federal court. As reflected in this complaint, Chipotle filed a “proposal by proxy” lawsuit in a Colorado federal court last week. As you might recall, John is fighting an adverse court decision involving Waste Connections – based on a similar fact pattern – that was handed down last year in a Texas court. That appeal is ongoing.
Meanwhile, Express Scripts recently filed a lawsuit against John in a Missouri federal court (here’s the complaint). The suit’s basis is only the accuracy of supporting statements for an independent board chair proposal. Given this Davis Polk blog describing how Corp Fin continues to deny exclusion requests based on misleading supporting statements, I can’t imagine that John won’t win this case. But you never know in some of these federal court cases…
Webcast: “The ‘Former’ Corp Fin Staff Speaks”
Tune in tomorrow for the webcast – “The ‘Former’ Corp Fin Staff Speaks” – to hear former Senior Staffers from the SEC’s Division of Corporation Finance Brian Breheny of Skadden Arps, Meredith Cross of WilmerHale, Marty Dunn of Morrison & Foerster, Tom Kim of Sidley Austin and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster weigh in on the latest in the wake of the SEC’s Reg D changes and what you need to be doing for the upcoming proxy season, as well as provide a “bring-down” of what’s happening now in Corp Fin.
“Mommy’s Alright, Daddy’s Alright, They Just Seem a Little Weird”
I couldn’t help humming the lyrics from “Surrender” when I read this Bloomberg article entitled “Ex-Cheap Trick Drummer Sued Over Corporate-Director Removal.” As noted in this article, the case was tossed…
Following on the heels of the issuance of 14 CDIs last month clarifying the application of the “bad actor” disqualifications from Rule 506 offerings, Corp Fin issued five more “Securities Act Rules Compliance and Disclosure Interpretations” in this area on Friday. They are:
In addition, the Staff issued one CDI under Rule 13d-3 that relates to one of the new Bad Actor CDIs.
SEC Enforcement Co-Director George Canellos Leaving
Kinda funny. On the day that Mark Cuban & I traded tweets over my blog about him and his beef with the SEC’s Enforcement Division, the SEC announces that one of the co-heads of Enforcement is leaving. As noted in this NY Times article, it’s no big surprise that George Canellos is leaving. SEC Chair White had installed George as co-head last April when fellow co-head Andrew Ceresney joined the SEC from her old law firm (note that Ceresney also worked with the Chair in the US Attorney’s Office for the Southern District of New York before that). Here is a pic of some of the tweets I received from Mark Cuban:
Your New Year’s Resolution? Lifestyle Adjustment
In this podcast, Jennifer Martella – a former securities lawyer turned wellness consultant – provides insights into how you should be approaching your life, including:
– Although we have the best of intentions when making annual resolutions and promises to ourselves, why do you believe we so quickly break them?
– New Years resolutions often focus on diet and exercise. What other areas come under the wellness umbrella that we can seek to improve in the New Year?
– Can you share a few key tools busy executives can incorporate into their over-booked schedules to improve health and wellness in the New Year?
A few weeks ago, a shareholder sued Aetna (& each director) in federal court based on the company’s statements of opposition regarding two “political contribution disclosure” shareholder proposals submitted to the company over the past two years. The plaintiff was not a proponent for either of the proposals. Here’s the proponent’s press release – and here’s the complaint.
I can’t remember a lawsuit being filed based on disclosure made in a Statement in Opposition – does anyone? A Statement in Opposition is a solicitation, but I can’t think of a suit brought on that basis. And the transparency allegations based on how Aetna disclosed content on its website is also pretty wild, particularly considering the SEC’s upcoming disclosure reform! An earlier withdrawn shareholder proposal plays a role too. This is a complaint worth reading.
Here’s an article from Courthouse News – and here’s one from the Huffington Post.
Say-on-Pay: Now 74 Failures
Last month, RCM Technologies (Form 8-K) became the 72nd with 28% support; MGP Ingredients became the 73rd failure with 21% support (Form 8-K) – and Syntroleum became the 74th with 49% support (Form 8-K). Thanks to Karla Bos! And that’s our final ones for the year…
In this WSJ article, it is reported that Mark Cuban continues to be smarting from his long and drawn out battle with the SEC over insider trading allegations that ultimately led to a court victory for him in a jury trial. Apparently, he is now considering a new venture publicizing transcripts of court cases involving the SEC and highlighting tactics he considers suspect.
While I can sympathize with anyone having to go through such a long court process – and the bizarre circumstances that he faced in some instances dealing with the SEC – it can’t be healthy to dwell on the past. The reality is that the facts that led to the investigation being brought appear on their face to warrant a look – and that all enforcement investigations don’t play out like they did for Mr. Cuban.
Before he decides to proceed with such a venture, I encourage Mr. Cuban to talk to reputable former SEC enforcement lawyers and get their take on the value of such a venture (and recognize that some of them are already shedding light on what goes down at the SEC – see this recent David Smyth blog about how the SEC sorts through tips). My own take is that merely reading a court transcript won’t give you enough of a sense of whether the investigative approaches being used by the SEC are appropriate. And a court transcript certainly won’t tell you a thing about the many headwinds behind the scenes that hinder the SEC from achieving its investor protection mission. If anything, Mr. Cuban should use his resources to help the SEC – not hurt it…