Monthly Archives: February 2014

February 13, 2014

Corp Fin’s New Chief Counsel: David Fredrickson

Ahead of the winter storm, the SEC made a trio of appointments yesterday. Corp Fin coaxed David Fredrickson to leave the SEC’s Office of General Counsel and serve as its Chief Counsel and Associate Director. David has been the chief OGC liaison to Corp Fin for over 15 years and knows Corp Fin’s rules & regulations well. I worked with him on a number of rulemakings in the late ’90s – and you couldn’t meet a nicer guy. Go Cal!

Another appointment is the rehiring of Paul Leder to serve as the Director of the SEC’s Office Of International Affairs. Paul served in OIA back in the ’90s before he went into private practice and is another great guy…

The SEC Hires “The” Investor Advocate!

And the truly big news is that the SEC finally hired the Investor Advocate, a new position created by Dodd-Frank. Rick Fleming is moving over from NASAA (the state securities regulators association) where he serves as Deputy General Counsel. Before that, he spent 20 years in Kansas state government including their securities regulator. I imagine Rick will begin hiring staff for his new office once he’s in place.

As I blogged back in 2010 when this new Office was mandated, I’m a little confused about what the role of this new office will be given that the entire SEC has the mission of investor protection. Not to mention that an “Office of Investor Education and Advocacy” already exists – and an “Investor Advisory Committee” was created in 2009…

Transcript: “Executive Compensation Litigation: Section 162(m) Disclosures”

I have posted the transcript for the recent webcast: “Executive Compensation Litigation: Section 162(m) Disclosures.”

– Broc Romanek

February 12, 2014

Broadridge’s Latest Changes to Interim Tally Policy for Proxy Contests Called Off!

Yesterday morning, no sooner did I blog about a new Broadridge interim vote tally policy for proxy contests on the Blog than I got word that Broadridge decided to reverse its decision and stick with its old policy. Broadridge’s change was to provide each side of a proxy contest with early voting results relating only to their own proxy card – but after receiving strong pushback, they decided: “Upon further internal review, Broadridge will not be implementing the change announced last week. Both sides of a proxy contest will continue to receive interim voting updates for their own and each other’s ballot.” Broadridge is trying to maintain a neutral stance – but that is challenging given the factors it faces.

To be honest, I’m not quite sure where Broadridge stands with its policy that came under fire last proxy season when it tried to reverse course in the midst of a campaign related to a “split the CEO/Chair positions” shareholder proposal at JPMorgan. Last I heard, the policy was under review even though JPMorgan had backed down and allowed interim tallies to continue to be provided to the co-proponents – although this blog I wrote in July indicates that Broadridge was not providing interim tallies to shareholder proposal proponents anymore. However, I thought that the SEC or other regulators might weigh in and there could be further change. Does anybody know? Unfortunately, its policies are not posted on their website.

Anyways, here is a 4-minute video I slapped together last night trying to explain Broadridge’s role and the policy saga to date:

The Other Exclusive Forum Bylaw Case: Charter Case Dismissed Without Written Opinion

Last year, I blogged that a case had been brought against Edgen Group, a Delaware corporation with an exclusive forum provision in its charter. It is believed that the judge in this Louisiana case has dismissed the lawsuit without a written opinion…

Our good friend Lou Rorimer – who retired from Jones Day a few years ago – was featured in this article since his dad was one of the leaders of the Monuments Men. Matt Damon plays his dad in the movie, but they changed the character’s name since his dad is not portrayed accurately (they apparently introduced some “character flaws” to make the movie more interesting). Lou thinks the movie did a good job of telling the story. Here is another article about his dad…

Transcript: “Exclusive Forum Bylaws: What Now?”

I have posted the transcript for our recent webcast: “Exclusive Forum Bylaws: What Now?”

– Broc Romanek

February 11, 2014

Our Pair of Popular Executive Pay Conferences: A 33% Early Bird Discount

We are excited to announce that we have just posted the registration information for our popular conferences – “Tackling Your 2015 Compensation Disclosures: The Annual Proxy Disclosure Conference” & “Say-on-Pay Workshop: 11th Annual Executive Compensation Conference” – to be held September 29-30th in Las Vegas and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.

Early Bird Rates – Act by March 14th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by March 14th to take advantage of the 33% discount.

Here is a 45-second video to remind you of the special nature of our conferences…

Wait a Minute! Is the JOBS Act’s Confidential Filing Process Really So “Stealthful”?

Sigh. Yesterday’s top story in the NY Times’ Business section was titled “‘The New Normal’ for Tech Companies and Others: The Stealth I.P.O.” The piece was reacting to GoPro’s confidential S-1 submission (here’s their Rule 135 notice), noting that:

Companies like GoPro are taking advantage of a provision in the 2012 JOBS Act that allows a company to file with the Securities and Exchange Commission but withhold from the public significant information about its finances until just before shares are sold to the public.

When Twitter filed confidentially, we went down this road before. I blogged back then that 21 days seemed like plenty to digest a S-1 – and cited a New Yorker piece that noted that 21 days used to be the norm back in the day.

The NY Times wasn’t the only one to highlight GoPro’s confidential filing – there were others such as this article. Meanwhile, if you don’t know anything about GoPro, check out the vids on their site (in this article, The Telegraph picks the Ten Best of the Year). Cool!

Poll Results: How Many Weeks Do Investors Need to Digest the Form S-1 Before an IPO?

A few months ago, I ran a poll asking you how many weeks should Form S-1 be publicly available before an IPO. Here are the results:

– 6 weeks – 5%
– 5 weeks – 2%
– 4 weeks – 13%
– 3 weeks – 33%
– 2 weeks or less – 43%
– What’s an IPO? – 3%

– Broc Romanek

February 10, 2014

Sorely Needed: Guidelines for the VIF’s Language

Recently, I received the latest newsletter from Broadridge’s Independent Steering Committee and was happy to see this excerpt:

The Committee discussed the issues that arise when the uniform format and space limitations on the Vote Instruction Forms utilized by brokers may prevent the inclusion of all of the language that appears on an issuer’s proxy card, which, unlike VIFs, can be whatever size and format that an issuer chooses. At its meeting on June 17, the Committee recommended a set of VIF Guidelines. Under the new guidelines, Broadridge will no longer do any editing of proposals other than three minor agreed-upon edits, and will print as much of the text from the proxy card as possible until space runs out, at which point the VIF will contain language informing the reader that “due to space limitations, see Proxy Statement for the full proposal.” The Committee accepted the proposed language and expressed its support of a VIF format that is impartial to shareholders and issuers alike while preserving the VIF’s machine-readable efficiency.

I have posted these new VIF Guidelines from the Broadridge Independent Steering Committee in our “Voting Instruction Form” Practice Area. As noted in the newsletter, the Guidelines mainly deal with adapting overlarge proxy card language to the space available on the VIF form – the guidelines seek to keep editing by Broadridge to a minimum.

What About Improving the VIF’s Usability?

Given the SEC’s new focus on disclosure reform, one of the most important items to tackle – in my opinion – are those communications that investors are most likely to see. There is a lot of room for improvement, from VIFs to IR web pages to notices that online proxies are available. For example, here is an “Electronic Delivery Alert” that I received from Charles Schwab last year (with certain info that I deleted) that isn’t a model of clarity:

You elected to receive shareholder communications and submit voting instructions via the Internet. This e-mail notification contains information specific to your holding in the security identified below. Please read the instructions carefully before proceeding.

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting

2013 __ CORPORATION Annual Meeting of Stockholders
MEETING DATE: ___, 2013
For holders as of: ___, 2013



CONTROL NUMBER: 61_________

You can enter your voting instructions and view the shareholder material at the following internet site:

Note: If your e-mail software supports it, you can simply click on the above link.

Internet Voting is accepted up to 11:59 p.m. (ET) the day before the meeting/cut off date.

To view the documents below you may need the Adobe Acrobat Reader. To download the Adobe Acrobat Reader, click the URL address below:

The relevant supporting documentations can also be found at the following internet site(s):

Proxy Statement
__ CORPORATION Proxy Statement

Annual Report
__ CORPORATION Annual Report

Shareholder Letter
__ CORPORATION Shareholder Letter

It reads to me like this was written in the late ’90s, the era when folks were told to “click here.” It needs a reboot…

More on “The Mentor Blog”

I 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:

– “Collective” Shareholder Engagement: Launch of UK Investor Forum
– Does a Former Director Have Standing to Demand Books & Records?
– FINRA’s Annual Priorities Letter
– How Many Ways Can the SEC Describe a “Year”?
– How a Tweet Undermined a Drugmaker at a Medical Conference

– Broc Romanek

February 7, 2014

Mandatory Auditor Rotation: PCAOB Gives Up The Ghost

When I blogged yesterday about the SEC approving the PCAOB’s budget, as noted in this piece, I forgot to mention the big news! In response to a question from a SEC Commissioner, PCAOB Chair Jim Doty stated that his pursuit of mandatory auditor rotation is dead. In comparison, as I blogged earlier, the European Union has approved new rules that mandate auditor rotation every 10 years…

Meanwhile, as noted in FEI’s blog, with last week’s announcement by the FAF that it has decided – after consulting with SEC Chair White – to contribute up to $3 million to the IFRS Foundation, could the SEC be planning a return to its IFRS Roadmap in the near future?

Kevin LaCroix gets excited – as he should! Number of public companies? Going up!

Corp Fin Updates Financial Reporting Manual (Again)

Yesterday, Corp Fin indicated that updated its Financial Reporting Manual for issues related to critical accounting estimate disclosures for share-based compensation in IPOs. Here’s a description from E&Y:

The SEC staff in the Division of Corporation Finance updated its Financial Reporting Manual to say that companies may be able to scale back their disclosures in management’s discussion and analysis (MD&A) relating to events and business developments that affected their estimates used to value stock-based compensation awards granted before the company’s initial public offering (often referred to as “cheap stock” disclosures). The revised guidance also states that, while the SEC staff will continue to issue comments to help it understand unusual valuations, the staff will not expect expanded disclosure in MD&A related to the underlying events and business developments that affected such valuations.

The updated FRM states that companies should continue to disclose all of the following:

– The methods used to determine the fair value of the company’s shares and the nature of material assumptions used in determining the fair value
– The extent to which such estimates are considered highly complex and subjective
– That such estimates will not be necessary for new awards once the shares begin trading

The new language in the FRM reflects the SEC staff’s focus on helping companies reduce disclosure overload.

More on “The Mentor Blog”

I 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:

– Director Firings: War Stories
– Whistleblowers Can Now File Complaints Online With OSHA
– Non-Public Portions of Deloitte’s ’08 Inspection Report Released
– More on “Bylaw Amendment Could Deter Dissident Directors”
– SEC Enforcement: Talking the Talk, But Walking the Walk?

– Broc Romanek

February 6, 2014

Exclusive Forum Bylaws: Chevron Seeks Delaware Supreme Court Certification

Even though the plaintiffs have decided not to appeal the Delaware Chancery Court’s decision that upheld the use of exclusive forum bylaws, as noted in this article, Chevron asked a California judge last week for a similar case to be certified to the Delaware Supreme Court to bring more certainty to the use of exclusive forum bylaws. A hearing on this certification case is scheduled for March 13th.

Our recent webcast – “Exclusive Forum Bylaws: What Now?” – was superb and the audio archive is available (with the transcript coming soon); plus we have lots in our “Exclusive Forum Bylaws” Practice Area. Meanwhile, Katten Muchin’s Claudia Allen has put together this report for The Conference Board that examines the trends in exclusive forum bylaw adoption since the Chevron/Fed Ex cases in June ’13 to the end of October ’13, finding:

Companies adopted (the report contains a list):
– 112 Delaware companies adopted or have announced they will (19 were S&P 500 companies), 18 Maryland companies or REITs, 4 in PA, 2 in Nevada, 2 in Oregon and 1 each in Florida, S. Carolina, Tx and VA.

Specific provisions analyzed:
– 65% included elective language (the board may consent to an alternate forum)
– 43% provided that the Delaware Court of Chancery is the exclusive forum; 34% provide that if the specified court (usually the Delaware Court of Chancery or a “state court” in Delaware) lacks subject matter jurisdiction, jurisdiction will vest in another Delaware state or federal court; and 23 percent take the Chevron approach of specifying the state and federal courts in Delaware.
– 35% require that the court have “personal jurisdiction over the indispensable parties named as defendants.” 13% state that the specified court or courts shall have exclusive jurisdiction “to the fullest extent permitted by law.”
– 65% provided for deemed consent (anyone having stock in the company are deemed to have consented to the provision)
– 4% provide that a company shall be entitled to injunctive relief and specific enforcement; 4% include severability language; 1 provision specifies that the forum provision is solely procedural in nature.

IPO companies:
– 11% were adopted in connection with IPOs, 2% in connection with reincorporation, 1% with a spin-off and 1% during emergence from bankruptcy.
– Of the 12 IPO companies analyzed, surprisingly only 4 included the provision in both the charters and bylaws. 1 announced it will ask shareholders to vote on it.

Stats: Reg A & Reg A+ Offerings

This MoFo blog by Daniel Gorfine provides a nice analysis of how rarely Reg A has been used in the past – and predicts how Reg A+ mini-IPOs might provide a capital solution for small companies that are not yet able to meet the costs or size requirements of today’s IPO market.

SEC Approves PCAOB’s ’14 Budget

As noted in FEI’s Financial Reporting Blog, the SEC approved the PCAOB’s budget yesterday. SEC Commissioner Aquilar delivered this speech urging auditors to provide better quality audits…

Notes from San Diego: JOBS Act & More

In his blog, Mike Gettelman has been providing a number of entries covering last week’s Northwestern’s Securities Law Institute in San Diego. Check it out!

– Broc Romanek

February 5, 2014

“Social” IPOs: Loyal3’s Platform to Help Sell Stock to Customers

Over the past few years, I have blogged twice about Loyal3. Loyal3 is a platform that helps companies build their brands with their customers by facilitating stock sales to customers with no fees (Loyal3 makes its money from companies selling the stock; not from investors, as explained in this TechCrunch blog). The 1st time I blogged, it was about Loyal3’s customer stock ownership plans – the 2nd time was about offering stock via mobile devices and its 1st participation in an IPO overseas.

Now, Loyal3 is mentioned in the Form S-1 for the IPO of Santander Consumer USA, as 2% of the shares have been reserved to be sold through Loyal3’s platform (note that 3% of the offering is also reserved for a directed share program). Here’s an excerpt from the 6th Amendment to the Form S-1:

The LOYAL3 platform is designed to facilitate participation of individual purchasers in initial public offerings in amounts of between $100 and $10,000. Any purchase of our common shares in this offering through the LOYAL3 platform will be at the same initial public offering price, and at the same time, as any other purchases in this offering, including purchases by institutions and other large investors.

Individual investors in the United States who are interested in purchasing common shares in this offering through the LOYAL3 platform may go to LOYAL3’s website for information about how to become a customer of LOYAL3, which is required to purchase common shares through the LOYAL3 platform. The LOYAL3 platform is available fee-free to investors, and is administered by LOYAL3 Securities, Inc., which is a U.S.-registered broker-dealer unaffiliated with our company. Sales of our common stock by investors using the LOYAL3 platform will be completed through a batch or combined order process typically only once per day. The LOYAL3 platform and information on the LOYAL3 website do not form a part of this prospectus.

Here’s Loyal3’s web page on the IPO. It includes a short video featuring Santander Consumer USA’s CEO & CFO, who also are selling shareholders in the IPO (here’s the free writing prospectus filed with the video’s script). Loyal3 has been tweeting the basics about its involvement in the IPO (eg. enrollment period ended on Monday), including answering questions from potential investors.

SCOTUS Briefs Filed: Halliburton Fraud-on-the-Market Case

As posted on the SCOTUS Blog, a number of briefs have been filed in Halliburton Co. v. Erica P. John Fund, No. 13-317, the case in which Supreme Court will decide whether to abandon the “fraud on the market” presumption of reliance that has facilitated class-actions brought under Section 10(b) and Rule 10b-5. CII filed this brief today!

A lot of interesting analysis in the briefs – like this blog from Prof. John Coffee. The case will be argued on March 5th – a decision likely will be handed down in June. Halliburton is the most important securities case that the Court has heard in a long time…

Here’s an Akin Gump blog about the last two days of Senate hearings on security breaches…

Transcript: “Pat McGurn’s Forecast for 2014 Proxy Season”

We have posted the transcript for our recent webcast: “Pat McGurn’s Forecast for 2014 Proxy Season.”

– Broc Romanek

February 4, 2014

Form 8-K: ISS’ QuickScore 2.0 May Cause Companies to Expand Director Independence Disclosures

With the deadline for companies to verify the factual information pertaining to them looming – this Friday – for ISS’ QuickScore 2.0, this updated alert from Gibson Dunn includes answers to questions that they asked ISS. And that resulted in ISS posting an updated technical document over the weekend. Note that ISS’s new approach may drive companies to expand their new director 8-Ks to include information addressing their independence, so that the information gets picked up by QuickScore – as noted at the end of the Gibson Dunn memo

Preliminary Proxy Statements: Corp Fins Gives Novel Foreign Issuer Relief!

For the first time, Corp Fin has issued interpretative guidance under Rule 14a-6 based on foreign law. In this letter, Corp Fin states that Schlumberger – and any other issuers organized in Curacao – may file a definitive proxy statement without filing a preliminary proxy statement for certain matters subject to an annual stockholder vote under the laws of Curacao.

Meanwhile, the SEC has put a draft of their 5-year strategic plan out for comment. The Corp Fin-related stuff begins on page 27…

SEC Issues 20 Stop Orders in a Single Day!

As I’ve blogged before, it’s rare that the SEC issues a stop order to stop the effectiveness of a pending registration statement. That’s why it’s notable that the SEC issued 20 of them yesterday relating to purported mining companies who had filed registration statements with allegedly false information (all of the companies are believed to be controlled by one dude – my favorite name is the “Chum Mining Group”)…

– Broc Romanek

February 3, 2014

IPOs: Corp Fin Seeks More Succinct Stock Valuation Disclosure

Here’s news from this blog by Davis Polk’s Ning Chiu & Alan Denenberg:

At the recent Securities Regulation Institute, Keith Higgins, the head of the SEC Division of Corporation Finance, indicated that the SEC staff will be looking for less detailed disclosure in the S-1 regarding a company’s historical practice and grant by grant valuation description for establishing the fair value of the company’s common stock in connection with stock-based compensation in IPO registration statements.

Currently, companies provide lengthy discussions of how stock was valued and ultimately the difference between the estimated IPO price and the historical fair value of stock at various points in time as private companies. Companies disclose in MD&A the analysis to support their judgments and estimates regarding the valuations. Staff comments often request a description of significant intervening events within the company and changes in assumptions as well as weighting and selection of valuation methodologies employed that explain the changes in the fair value of common stock up to the filing of the registration statement. The questionable value of the disclosure was raised in the SEC’s own report examining its disclosure requirement, which we discussed here, noting that commenters recommended eliminating or reducing this disclosure, arguing the information is not significant to investors.

It appears that going forward, the SEC staff will no longer require or expect the level of detail that companies have been providing, and instead a few paragraphs describing the historical valuation methodology and what it will be post-IPO will be considered sufficient. However, the SEC staff will still expect a more thorough discussion in the comment letter in order to help the staff ensure that it agrees that the accounting is correct.

Meanwhile, Akin Gump’s Paul Gutermann blogs about “The Business of Climate Change: Disclosure of “Stranded Assets”…

Interview: SEC Enforcement Director Andrew Ceresney

Newly installed as the sole chief of the SEC’s Division of Enforcement with the departure of former co-chief George Canellos, Andrew Ceresney recently gave this interview to the Washington Post. The interview includes commentary on the hot topic of no admission of wrongdoing in settlements.

This is a policy that US District Judge Jed Rakoff has been among the most vocal critics of. As noted in this Bloomberg article, Judge Rakoff has questioned this policy in a lawsuit again.

Meanwhile, the SEC has posted a report detailing its enforcement actions for 2013…

Pretty funny Bloomberg piece about a penny stock that went up 900% based on mistaken impressions of what President Obama meant in his State of the Union address. Meanwhile, former SEC Chair Mary Schapiro has changed her role at Promontory Financial Group so that she is no longer working as a consultant…

Our February Eminders is Posted!

We have posted the February issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!

– Broc Romanek