Monthly Archives: May 2015

May 29, 2015

Expanded Audit Reports: Rolls Royce is the “Rolls Royce”

As the PCAOB continues to toy with the long-floated idea of “expanded” audit reports – which means that auditors would be required to include some narrative in their boilerplate – I thought it would be helpful to provide an example of what that might look like. Since 2012, companies in the UK have been required to provide this type of expanded audit report. And last year’s audit report (see page 130) for Rolls Royce has been held up as one of the best since the company & its auditor – KPMG – go further than what the UK’s Financial Reporting Council’s rules require. Here’s an excerpt from this CFA Institute Blog:

In short, the auditor reports the greatest risk of material misstatement and how it responded to those risks. KPMG could have stopped there to be in compliance with the new standard, but that wasn’t good enough for Rolls Royce. With the investor user in mind, KPMG in cooperation with management took it a step further and included the findings. Aside from the communicative value of this information to investors, extending the auditor’s report to include the findings demonstrates a willingness on the part of the auditor and management to work together toward meaningful communication to investors — a major departure from past practice.

In addition, check out this explanation from KPMG about what they did – and this article about the UK requirements…

PCAOB Seeks Comment on Specialists Use

Yesterday, the PCAOB issued this Staff Consultation Paper – “The Auditor’s Use of Specialists” – that seeks input on potential changes to standards for the auditor’s use of the work of specialists, specifically the objectivity and oversight of specialists and the use of their work in audits.

BE-10 Reports: Deadline Flexibility & How to File

Here’s a question posted yesterday on our “Q&A Forum” (#8437): “Tomorrow, May 29, 2015 is the due date. Does anyone know if the BE-10 reports must be in the hands of the BEA by tomorrow or is it sufficient if it is postmarked with tomorrow’s date? Also, any reason we can’t Fed Ex the survey? The instructions however state to send the reports filed by mail “through the U.S. Postal Service.”

Here’s an answer that I received from Gibson Dunn’s David Wolber: “I haven’t heard officially from BEA on the due date aspect – and haven’t seen much explicit guidance – but I note the BE-10 Instructions say: ‘A fully completed and certified BE-10 report comprising Form BE-10A, and Form(s) BE-10B, BE-10C, or BE-10D is due to BEA no later than May 29, 2015 for U.S. Reporters required to file fewer than 50 forms, and June 30, 2015 for U.S. Reporters required to file 50 or more forms.’ This would tend to imply the report must be in there hands by sometime on Friday.

However, note that the BEA recently extended the deadline for all ‘new filers’ to June 30th. A new filer is ‘a U.S. company or person that is required to file on the BE-10 survey but has never filed any BEA survey of U.S. direct investment abroad, including the BE-10, BE-11 and BE-577 surveys.’ This is probably good news for quite a number of folks. Also, it appears that 30- and 60-day extensions are being readily granted.

Regarding method of delivery, BEA guidance in the BE-10 Instructions and in FAQs on the website contemplates a range of acceptable methods including mail, hand delivery and fax. Although I haven’t seen anything official from BEA on this, overnight would seem to be a safe choice, and I suspect that, as long BEA gets the report at the end of the day, they shouldn’t care too much if it arrived via USPS or some other carrier such as FedEx.”

See these memos posted in our “Foreign Subsidiaries” Practice Area

– Broc Romanek

May 28, 2015

Spoofed Emails From Your CEO: Get Very Scared!

If you haven’t heard about this, brace yourself. Some sophisticated scammers have been successful learning the style of how your CEO and other senior executives write their emails – and then are capable of sending emails from their email addresses. For example, a scammer will write an email that looks like it comes from your CEO to your controller asking for a wire transfer to be made to an offshore account. And the controller naturally will do it. This will be among the topics covered in our upcoming webcast: “Cybersecurity: Governance Steps You Need to Take Now.”

Here’s an excerpt from this Davis Polk memo:

A large number of U.S. businesses have recently been the target of a very sophisticated email scam that is designed to convince company employees who are responsible for executing financial transactions to wire funds to overseas accounts that are controlled by the perpetrators of the scam. The FBI’s Internet Crime Complaint Center (“IC3”) refers to these kinds of frauds in their various forms as Business Email Compromise (“BEC”) scams, which are usually aimed at companies that regularly wire money outside of the United States. In recent months, there have been over 2,000 reported incidents of these scams, resulting in hundreds of millions of dollars in losses.

Political Contributions Disclosure: Three Former SEC Commissioners Support It

Yesterday, three former SEC Commissioners – Bevis Longstreth, William Donaldson & Arthur Levitt – sent this letter to the SEC supporting the push for political contributions disclosure rulemaking (remember how the SEC was recently sued for not rulemaking in this area). These former Commissioners are the latest in a number of folks that continue to weigh in on the 2011 rulemaking petition, including this letter from 70 foundations and this letter from a group of State Treasurers.

Transcript: “The NYSE Speaks ’15: Latest Developments and Interpretations”

We have posted the transcript for our recent webcast: “The NYSE Speaks ’15: Latest Developments and Interpretations.”

Barbara Blackford’s 2500-Mile Ride!

I’ve blogged before about the inspirational Barbara Blackford. She recently stopped in DC, about 1500 miles through her ride up the East Coast. Check out her blog – and Facebook page, as well as this explanation of “Cycling for Good” and how you can donate…


– Broc Romanek

May 27, 2015

Regulation A/A+: Massachusetts Sues SEC (In Two Paragraphs)

Last Friday, in this “Petition for Review,” the Massachusetts Secretary has sued the SEC in the US Appeals Court for the District of Columbia asking the court to vacate the portion of the SEC’s new Regulation A+ rules that preempt state law – and issue a permanent injunction prohibiting it from going into effect on June 19th. The petition is just two paragraphs! Here’s the scheduling order. According to this article, Montana has filed a similar lawsuit.

During the rulemaking process, NASAA – the association of state securities regulators – repeatedly argued that the preemption aspects of Regulation A+ were inconsistent with legislative intent…

I just calendared a new webcast to track developing market practices in the wake of the new Regulation A+ rules…

The SEC’s Waiver Controversy Extends to Other Federal Agencies

This Reuters article notes how Senator Elizabeth Warren has called for hearings on the Department of Labor’s waiver practices in the wake of the SEC’s waiver controversy…

This Bloomberg article criticizes the pace of the SEC’s rulemaking – and notes how politics at the Commissioner level have contributed to that…

Hooli Board: A Lack of Gender Diversity

I’m a devoted fan of the HBO comedy called “Silicon Valley.” Pulled from the last episode, I thought this 7-second clip featuring the fictional tech giant’s CEO was hilarious as it shows him addressing his board with the opening: “Gentlemen of the Hooli board…and lady…” That says it all about the continuing problem of gender & racial disparity on boards:

– Broc Romanek

May 26, 2015

Shareholder Liaison Committees: Should You Have One?

Last month, Vanguard sent letters to its 500 largest holding as we blogged about a few months ago. Since then, a number of members have asked how to respond to the letters – and we’ve found that most companies responded by simply acknowledging receipt.

As for whether companies have actually formed these committees, I haven’t seen any other than this recent announcement from Tempur Sealy (note that H Partners didn’t request formation of this committee in its governance settlement with the company). But perhaps there are some others out there (or they’re coming). But I believe that many companies have concluded that there doesn’t need to be a specific committee to handle this role. Too many board committees is not a good thing.

Michael Levin of “The Activist Investor” recently wrote an email about the topic under the title of “A Shareholder Liaison Committee? Really?” – his punchline was: “Why isn’t the board of directors the “shareholder liaison committee”?” I agree.

For those considering creating a standing – or special – board committee along these lines, see our checklist about doing so…

Discretionary Bonuses: The Cost of Extramarital Affairs

Here’s an interesting blog by Rolf Zaiss & Kerry Berchem of Akin Gump about how a company cut the bonus of the CEO due to an affair with someone at a consulting firm. What price love (or lust)?

Last week, as noted in this blog, the House Financial Services Committee approved 13 bills, many of which are JOBS-Act related…

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:

– Blackholes in the Boardroom
– Stand-Alone Conflicts of Interest Policy Considerations
– Audit Committee Survey: Workload at Tipping Point?
– 2015 Cyber Risk Agenda
– Navigating Corporate Governance Hot Topics

– Broc Romanek

May 22, 2015

Memorial Day Weekend: Let’s Do This!

bobby lies

May 21, 2015

Study: How Social Media Influences Investment Decisions

This Q4 blog covers this recent study about how social media influences investment decisions. Here’s an excerpt:

The article pulls interesting research from Greenwich Associates, which notes that “almost 80% of institutional investors use social media as part of their regular work flow, and approximately 30% say the information consumed via social media has directly influenced an investment decision.” With input from 256 corporate and public funds, insurance companies, endowments and foundations in the U.S, Europe, and Asia, the research outlined that: 48% of investors noted that information from social media prompted them to do an additional research on an industry issue or topic; 37% said they shared information from social media with decision-makers at their companies; 34% said information learned on social media influenced a decision to work with a particular client or company; and that 33% said information obtained on social media triggered a discussion with their investment consultant.

Overall, the article points to the increasing effect that social media has on influencing investment decisions with investors. For example, 40% of the global institutions are expected to increase their use of social media in 2016. Using social media as part of your investor relations communications process will also benefit your company as it paves way for engagement, expands reach, and increases awareness with institutional investors and the financial media.

Social Media: Getting Up-to-Speed

Here’s other good stuff relevant to the use of social media:

– Q4 blog entitled “A Quick Recap of NIRI’s Social Media use for IR Webinar” – and this webcast recap about telling a story

– Check out Cisco’s nifty IR web page

Blog about Goldcorp’s IR web page

– Interesting article about how T-Mobile’s CEO weighs in via Twitter to battle for a customer

Acorda’s online annual report

Twitter: Who Should You Follow?

Many of you are on Twitter – and perhaps you are looking for funny or interesting things to follow outside your worklife (& beyond following me). I canvassed what some friends do for Twitter entertainment & received these recommendations (send me yours):

– @BeschlossDC – Historian who posts historical pictures

– @BullandBaird – Wall Street perspective with humor thrown in

– @BorowitzReport – pretty funny on political commentary

Parody: @TheTweetofGod, @TheOnion, @FauxJohnMadden, @TheFakeESPN
Comedians: @KeyAndPeele, @KristenSchaaled, @MindyKaling, @JimGaffigan, @SteveMartinToGo, @FrankCaliendo, @EricStangel

– Broc Romanek

May 20, 2015

The SEC “Waivers” Debate: Heating Up Over WKSI Status – And a New Battlefield!

Even with the SEC’s new policy on Reg A & D waivers fresh on the books, the topic of whether to grant waivers remains topical. Last week, SEC Commissioner Stein dissented from the SEC’s order granting a waiver to Deutsche Bank over its WKSI status (you may recall that Corp Fin issued a revised statement about how it would process WKSI waivers last year).

The WKSI waiver debate is new; there’s been controversy before. And interesting, although Deutsche Bank got its WKSI waiver request, apparently the same did not happen for Credit Suisse. According to this Reuters article, Credit Suisse withdrew a WKSI waiver request after SEC Staff informed it that the request would likely be denied.

But what apparently is new is a growing battle between the SEC and the CFTC, as noted in this excerpt from Stein’s dissent:

However, based on a loophole contained in Rule 506(d)(2)(iii), the CFTC has intervened and prevented the bad actor disqualification question from even coming before the Securities and Exchange Commission. The CFTC saw fit to opine on the SEC’s Rule 506 jurisprudence about whether Deutsche Bank AG should receive a waiver from automatic disqualification under SEC rules. It is unclear to me what, if any, analysis went into this decision and what prompted the CFTC to insert language into its final order stating that a bad actor disqualification “should not arise as a consequence of this Order.” The implications of the CFTC’s actions here — and in other actions — are deeply troubling. The Commission should closely review this provision and how it is being used.

The Rule 506(d)(2)(iii) provision has actually been used once before by the CFTC to “waive away” the 506 disqualification – last year in this CFTC order against JPMorgan for the London Whale incident. So two times now makes a trend perhaps.

But what may be the interesting trend is whether companies – faced with the SEC’s deadlock over 506 waivers – will look to get around the deadlock by relying on this provision in its negotiations with other state or federal regulators. The provision also allows courts to decree that there should be no 506 disqualification as well. Below is the language from the adopting release for Rule 506(d) (which was adopted by a 5-0 vote) that explains the purpose of this provision:

The amendments we are adopting include a provision under which disqualification will not arise if a state or federal regulator issuing an order advises in writing that Rule 506 disqualification is not necessary under the circumstances. We believe this provision will create cost savings for affected covered persons such as issuers, individuals and compensated solicitors by eliminating the need to seek waivers from the Commission or pursue other means of raising capital. We expect that some issuers and other covered persons will adjust their settlement negotiations to bargain for an express determination that disqualification from Rule 506 is unnecessary. As the provision applies only where state or federal regulators have determined that Rule 506 disqualification is not necessary, we do not believe it is likely to impair the intended investor protection benefits of the bad actor disqualification scheme.

Former Corp Fin Deputy Director Lona Nallengara to Leave SEC

Yesterday, the SEC announced that Lona Nallengara – who was Corp Fin’s Deputy Director before he headed upstairs to be Chair White’s Chief of Staff – will leave the agency at the end of next month. No next destination listed…

As noted in this blog, the House Financial Services Committee will mark-up a flurry of JOBS Act-related bills today…

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:

– Form 10-K Preparation Tips
– How to Proactively Tackle the Director Tenure Issue
– Code of Ethics/Conduct Primer
– Audit Committee Role in Improving Disclosure
– CEO Succession Planning Guidance for CEOs & Boards

– Broc Romanek

May 19, 2015

Fake SEC Filings: Avon’s “Unreal” Tender Offer

If you have read this blog for a while, then you know I dig fake SEC filings. As noted in this blog last year on the topic, they tend to be one of my most popular types of blogs. So last week was Christmas for me as this fake Schedule TO about a $8 billion takeover bid caused a stir and caused Avon’s stock to tank (see this DealBook piece).

This latest incident is a cautionary tale for investors as it’s not the first fake takeover announcement. My favorite dates back to 2001, as noted in this piece, when a fake “blank check” company calling itself “Toks Inc.” filed a Form SB-2 with the SEC announcing plans to take over General Motors, General Electric, AT&T, Hughes Electronics, AT&T Wireless, AOL Time Warner and Marriot International – for roughly $2 trillion in “Toks” stock. The promoter – Ade O. Ogunjobi – didn’t give up even when the SEC issued a “Stop Order” to prevent the registration statement from going effective and suing him for selling unregistered securities, later launching a website to promote his wild ambitions and plans to then hold press conferences to announce his plans for these major US companies he was to take over!

Hard to believe, but those SEC filings by Toks are still on EDGAR. Here’s my blog on “Fake Filings: How Do They Sneak a Form ID Past the SEC?” (scroll down)…

Transcript: “Form S-8: Share Counting, Fee Calculations & Other Tricks of the Trade”

We have posted the transcript for our recent webcast: “Form S-8: Share Counting, Fee Calculations & Other Tricks of the Trade.”

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: Data Breach Preparedness
– Survey: Current (& Future) State of Compliance
– Spencer Stuart Addresses Board “Refreshment”
– Avoiding & Managing Boardroom Disputes
– Using COSO to Assess & Manage Cyber Risks

– Broc Romanek

May 18, 2015

SEC Enforcement Staff Issues “ALJ v. Civil Case” Guidance

Recently, the SEC’s Division of Enforcement Staff issued this 4-page guidance. This issue continues to generate controversy, with the SEC being criticized for its increased use of administrative proceedings. For example, the WSJ recently penned this article claiming the SEC won against 90% of defendants before its own judges in contested cases from October 2010 through March of this year – compared to a 69% success rate in federal court. See also this DealBook piece and Corporate Crime Reporter article.

As noted in these memos posted in our “SEC Enforcement” Practice Area, the new guidance identifies a non-exhaustive list of four factors that the SEC may consider in determining the proper forum for an enforcement action – with the guidance noting that the Enforcement will continue to prefer administrative hearings as the venue for resolving novel or complex issues.

Meanwhile, Enforcement Director Andrew Ceresney recently delivered this speech entitled “The SEC’s Cooperation Program: Reflections on Five Years of Experience“…

For all the latest stats on proxy access shareholder proposals, see what I just posted on our “Proxy Season Blog”…

SEC Receives At Least One Audit Independence Query Daily

This WSJ article has a catchy title of “SEC Receives At Least One Audit Independence Query Daily” to demonstrate how busy the SEC’s Office of Chief Accountant is when it comes to auditor independence. Here’s an excerpt from the article:

Auditor independence is a hot-button issue for the Securities and Exchange Commission’s enforcement unit. “Independence is an issue that we are very focused on, and will continue to stay focused on,” Michael Maloney, chief accountant at the SEC’s Division of Enforcement said at a Baruch College conference in New York last week.

Outside of enforcement, the SEC gets about 400 auditor-independence questions a year, or about one a day, says the agency’s chief accountant, James Schnurr. Last year, the SEC settled two cases against auditors over alleged violations. Ernst & Young LLP paid more than $4 million to settle allegations that it lobbied on behalf of audit clients. KPMG LLP paid $8.2 million to settle allegations that it provided prohibited extra services to audit clients. In their settlements, the firms neither admitted or denied the allegations.

Randi & Me

Randi Morrison is in town for the Society’s annual meeting with the Corp Fin Staff and we had a little sight-seeing fun last night:


– Broc Romanek

May 15, 2015

SEC Commissioners Gallagher & Aguilar: Short-Timers?

Here’s an excerpt from this WSJ article (also see this piece):

Daniel Gallagher, a Republican member of the Securities and Exchange Commission, is preparing to step down after nearly four years at the agency, according to people familiar with the matter. Mr. Gallagher has notified the White House of his plans to leave the five-member agency as soon as a successor is confirmed by the Senate, people familiar with the matter said. His announcement was a surprise, as his SEC tenure won’t officially come to a close until the end of 2017.

The departure will likely coincide with the resignation later this year of Luis Aguilar, a Democrat, who is planning to step down soon after nearly seven years at the agency, people familiar with his thinking said.

The White House has already begun vetting candidates to succeed Mr. Aguilar, who would like to remain at the agency long enough to help complete long-awaited rules designed to boost executive-compensation disclosures, a person familiar with his thinking said.

A Look at the SEC’s Politics

I have blogged numerous times about the battle over waivers at the Commissioner level – not to mention battles over many other things. Check out this recent article entitled “How partisan politics have poisoned the SEC”…

The Role of In-House Lawyers

This article from “The Atlantic” is about how the in-house lawyer can be serve as more than a naysayer. Having been in-house, I can tell you that it’s no fun being a naysayer – but that is a role that is critical for the in-house lawyer to play. Not all the time of course. But periodically. Otherwise, the company gets into a lot of trouble as there is no one to check egos, etc…

– Broc Romanek