Monthly Archives: March 2016

March 17, 2016

Our New “Auditor Engagement Handbook”

Spanking brand new. By popular demand, this comprehensive “Auditor Engagement Handbook” covers how to engage an independent auditor, from the factors to be considered and engagement letter issues. This one is a real gem – 23 pages of practical guidance – and its posted in our “Auditor Engagement” Practice Area.

When I blogged last year about a Form 8-K license plate, a member reminded me that then-Corp Fin Associate Director Mickey Beach had a Virginia vanity plate with “12G3-2B” (this was a while back – before that Rule was modernized in ’08). Note that you can’t get lower case letters or parentheses on a license plate – so it’s impossible to get the true rule cite…

IR Web Page Leaks: How Bad Bots Are Destroying The Internet

I’ve blogged numerous times about keeping your earnings release information safe from premature leaking (here’s my latest). Here’s a good blog on the topic by Q4. Also check out Q4’s new finance app – Q4 Touch – that is designed for IROs and not just for investors. Go mobile!

My Final Four: UNC wins over Maryland. Purdue and Texas A&M also make the final weekend…

Unwaivable Statutes May Doom Forum Selection Provision

From this blog by Keith Bishop: Nearly four years ago, I wrote this post asking whether California’s anti-waiver statute voids choice of forum agreements. The statute in question was California Corporations Code Section 25701 which provides:

Any condition, stipulation or provision purporting to bind any person acquiring any security to waive compliance with any provision of this law or any rule or order hereunder is void.

Recently, the Franchise Law Committee of the Business Law Section of the California State Bar issued this e-Bulletin discussing the Court of Appeal’s recent opinion in Verdugo v. Alliantgroup, L.P., 2015 Cal. App. LEXIS 466 (May 28, 2015). In that case, the Court of Appeal reversed the trial court’s decision to enforce a forum selection clause in an employment agreement. The Court of Appeal summarized California’s approach as follows:

Although a party opposing enforcement of a forum selection clause ordinarily bears the burden to show enforcement would be unreasonable or unfair, the burden is reversed when the underlying claims are based on statutory rights the Legislature has declared to be unwaivable. In that instance, the party seeking to enforce the forum selection clause has the burden to show enforcement would not diminish unwaivable California statutory rights, otherwise a forum selection clause could be used to force a plaintiff to litigate in another forum that may not apply California law.

The Court of Appeal found that the employer’s speculation that the designated forum court would “most likely” apply California law was insufficient to meet this burden. It also suggested that it could have met this burden by stipulating to the application of California law.

As the Franchise Law Committee points out, “Although Verdugo is an employment law matter, the same rationale and analysis should apply to any dispute involving a non-waivable California statute . . .”.

Broc Romanek

March 16, 2016

“Regulatory Risks” Disclosures: Trend Towards More Bluntness?

Recently, Michelle Leder of footnoted wrote up some analysis of the latest disclosures from the bigger banks about their regulatory risks. Perhaps cynicism about regulators is more noticeable because it’s an election year – as there are plenty of examples of disclosures taking aim at the government. For example, here’s an excerpt from this Form 10-K:

For example, senior officials at the SEC have shown a willingness to pursue even violations that could be viewed as minor on the theory that publicly pursuing smaller matters will reduce the prevalence of larger matters. The Director of the SEC’s Division of Enforcement has described this approach as a ‘zero tolerance’ policy.

Two New SEC Commissioner Candidates Face Questions at Confirmation Hearings

Yesterday, the Senate Banking Committee held confirmation hearings over the nominations of Lisa Fairfax and Hester Peirce to be the newest SEC commissioners – five months after they were nominated. This WSJ article details the sharp questions they faced over their prior academic research – the article indicates that the Senate will vote on the confirmations on April 7th. As I blogged before, the Commission would be comprised of four women and one man if they are confirmed. Here’s a WSJ profile on Commissioner Peirce – and here’s a WSJ profile on Commissioner Fairfax…

As noted in this blog by Davis Polk’s Ning Chiu, this Bloomberg article notes that, since 2011, 5 of the biggest US activist funds have nominated women just 7 times in seeking 174 board seats.

More on “EDGAR is Down”: A Familiar Refrain?”

Recently, I blogged about how the SEC’s EDGAR seems to be experiencing more outages lately. In response, I received this from a member:

I filed a series of Form 4s on Friday night about 8 pm eastern. I immediately received filing acceptances from Edgar. So Edgar was receiving and accepting filings – there was no outage. But the filings weren’t posted for the public to see until early on Monday morning (and the third party alerts that the filings trigger also weren’t sent until that morning). In this case, the Forms were filed after the market closed on Friday and were publicly available before the market opened on Monday – but it was still troubling that filings were accepted during filing hours and not immediately made available to the public.

This is a good reminder to look on Edgar after you make a Section 16 filing to ensure it’s posted – even if you receive an acceptance from Edgar. Edgar shuts down at 10:00 pm eastern – and no filings will be accepted by Edgar after that time. But if a Form 4 is filed at 9:59 pm eastern, it should receive that day’s filing date – and should be disseminated that same day. So clearly something was wrong with Edgar here…

Here’s how the Edgar framework works – Filings submitted after 5:30 pm eastern receive the next business day’s filing date and are disseminated to the public at 6:00 am on the next business day – except the following submission types are exceptions and receive the same day’s filing date if filed by 10:00 pm eastern (the first three are disseminated the same day):

– Section 16 filings (3, 3/A, 4, 4/A, 5, 5/A)
– Filings pursuant to Rule 462B – “MEF” filings
– Form 13H filings
– CORRESP (correspondence) filings (not disseminated to the public)
– DRSLTR (correspondence Related to Draft Registration Statement) filings (not disseminated to the public)

Broc Romanek

March 15, 2016

GE Cracks the Code: The 1st “Integrated Summary Report”

Yesterday, General Electric released its first “integrated summary report,” which combines the most critical information from the company’s annual report, proxy statement and sustainability webpage in a single 68-page document – including a video. So this takes the concept of a “summary annual report” one step further by adding sustainability information. Also see this 1-page overview of the report.

Also check out my “Proxy Season Blog” from yesterday for analysis of Coca-Cola’s latest annual meeting materials, including a new event after their annual meeting called a “Shareowner Day”…

Transcript: “Hot Issues for Your Annual Meeting”

We have posted the transcript from the recent webcast: “Hot Issues for Your Annual Meeting.” This was a tremendous program and if you didn’t catch it live, check it out now…

SEC Enforcement: No Prize Too Small

Tied to the “zero tolerance” policy of the SEC’s Enforcement Division is this David Smyth blog about an enforcement action over a measly $1k of insider trading profits. The SEC brings these actions over small amounts as part of its deterrent campaign…

Yesterday, the SEC approved the PCAOB’s budget for 2016 in the amount of $257.7 million (of which $253.3 million is covered by annual accounting fees). This is a 3% budget hike compared to last year. Here’s PCAOB Chair Doty’s remarks

Broc Romanek

March 14, 2016

Our New “Managing Your Career” Handbook

Spanking brand new. By popular demand, this comprehensive “Managing Your Career Handbook” covers aspects of your career that you should be thinking about. This one is a real gem – 25 pages of guidance. All sorts of stuff on whether going in-house is right for you, how to work with recruiters, how to market yourself, how to evaluate potential employers, salary negotiations, how to work with law firms when you’re in-house – and more.

There isn’t much out there on this topic for folks in our community – yet it’s arguably the most important thing you should be worried about. Please take advantage…

How The IRS Uses Your Form 10-K

This blog summarizes a study conducted by an accounting professor entitled “Reading the Roadmap: IRS Attention to Financial Statements.” The study notes the IRS’s increased usage of 10-K’s – and what that usage may mean. Gulp!

Global Trends in Investor Relations

Here’s an excerpt from this MoFo blog about this BNY Mellon report:

Director participation in investor meetings: Investor meetings with participation by board members more than doubled between 2013 and 2015, from 24% to 49%, respectively. This trend was led by companies in Developed Asia, with 81% of companies reporting such meetings, followed by Eastern Europe with 59% and Western Europe with 55%. North American companies had the lowest rate of board/investor interaction at 26%. Of the companies that reported meetings between directors and investors, 54% stated that such meetings were standard practice for the company and were generally the result of investor request. However, only 24% of companies reported having a written policy regarding interaction between directors and investors. 21% of companies stated that they believed directors should have no direct contact with investors.

Social media usage: The use of social media for IR purposes continues to increase, although at a slower pace in recent years. In 2010, only 9% of companies reported using social media for IR purposes, which increased to 28% in 2013 and 30% in 2015. Of the 70% of companies that reported not using social media for IR purposes, approximately half indicated that they may use social media in the future. The most common social media platforms used are Twitter/StockTwits (16%), Facebook (11%) and mobile phone/tablet IR apps (11%).

When analyzing the companies utilizing social media, the survey found that twice as many mega cap companies (54%) use social media in IR compared to microcap companies (26%). The four industry sectors reporting the highest usage of social media are Technology (39%), Financial (39%), Telecommunications (38%) and Healthcare (38%). Of the companies that reported not using social media for IR purposes, the majority cited a lack of investor demand (61%), as well as limited resources (35%), inability to control the message (29%) and lack of management support (28%).

Broc Romanek

March 11, 2016

More on “Stop Orders – Do You Need to Call Corp Fin Prior to Effectiveness?”

Yesterday, I blogged about whether it’s worth calling the Corp Fin Staff to confirm that there isn’t a stop order for your offering that is about to go effective – or whether you can merely rely on looking at the SEC’s online list rather than bothering the Staff. I also ran a poll about what folks do – 46% said they call the Corp Fin Staff, 39% merely check the online list and 4% rely on the SEC calling them if there is a stop order.

A few members told me that if you call the Staff to ask about stop orders, you typically get a reasonably polite – but clear message – to check the SEC’s online list. So calling the Staff at closing to confirm may be a vestige of the past. In fact, I learned that this is the standard text that you now see in legal opinions to underwriters in connection with a registered offering:

The Registration Statement is effective under the Securities Act and, to our knowledge, based on a review of the Stop Orders page of the Commission’s website (, no stop order suspending the effectiveness of the Registration Statement has been issued under the Securities Act or proceedings therefor initiated or threatened by the Commission.

By the way, I’m excited about our upcoming webcast – “Legal Opinions: The Hot Issues” – featuring a trio of the foremost experts in that area…

Corporate Lawyers Warn of Impact of Empty Seat on US Supreme Court

Here’s this note from the ACC site:

A group of more than 100 corporate attorneys has signed a letter urging Senate Republicans to back down from their refusal to fill the U.S. Supreme Court vacancy while President Barack Obama is in office. The letter was spearheaded by the Lawyers’ Committee for Civil Rights Under Law in Washington, D.C., a legal aid organization founded during the civil rights era. The Wall Street Journal (10 March, Gershman) notes that among the signatories are Google Corporate Counsel Priya Sanger and Andrew Hendry, a retired executive of Colgate-Palmolive. “Having been the chief legal officer of two major American companies over more than a quarter-century, I can assure you that American business needs a complete nine-justice supreme court,” Hendry said. “The uncertainty created by an empty chair on the court for a prolonged period will damage American business,” he added, citing a recent US$835 million settlement by Dow Chemical, which the company attributed to the absence of a full bench.

Webcast: “Rural/Metro – Aiding & Abetting Breach Claims Now”

Tune in on Monday for the webcast – “Rural/Metro: Aiding & Abetting Breach Claims Now” – to hear Potter Anderon’s Brad Davey, Alston & Bird’s Kevin Miller and Richard Layton’s Blake Rohrbacher discuss what you should now be considering as you prepare deals after the latest Rural/Metro decision from the Delaware Supreme Court. Please print these “Course Materials” in advance.

Broc Romanek

March 10, 2016

Stop Orders: Do You Need to Call Corp Fin Prior to Effectiveness?

As Dave has blogged, a SEC stop order under 1933 Act Section 8(d) is a rare bird – yet every law firm associate working on public offerings knows the seemingly pointless exercise of confirming that there are no stop orders on a registration statement being used for an offering. It seems so pointless because so few stop orders are issued. However, there occasionally is a stop order. In fact, there were 11 stop orders during 2015 and 8 during 2014, according to the SEC’s list. I bet those numbers are higher than most people would have guessed.

Given the SEC’s online list of stop orders, you might ask yourself whether it’s worth calling the Corp Fin Staff to confirm there isn’t a stop order for your offering that is about to go effective? In other words, can’t you merely rely on looking at the SEC’s online list rather than bothering the Staff? I suppose that depends partly on how quickly the SEC updates that list, something that I don’t know…

The Senate Banking Committee has announced that it will hold a hearing on the nominations of Lisa Fairfax and Hester Peirce to be SEC commissioners next Tuesday, March 15…

Stop Orders for Withdrawal Requests? You See Something New Once in a Blue Moon

As part of this job, I review the new stuff that the SEC posts each day. Occasionally, I spot things that are kinda strange. For example, I know the SEC sometimes needs a stop order to prevent a registration statement from going effective because they automatically go effective under the ’33 Act unless the registrant includes a “delaying amendment” under Rule 473. In other words, Section 8(a) of the ’33 Act provides that registration statements will become effective twenty days after the filing date automatically – and this will happen without the magic language of a delaying amendment being included in the registration statement.

Everyone filing a registration statement includes a delaying amendment – unless someone tries to pull a fast one. Corp Fin is pretty vigilant in looking for delaying amendment – when a Staffer screens registration statements to decide which level of review it will receive, that is the first thing they look for (and if it’s missing, you get a call and you need to file a pre-effective amendment immediately to add it). [Back in ’33 when the statute was enacted, there were far fewer registration statements and the SEC was able to process them within 20 days. In fact, the Commissioners themselves reviewed them – there was no Corp Fin.]

Anyways, I didn’t think the SEC needed a stop order to deny a withdrawal request. I thought Corp Fin could decide to just not act on a withdrawal request and that would effectively deny it. But then I came across this stop order for a withdrawal request. I can’t recall ever seeing one of those before. Rule 477 says a request for withdrawal is deemed granted after 15 calendar days unless the SEC notifies the registrant that the request won’t be granted, so I guess this is the context in which this comes up…

Speaking of arcane stuff, I’m always shocked by the high volume of FOIA requests that the SEC has to process each year. Here’s the latest tallies in this report. If I’m reading it correctly, over 16k requests were processed last year…

Poll: Checking for Stop Orders

Here’s a poll on your beliefs on checking for a stop order:

customer surveys

Broc Romanek

March 9, 2016

SIC Codes: How Does the SEC Challenge Them?

The use of SIC codes – “Standard Industrial Classification” – provides a framework for classifying industries by a four-digit code. As noted on this Corp Fin page, the SEC uses the framework as a way to assign companies to one of the 11 AD groups that review filings within Corp Fin. When they register their IPO, a company will select its SIC code – mainly by assessing its primary source of revenue. Companies input their SIC codes when they set up their EDGAR account – and include it on the cover page of their initial registration statement. The SEC doesn’t assign them.Then over time, a company may decide to change its SIC code because the nature of its business has changed. Sometimes the SEC might challenge how a company wants to change that code.

Recently, we had a follow-up to a query in our “Q&A Forum.” The query (#5651) was answered in 2012, providing guidance about “how to ask the Corp Fin Staff to change the SIC code assigned to a company.” The follow-up noted how Corp Fin wouldn’t recently provide relief to a different company. The follow-up noted:

This mechanical application of a primary revenue test can lead to some surprising classifications. For example, Dominos Pizza (not my client) is assigned SIC Code 5140 (WHOLESALE-GROCERIES & RELATED PRODUCTS) rather than SIC Code 5812 (RETAIL-EATING PLACES). Therefore, searching EDGAR by SIC Codes will not necessarily generate issuers in the same business segment.

SEC Rulemaking Petitions: Political Contributions Lawsuit Revived

As noted in this blog by Steve Quinlivan, the lawsuit against the SEC for not acting on the political contributions disclosure petition has been revived…

SEC Rulemaking Petitions: Whipping One Up in Mere Minutes

The birth of the Internet eventually led to an explosion in the number of comment letters submitted on a SEC’s rulemaking proposal since submitting one nowadays is as easy as composing an email. Is that same trend finally extending to the art of submitting rulemaking petitions? I don’t closely track rulemaking petitions because it is quite rare that the SEC ever acts on them (despite what may be thought by those suing the SEC for not acting).

But I did notice that two petitions submitted a while back were shorter than what I have seen – this one that is 4 paragraphs long and this one that appears to have been transcribed by the SEC after receiving it in handwritten form (scroll down past the top page to see the handwriting)…

Broc Romanek

March 8, 2016

The SEC Has Three Commissioners: Impact on Rulemaking

As I blogged yesterday, the Senate is likely to confirm the two SEC Commissioner nominees soon – but it’s still interesting to read this excerpt from a WSJ article that explains the issues of being stuck at a level of three SEC Commissioners:

Securities and Exchange Commission Chairman Mary Jo White has struggled at times to advance post-crisis rules through an often-fractious commission. This year, her fourth and likely her last, could be even tougher, due to the agency’s depleted ranks. That could leave undone a raft of rules on issues that tend to split the commission along party lines, including: unfinished executive compensation curbs required by the 2010 Dodd-Frank financial law; restrictions on mutual funds and exchange-traded funds; and new disclosure requirements about the diversity of company directors.

While ideological splits have hampered Ms. White’s term from the start, she now faces a new hurdle for getting things done. SEC rules require a three-person quorum for the agency to pass a regulation, bring a civil lawsuit, or take virtually any other action not delegated to staff. And the five-member commission is now down to just three members, after two left late last year. So the quorum rule effectively hands any individual commissioner veto power over SEC action he or she doesn’t support. By simply refusing to show up to a vote, a dissenting commissioner can block the agency from acting altogether. President Barack Obama has nominated two candidates, but the Senate has yet to hold hearings, and it’s unclear when, if ever, they’ll confirm his choices. In other words, the legislative gridlock now stymieing Washington could spread to regulatory gridlock.

FCPA: SEC Enters 1st Deferred Prosecution Agreement with Individual

Here’s an excerpt from this blog by Steve Quinlivan:

The SEC has entered into its first deferred prosecution agreement with an individual in an FCPA case. One interesting fact is it’s hard to figure out what this person allegedly did that was wrong. The FCPA Professor notes the only specific allegation about the individual in the DPA is the first paragraph which merely identifies the person. There is no other specific allegation regarding him including how he caused violations of the FCPA’s books and records and internal controls provisions, and the individual did not admit or deny any of the allegations in the DPA.

March-April Issue: Deal Lawyers Print Newsletter

This March-April issue of the Deal Lawyers print newsletter was just posted – & also mailed – and includes articles on (try a 2016 no-risk trial):

– Spin-Offs: Frequently Asked Questions
– More Reminders That “Boilerplate” Matters
– Short-Term Investment Strategies Can Create Board Conflicts of Interest
– Delaware’s Latest M&A Export to Other States: Streamlined Tender Offers & Section 251(h)
– A Russian Proverb Explains Investor Approaches to Risk Management

Remember that – as a “thank you” to those that subscribe to both & our Deal Lawyers print newsletter – we are making all issues of the Deal Lawyers print newsletter available online for the first time. There is a big blue tab called “Back Issues” near the top of – 2nd from the end of the row of tabs. This tab leads to all of our issues, including the most recent one.

And a bonus is that even if only one person in your firm is a subscriber to the Deal Lawyers print newsletter, anyone who has access to will be able to gain access to the Deal Lawyers print newsletter. For example, if your firm has a firmwide license to – and only one person subscribes to the print newsletter – everybody in your firm will be able to access the online issues of the print newsletter. That is real value. Here are FAQs about the Deal Lawyers print newsletter including how to access the issues online.

Broc Romanek

March 7, 2016

Our New “Market Risk of Derivatives Disclosure Handbook”

Spanking brand new. By popular demand, this comprehensive “Market Risk of Derivatives Disclosure Handbook” covers Item 305 of Regulation S-K, an accounting driven disclosure requirement that is one of the most confusing. This one is a real gem – 27 pages of practical guidance – and its posted in our “Derivatives” Practice Area.

SEC Commissioners: Senate Gearing Up to Confirm

According to this WSJ article, it looks like the US Senate is finally ready to confirm the two SEC Commissioners who were nominated by President Obama last year. Likely will happen in a few weeks…

Webcast: “FAST Act – Gearing Up”

Tune in tomorrow for the webcast – “FAST Act: Gearing Up” – to hear our own Dave Lynn of Morrison & Foerster, Latham & Watkins’ Alex Cohen, Cohen & Gresser’s Bonnie Roe and Davis Polk’s Sophia Hudson discuss what you should now be considering as you prepare deals under the new FAST Act.

By the way, see this blog entitled “House Committee on Financial Services Reports Favorably on the HALOS Act“…

More on “Is Warren Buffett Writing Governance Best Practices?”

This blog by “The Activist Investor” entitled “Shareholder Enragement Redux” throws shade at the idea of investors sitting down with Jamie Dimon and Warren Buffett to write best practices for corporate governance to support long-term ownership…

Broc Romanek

March 4, 2016

Did That CEO Look Happy? Buy, Buy, Buy!

My friend Jim Brashear of Conifer Health Solutions periodically makes an entry in his blog – “Brash Tacks” – and I love the latest entry:

This Wall Street Journal report on tech-enabled interpretation of CEO facial expression being correlated with a company’s financial performance may indicate new Regulation FD and 10b-5 risks for companies. This is a science fiction-like twist on reading an executive’s body language to supplement oral communications.

This 2014 WSJ report noted a smartphone app that claimed to analyze voices to determine the speakers’ emotional states.

Imagine a Minority Report dystopian future when corporate executives will be prosecuted by the SEC for merely thinking about FD violations . . . . wink wink, nudge nudge, say no more!

SEC’s Inspector General: No ALJ Bias

In this report, as noted in this Reuters article, the SEC’s Inspector General weighs into the controversy over bias allegations by administrative law judges in the SEC’s administrative proceedings. The SEC’s IG found no evidence to support the allegations.

More on “SEC Busts Earnings Release Hackers! 150K Releases Stolen Over 5 Years”

Back in August, the SEC announced it had caught the folks who had hacked and stolen thousands of earnings releases. Now, as this Reuters article explains, the SEC has brought an action in court against nine defendants…

Broc Romanek