Here’s a note from Brink Dickerson of Troutman Sanders:
An almost universal question when a company is subject to a formal or informal SEC investigation is: “Do we need to disclose the investigation?” The traditional advice is: “No, unless the underlying facts in themselves necessitate disclosure.” Comments by the Corp Fin Staff at seminars and elsewhere always have been consistent with this – but the SEC never has issued any formal guidance, which can lead to companies & audit committees second-guessing the soundness of the traditional advice.
In 2012, in Richman vs. Goldman Sachs, the SDNY held that so-called Wells notices – the SEC notice to a potential defendant that the SEC intends to proceed with formal charges unless the potential defendant can convince it otherwise – do not in themselves need to be disclosed. A fortiori, there should be no duty to disclose an investigation either, but that was not the focus of the opinion. More recently, in January 2016, in In re Lions Gate Entertainment Corp. Securities Litigation, the SDNY reached the same conclusion again. What is particularly helpful about Lions Gate is that, in concluding that no disclosure of an investigation or a Wells Notice was required, the Court systematically went through each of the potential disclosure triggers under Section 10, Regulation S-K and GAAP and ruled each out.
This is not to say that there are not plenty of situations when a company might prefer to disclose an SEC investigation – e.g., where the overall situation already has been widely discussed and there is a general desire to shorten the news cycle – but it is to say that companies can rest comfortably that they do not have a disclosure duty unless either (i) the facts underlying the matter being investigated trigger a disclosure obligation independent of the SEC investigation (or Wells notice), or (ii) they make statements about their situation that necessitate discussion of the SEC investigation (or Well notice) in order for their statements not to be misleading.
You may also want to check out these memos – and my “SEC Enforcement Handbook” for a discussion of this topic…
New Lease Accounting Standard: FASB Balloons Balance Sheets
As noted in these memos, the FASB recently issued ASU 2016-02, Leases (Topic 842) that ushers in a new era in which lessees will recognize most leases on their balance sheets (beginning for fiscal years after 2018) – which will increase their reported assets and liabilities – in some cases, quite significantly. Lessor accounting remains substantially similar to current US GAAP.
This analyst report notes that the accounting change may increase debt reported by companies by a staggering $1 trillion…
Transcript: “How to Get Your Equity Plan Approved By Shareholders”
We’ve posted the transcript for the recent CompensationStandards.com webcast: “How to Get Your Equity Plan Approved By Shareholders.”
– Broc Romanek
Here’s the latest survey results on perks practices that are quite lengthy (compare to the same survey a decade ago) – and come with a big fat disclaimer that they do not necessarily reflect what the actual law is (and don’t forget to take our new “Quick Survey on Auditing Standard #18: D&O Questionnaires“):
A. Company Airplane Use
1. Spousal/family member tag-along on corporate plane where executive is flying for business reasons (assume no incremental cost of tag-along):
– Definitely a perk – 52%
– Leaning toward a perk – 20%
– Leaning toward not a perk -14%
– Definitely not a perk – 15%
2. Spousal/family member tag-along on corporate plane where executive is flying for personal reasons (assume no incremental cost of tag-along):
– Definitely a perk – 87%
– Leaning toward a perk – 5%
– Leaning toward not a perk – 2%
– Definitely not a perk – 6%
3. Executive use of corporate plane for outside board meetings (i.e., director of another company):
– Definitely a perk – 60%
– Leaning toward a perk – 20%
– Leaning toward not a perk – 14%
– Definitely not a perk – 7%
4. Outside director’s use of corporate plane to attend company’s board meeting (i.e., picking up directors for meetings):
– Definitely a perk – 7%
– Leaning toward a perk – 5%
– Leaning toward not a perk – 25%
– Definitely not a perk – 64%
5. Executive use of corporate plane to attend a meeting of the board/trustees of a charitable organization:
– Definitely a perk – 59%
– Leaning toward a perk – 22%
– Leaning toward not a perk – 16%
– Definitely not a perk – 3%
B. Other Spousal/Family Member Issues
1. Travel costs associated with spouse attendance with directors at annual board retreat/meeting where all spouses are invited:
– Definitely a perk – 43%
– Leaning toward a perk – 24%
– Leaning toward not a perk – 21%
– Definitely not a perk – 12%
2. Travel costs associated with spouse attendance with directors at a board meeting where spouses are welcome, but not formally invited, and only a few spouses attend:
– Definitely a perk – 70%
– Leaning toward a perk – 21%
– Leaning toward not a perk – 6%
– Definitely not a perk – 4%
3. Spousal golf and other extra services, such as day travel or spa services, for when the board is in a formal meeting:
– Definitely a perk – 85%
– Leaning toward a perk – 9%
– Leaning toward not a perk – 4%
– Definitely not a perk – 2%
C. Mixed Business & Personal Use
1. Country club membership paid by company that is not used exclusively for business purposes, if the membership is used a few times by the executive or a family member for personal reasons:
– Entire amount of country club expenses is a perk – 22%
– Allocate incremental cost of those few personal uses as a perk – 52%
– Allocate all expenses, including a portion of the membership cost on some basis, as a perk – 24%
– Not a perk – 3%
2. Luxury box paid by company that is not used exclusively for business purposes, if the box is used a few times by the executive or a family member for personal reasons:
– Entire amount of ownership expenses is a perk – 6%
– Allocate incremental cost as a perk (eg. cost of refreshments) – 50%
– Allocate all expenses, including a portion of the membership cost on some basis, as a perk (eg. by dividing number of events box is paid for in order to allocate the cost on a per event basis) – 36%
– Not a perk – 7%
3. Membership in airline club paid by company that provide facilities at airports, if the club is also used by executive during personal travel:
– Entire amount of club expenses is a perk – 11%
– Allocate incremental cost as a perk (eg. cost of refreshments) – 40%
– Allocate all expenses, including a portion of the membership cost on some basis, as a perk (eg. valuation based on percentage of personal use) – 17%
– Not a perk – 32%
4. Relocation expenses for existing executive that the company has required to relocate:
– Definitely a perk – 25%
– Leaning toward a perk – 11%
– Leaning toward not a perk – 9%
– Definitely not a perk – 55%
5. Relocation expenses for newly hired executive, extended to induce the executive to accept an employment offer:
– Definitely a perk – 35%
– Leaning toward a perk – 29%
– Leaning toward not a perk – 24%
– Definitely not a perk – 12%
6. CEO’s assistant (whose compensation is paid for entirely by company) who spends 60% of his time taking care of personal tasks (such as maintaining the CEO’s personal calendar, paying personal bills, etc.) and the other 40% is work-related:
– Definitely a perk – 35%
– Leaning toward a perk – 29%
– Leaning toward not a perk – 24%
– Definitely not a perk – 12%
7. Would your answers change to the above questions if the executive paid the full incremental cost to the company?
– Yes to most – 60%
– Yes to a few – 19%
– Maybe for a few – 10%
– No – 11%
New Nasdaq Staff FAQ on the 20% Rule
In this blog, Morrison & Foerster’s Anna Pinedo alerts us to a new Nasdaq FAQ relating to the issuance by Nasdaq-listed companies of warrants with cashless exercise features.
Webcast: “Key Steps to an Effective Compensation Committee”
Tune in tomorrow for the CompensationStandards.com webcast – “Key Steps to an Effective Compensation Committee” – to hear Pay Governance’s Diane Lerner, Shearman & Sterling’s Doreen Lilienfeld & Global Governance Consulting’s Susan Wolf untangle the complex issues that compensation committees face in exercising their fiduciary duties against a backdrop of increased shareholder activism, potent proxy advisor policies, an active plaintiff’s bar and heightened media scrutiny.
– Broc Romanek
Over the past few weeks, I keep reading tweets – mostly from Michelle Leder of @footnoted – that Edgar is down. This includes yesterday, which was the deadline for many companies to file their Form 10-Ks. I’ve always known that Edgar goes down occasionally – but it appears that it’s happening more frequently lately. But then again, maybe it has always has gone down an average of once per week. We really don’t know because the SEC doesn’t let us know when Edgar is down. This has been one of my pet peeves – that the SEC doesn’t have a blog that is Edgar-focused, which would be the perfect vehicle to inform the public when Edgar is down – and then when it’s back up. Or at least, the SEC could tweet this valuable information. The SEC now has a total of 9 Twitter handles – perhaps add one more for “Edgar News”?
I’m loving a new social media app called “Anchor,” which essentially is Twitter with voice. It’s much more personal – and quite fun to have a time-shifted conversation. Download the free app on your phone and record your own 20-second reply to my first “wave”: “The SEC’s EDGAR is down. Chronic problem?” [Of course, you can email me a response instead – I never post with attribution unless I gain permission.] You’ll see that there is a reply already at the end of my clip – please add yours. It’s simple to do (but I’m happy to help if you experience technical difficulties).
More on “The SEC’s Home Page Redesign: Less Color”
Last Friday, I blogged about the SEC’s new site redesign. Here’s two observations from members that I missed:
– Did you notice that the links to the company’s “Insider Filings” is now missing on the new Edgar site? One has to literally open up every Form 4 to see who filed it and for what amount & type.
– Noticed an “Edgar Search Results Beta” tab on the company page, which takes you to a slightly different index of filings (which unfortunately doesn’t identify the item number for 8-K filings).
– Now lists the votes of Commissioners on actions/orders in a chart that is current.
Webcast: “Hot Issues for Your Annual Meeting”
Tune in tomorrow for the webcast – “Hot Issues for Your Annual Meeting” – to hear Allen Matkins’ Keith Bishop, Independent Inspector Carl Hagberg, Potter Anderson’s Roxanne Houtman and Broadridge’s Jill Whitney discuss the latest developments – including how to handle tricky issues – related to annual shareholder meetings.
Our March Eminders is Posted!
We have posted the March issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
– Broc Romanek