Broc Romanek is Editor of CorporateAffairs.tv, TheCorporateCounsel.net, CompensationStandards.com & DealLawyers.com. He also serves as Editor for these print newsletters: Deal Lawyers; Compensation Standards & the Corporate Governance Advisor. He is Commissioner of TheCorporateCounsel.net's "Blue Justice League" & curator of its "Deal Cube Museum."
Yesterday, the SEC announced that Meredith Cross would be leaving as Corp Fin Director at the end of the year. During her three and a half year tenure, Meredith accomplished an amazing array of rulemaking – having had to navigate both Dodd-Frank and the JOBS Act. I worked under Meredith during her earlier stint in Corp Fin and can attest to her remarkable acumen and practical approach to solving problems. As gleaned from our list, Meredith served at the 16th Director of the Division – and is only the second woman in that position. So who’s next? That is a tough one to guess…
Iran & Syria Sanctions: Corp Fin Issues 7 CDIs
Yesterday, Corp Fin issued 7 Compliance & Disclosure Interpretations relating to Section 13(r) of the ’34 Act, which was created by the Iran Threat Reduction and Syria Human Rights Act of 2012.
Webcast: “How the SEC Really Works”
Tune in tomorrow for the webcast – “How the SEC Really Works” – to navigate the lore – and detect the myths – of how the SEC works. There are many more Offices and Divisions than most realize. Join SEC Secretary Betsy Murphy and a group of experts that have worked at high levels within the SEC – Latham & Watkin’s Alex Cohen (former Deputy Chief of Staff for SEC Chair Chris Cox) and Hunton & Williams Scott Kimpel (former Counsel to Commissioner Troy Paredes).
Among the topics of this program are:
– What the SEC Commissioners actually do and how they fit into the SEC’s org chart
– Overview of the Sunshine Act, which bears on how the Commission meets – and how to communicate with SEC Commissioners
– How Enforcement cases are deliberated
– How rulemakings come together, from kernel of an idea to proposal to adoption
– What are the Offices of General Counsel, Secretary, Legislative Affairs, Public Affairs, etc.
As noted in this WSJ article, the SEC brought administrative proceedings against the foreign affiliates of five auditors yesterday – the five biggest firms – alleging they refused to hand over documents sought in investigations of alleged accounting frauds at 9 Chinese companies.
This issue is not new. Auditor have refused to turn over the work papers of their foreign affiliates to the SEC for decades. Meanwhile, the markets have become much more global with many foreign companies now seeking cash and capital from the US capital markets, based upon audited financial statements audited by foreign affiliates of the Big 4. Yet the auditors have steadfastly refused to grant access to foreign work papers when questions about a lack of proper auditing have been raised. As a result, Sarbanes-Oxley included a Section 106 to remedy this problem. And now Section 106 is being used…
Meanwhile, in what is by far the largest settlement in the current wave of securities litigation involving Chinese companies, Ernst &Young, which served as the auditor for Sino-Forest, has agreed to pay $117 million to settle the securities suit that investors filed in Ontario against the accounting firm, as noted in the “D&O Diary Blog.”
Europe Seems to Be Moving Forward with Audit Firm Rotation
As noted in Jim Hamilton’s blog, a European Commission Official recently told a PCAOB Roundtable that the EU is moving forward with legislation mandating auditor rotation.
HP, Autonomy and IFRS vs US GAAP
Here’s some insight from Lynn Turner: “There has been much discussion of HP’s Autonomy transaction since the HP announcement of last week. The former Autonomy management has said the disagreement is apparently due to HP, and its experts, not adequately considering the differences in International and US Accounting standards. That seems to be unlikely as HP said their information was being supplied to both the US’s SEC and UK regulators who will be reviewing it.
Here is an article that discusses the two different accounting standards. As the article notes, IFRS is very, very general with little – if any – guidance. It has in essence been such a poor standard, that it may result in companies not following its basic principles as written and intended. If adopted for US reporting by the SEC, this is a prime example of what US investors can expect in financial statements using International Accounting Standards – unreliable information.”
As noted in this WSJ article, roughly half of the 1000 foreign companies listed on a US exchange still submit filings using U.S. standards. The SEC allows US-listed foreign companies to use IFRS standards for 5 years.
The Battle Over Access to Pre-IPO Correspondence: Are Response Letters Part of Your Disclosure Stream?
Recently, this Market Watch article concluded it was unlikely the SEC would release its pre-IPO correspondence with issuers prior to an offering’s effective date. Some investors have argued that Corp Fin comment letters would assist them in their investment analysis – perhaps misunderstanding the nature of the comment letter process.
That said, companies may need to start considering their responses to comments as part of their public disclosure record – and thus be more careful about what they say in response to a comment…
More Examples of How “Journalism” Has Fallen Off a Cliff
Recently, I decried the state of reporting by the mass media. A while back, I got a chuckle out of this Businessweek article entitled “Facebook Fought SEC to Keep Mobile Risks Hidden Before IPO” because the reporters read so much more into the Corp Fin comment process than might really be there. And this Cooley news brief and Bloomberg article about Manchester U’s IPO comments provide more in the way of a cautionary tale about how you respond to comments…
But this crappy Business Insider article really takes the cake, even going so far to claim that long-time Corp Fin Assistant Director Barbara Jacobs is a Professor for PLI. Just because you speak on a panel doesn’t make you a “Professor”…
Yesterday, the SEC delayed approving the NYSE’s and Nasdaq’s listing standards relating to compensation committees and advisors. Action was due by today – but now has been deferred until January 13, 2013. The delay shouldn’t impact what companies disclose in proxy statements next year – unless the SEC decides to not go forward, which is highly unlikely given there were only 14 comment letters on this round of proposals.
Meanwhile, we have posted a sample compensation consultant questionnaire to help you assess what you need to disclose. This sample is posted in Word in our “Compensation Consultant” Practice Area on CompensationStandards.com. Also remember there was a sample questionnaire included in the July-August issue of The Corporate Counsel.
Don’t forget this “Quick Survey on Compensation Consultant Conflicts Disclosure.” Please take a moment to participate – all responses are anonymous as always…
Rule 10b5-1 Trading Plans Under Scrutiny Once Again
I was gonna gin up something on the recent WSJ article entitled “Executives’ Good Luck in Trading Own Stock” – but Kevin LaCroix has done such a great job that you should just read his piece in the “D&O Diary Blog.”
Court Orders Expedited Schedule for Conflict Minerals Challenge
On Wednesday, the D.C. Circuit Court ordered an expedited briefing schedule for the conflicts minerals case as noted in this Cooley news brief. The order specifically states that any “extension of the briefing schedule may result in the case not being calendared this term.” In addition, Amnesty International’s motion to intervene was granted.
Mailed: September-October Issue of “The Corporate Executive”
We have mailed the September-October Issue of The Corporate Executive, and it includes pieces on:
– Revisiting (or Visiting) Hedging and Pledging Policies
– Checklist: How to Avoid Being Named in a Proxy Disclosure/Say-on-Pay Lawsuit
– Proposed Regs Under Section 83
– IRS Provides Sample Section 83(b) Election Notice
Over on his “Proxy Disclosure Blog” on CompensationStandards.com, Mark Borges has been analyzing the latest proxy statements and commenting upon their compensation consultant conflicts disclosures. As hopefully you know, new Item 407(e)(3)(iv) of Regulation S-K requires disclosure if a conflict of interest has arisen in connection with the work of a compensation consultant (whether selected by management or the compensation committee). To satisfy this disclosure requirement, companies will need to conduct a conflicts of interest assessment.
This raises the question of whether companies will include voluntary disclosure (so-called “negative disclosure”) in their proxy statement when a determination of “no conflict” has been made. To attempt to get a handle on what folks are planning to do, I have posted this “Quick Survey on Compensation Consultant Conflicts Disclosure.” Please take a moment to participate – all responses are anonymous as always…
The SEC’s Latest Clawback Court Victory
Kevin LaCroix’s blog recently covered the latest court decision over a SEC clawback under Section 304 of Sarbanes-Oxley: SEC v. Baker and Gluk. Here is a note on the opinion from Brink Dickerson of Troutman Sanders:
Baker is a succinct, well-written opinion from a conservative District Court – the Western District of Texas in Austin. It involves the clawback of executive compensation under SOX 304 from executives who were not the cause the underlying restatement, and, like Jenkins in Arizona, the court rejects the defendants’ claims that there had to be misconduct on their part. As importantly, the court also rejects claims that Section 304 is unconstitutional and is barred by the Civil Asset Forfeiture Reform Act, arguments that the court in Jenkins did not reach. With there now being two solid decisions finding against the misconduct argument, I think that it is settled for good.
I’ve added one more company to our failed say-on-pay list for 2012 on CompensationStandards.com as DFC Global failed with 25% support. One of only 7 of the 61 failures so far this year have the honor of 25% support or below. I missed this one until now since the results were in the 10-Q for 9/30 rather than an 8-K. Hat tip to Karla Bos of ING Funds for keeping me updated.
Related to failures #59 and 60 in recent weeks, notice that the PMFG Chair, who is the retired CEO and on the comp committee, lost the vote also for his own re-election to the board. This, along with Oracle’s compensation committee members losing their re-election vote if you exclude the CEO Ellison’s shares, should be sending a chill to directors. Hat tip to Fred Whittlesey for pointing this out!
Hmm, where do I begin? I did take pains to be correct in my blog yesterday about Commissioner Walter’s ascension to serve as Chair of the SEC. I rarely am wrong in this blog and proud of that fact. But yet, I blew it when I called Elisse an “Acting” Chair – even though loosely she will be. Let me explain.
Shortly, after the SEC’s “Schapiro is stepping down” press release came out, the White House issued this statement that Elisse would be “designated” as Chair. Even though I recognized that as ambiguous, I took that to mean she would be tapped as Chair and even tweeted so. Then I started seeing prominent publications (eg. WSJ) note that Elisse would be temporary and serve on an interim basis.
So I backed off my tweet in subsequent tweets – and I originally blogged yesterday that Elisse would serve as “Acting Chair.” This certainly would not be unprecedented as Laura Unger served as Acting Chair for six months in ’01 and Cynthia Glassman for three in ’05. So it’s not unusual for a sitting Commissioner to serve in that capacity.
But it’s now clear that Elisse will be serving simply as the Chair; not in an “Acting” capacity. However, the White House has mentioned that the President intends to nominate a long-term successor before Elisse’s term ends in December 2013. So unless Elisse is tapped for that, her term as Chair will be only a year or less (here’s a Reuters article with details about Elisse’s career). Capiche?
Learn more about what exactly a SEC Commissioner does – and much more – in next week’s webcast: “How the SEC Really Works.”
Does It Matter Whether Someone Serves as Short-Term Chair vs. Acting Chair?
Okay, is this all a lesson in semantics? Or is there substance over form? I don’t think it matters in terms of substance. Maybe it’s designed to give Elisse greater clout to get through some of the rulemakings that the SEC has been pushing. Until a fifth Commissioner is appointed to break the potential 2-2 political gridlock, that might not matter much.
Where it does matter is on the SEC’s historical list of who has served as a Chair. Apparently, Acting Chairs don’t cut it – so Laura Unger is not considered the first woman to serve as SEC Chair. That honor goes to Mary Schapiro. And of course, “Chair” looks better on a resume compared to “Acting Chair”…
A Former Corp Fin Staffer Takes the Helm!
For me, Elisse’s rise is notable for her background. Elisse served as Corp Fin’s Deputy Director (back when the Division only had one) in the late ’80s. From my research, she is only the second SEC Chair to have served in Corp Fin – with former Director Manny Cohen being the other in the late ’60s. That is awesome!
Poll: Who Will Become the Next Longer-Term SEC Chair?
Please guess who will be tapped to serve as SEC Chair after Elisse’s term expires in 2013:
Given the number of rumors about SEC Chair Mary Schapiro departing over the past few months (see last week’s rumor – here are the latest rumors about a successor), it’s no surprise that the Chair announced yesterday that she was stepping down on December 14th. Even though most mass media articles have gotten it wrong, Commissioner Elisse Walter will serve as Chair until a “longer term” successor is found – her appointment doesn’t require Senate approval because it previously confirmed her as a Commissioner. [Note that I made corrections to this blog in midday – explanation to follow tomorrow about Elisse’s status.]…
Does this mean that rulemaking will cease? No. Might it slow down? Likely, particularly given the 2-2 split among the four remaining Commissioners along party lines…
Funny Errors: Inside SEC Filings – And On The SEC’s Site Too
Recently, I blogged about some pretty funny errors made in SEC filings. But as Keith Bishop blogs – in an entry entitled “The SEC’s Form 10-K: ‘In Endless Error Hurled‘” – sometimes even the forms themselves have minor errors.
And a member recently pointed out this “helpful information” that is listed on right side of the SEC’s “Company Search” page related to Edgar:
“The SEC does not require companies that are raising less than $1 million under Rule 504 of Regulation D to be “registered” with the SEC, but these companies are required to file a Form D with the SEC. The Form D serves as a brief notice that provides information about the company and the offering.”
Clearly, this bullet was not drafted by someone in Corp Fin as the member who noticed this snafu wrote this note to me:
When did companies have to start registering with the SEC under the ’33 Act? Here I thought it was the offers and sales that had to be registered. And, does this mean that companies raising more than $1 million under, for example, Rule 506 have to be “registered” with the SEC. I don’t think so.
Here are survey results on preparing for complying with the SEC’s new conflict minerals rules:
1. Who is responsible for conflict minerals compliance:
– Legal department – 45%
– Procurement – 35%
– Finance – 15%
– Other – 13%
– Don’t know – 9%
– Not applicable, we are not an SEC registrant – 1%
2. Do you currently expect that you will be required to file a Form SD:
– No, we do not manufacture or contract to manufacture products – 11%
– No, conflict minerals are not necessary to the functionality or production of our products – 9%
– Yes, but we expect to conclude that all conflict minerals come from scrap, are recycled or originate outside the covered countries – 9%
– Yes, and we expect to rely on “DRC Conflict Undeterminable” – 22%
– Yes, and we expect to include an independent audit report – 5%
– Don’t know – 42%
– Not applicable, we are not an SEC registrant – 2%
3. If you manufacture or contract to manufacture products and conflict minerals are only contained in your packaging, do you anticipate concluding that packaging is necessary to the functionality or production of your products:
– Yes – 7%
– No – 11%
– Don’t know – 28%
– Not applicable – 54%
4. How far along are you in preparing for conflict mineral compliance:
– We’re still in denial – 18%
– We’ve begun to analyze our products, but haven’t begun implementing systems – 67%
– We’ve begun to revise our supply contracts to help comply – 2%
– We are very far along and don’t believe compliance will be a problem – 5%
– Don’t know – 2%
– Not applicable – 5%
Please take a moment to participate in this “Quick Survey on Internal Audit” and this “Quick Survey on Rules of Conduct for Board Meetings & Annual Meetings.”
Conflict Minerals: Latest in the Lawsuit Against SEC’s Rules
This Cooley news brief notes that filings have been made in the lawsuit against the SEC’s conflict minerals rules, most of them procedural. The filings state that SEC has agreed to an expedited briefing schedule, with final briefs to be filed by March 29th. Note that Amnesty International has intervened in the lawsuit to support the SEC…
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:
– Judge Gets Into Online Disclaimers
– Update: Project to Enhance COSO’s Internal Control Framework
– Canada Looks to Bolster Governance of Its Banks
– Bad Grades Are Rising for Auditors
– Second Circuit Eases Aiding and Abetting Standard for SEC
Rumors Over SEC Chair Schapiro’s Departure Intensify
Here is a WSJ article that speculates on whom the next SEC Chair could be…Mary John Miller, a top Treasury Department official who played a key role during the debt-ceiling debate. Here’s an article outlining a speech that Mary Miller recently delivered on regulation…
SEC Brings Insider Trading Case Involving $276 Million Scheme
Yesterday, the SEC charged a hedge fund in a $276 million insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies. The illicit gains generated in this scheme make it the largest insider trading case ever charged by the SEC. Here are thoughts from David Smyth of “Cady Bar the Door” about the case…
Last week, the European Commission proposed legislation with a target of 40% women on board, with exceptions for small and medium-sized companies. The proposal is not a mandatory quota. Under the proposed Directive, companies that fail to meet the standard would be subject to sanctions such as “administrative fines or the annulment of the appointment of non-executive directors.” Here’s a NY Times article about a pushback in the UK over the EU proposal.
Securities Fraud: SEC Socks BP for Half a Billion!
Last Thursday, as noted in this press release, the SEC charged BP with misleading investors while its Deepwater Horizon oil rig was gushing into the Gulf of Mexico by significantly understating the flow rate in multiple reports filed with the SEC. BP agreed to settle the SEC’s charges by paying the third-largest penalty in agency history at $525 million. That’s some serious coin!
But that’s nothing. As noted in this NY Times article, BP agreed to pay over $4 billion and plead guilty to 14 charges from the DOJ. And three BP executives were individually charged with crimes. And the company could owe another $21 billion in pollution fines under the Clean Water Act. The coverup always is more costly than the crime. Here is a Glass Lewis blog about the saga…
The SEC’s 2nd Annual Credit Rating Agency Report
Last week, the SEC issued its 2nd Annual Staff Report based on credit rating examinations. The Staff determined that with one exception, all NRSROs appropriately addressed the Staff’s recommendations in the first annual report in 2011. In addition, the Staff announced a new initiative to highlight compliance issues at credit rating agencies between examinations.
