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."
As this NY Times article notes, over 700 people were arrested on Saturday on the Brooklyn Bridge as part of the “Occupy Wall Street” protests that began a few weeks ago. 700 arrested – that’s a lot! On Monday, protestors dressed as “corporate zombies” eating Monopoly money – and the mass media is finally devoting attention to this movement after ignoring it initially.
In fact, Occupy Wall Street has now spread to most major US cities, as noted in this article. “Occupy K St” is planning to march on DC tomorrow, according to this Washington Post article. As I blogged when the protests started, it’s been fascinating to follow the protest on Twitter as many thousands from all over the world continuously weigh in as part of a virtual protest (use #occupywallstreet to see).
Some have been critical of Occupy Wall Street because they say the protestors must be lazy if they don’t have decent jobs. This Forbes article is the essence of that misguided view (watch this video and determine if you would characterize the protestors as lazy). As someone who recently stood for a semester before a group of bright young students at a Top 25 law school – a group who knew they had very little chance of getting a job in law anytime soon – I can tell you that view can’t be correct. They simply don’t have any meaningful opportunities because they don’t exist – not because they aren’t trying hard enough.
It’s true that this protest is not as clear cut as opposing a war. But it’s also clear that these protestors are angry about something – and it’s a movement that will continue to grow as the media reports on boards doling out multi-million dollar severance packages to fired CEOs (eg. NY Times article) while laying off and cutting the pensions of the general workforce. Bailed out banks taking actions just to enhance the paychecks of senior management (eg. “article). There certainly are plenty of reasons to protest these days.
Andrew Ross Sorkin penned this piece yesterday, positing this about the protest’s message:
At times it can be hard to discern, but, at least to me, the message was clear: the demonstrators are seeking accountability for Wall Street and corporate America for the financial crisis and the growing economic inequality gap. And that message is a warning shot about the kind of civil unrest that may emerge – as we’ve seen in some European countries – if our economy continues to struggle.
“Ultimately this is about power and greed, unchecked,” said Jodie Evans, the co-founder of Code Pink. She, too, said she wanted to see Wall Street executives go to jail. Consider the protests a delayed reaction to the financial crisis that has now reached a fever pitch as the public’s lust for scalp has gone unfulfilled. In Chicago on Monday, one sign read: “If corporations are people, why can’t we put them in jail?”
Are Institutional Investors Part of the Problem or Part of the Solution?
A few days ago, the Committee for Economic Development (CED) and the Millstein Center at Yale’s School of Management published this paper – “Are Institutional Investors Part of the Problem or Part of the Solution?” – authored by former GE General Counsel Ben Heineman and Stephen Davis. The paper argues that institutional investors have a significant impact on the market but not enough is known about how they are governed – and calls for construction of a database on the governance and practices of institutional investors.
SEC’s OCIE’s Report on Rating Agency Exams: “Apparent Failures”
Last Friday, as noted in this press release, the SEC’s OCIE released this report based on exams of the 10 credit rating agencies – as required by Dodd-Frank – which created a stir because all 10 had “apparent failures” as noted in this Reuters’ article. The SEC has requested remediation plans from each of the agencies within 30 days and is continuing its investigation. The good news is that OCIE reported that the Big 3 rating agencies have devoted sufficient resources to deficiencies identified in a ’08 SEC report.
This Bloomberg article analyzes the current Board composition of the PCAOB – and notes how long-time Board Member Dan Goelzer’s replacement may well tip the balance regarding new PCAOB Board Chair’s Jim Doty’s ambitious reform efforts (also see Francine McKenna’s article on the topic). Here’s input that I received from a member:
As this article indicates, the SEC Chairman is now faced with a clear decision – does she appoint a person who is dedicated to investor protection or does she select the candidate the accounting profession is supporting? The profession has put forward a candidate, a partner from one of the firms, a firm that recently hired the top advisor to Schapiro and who Schapiro has hired other senior staff from. Investors, including the CII, have also weighed in with their candidate as well.
And while it is a vote of all Commissioners, given the current composition of the SEC with just four – this is clearly the decision of the SEC Chairman. During the past year, Chairman Schapiro and the SEC have picked three members of the PCAOB. One was a partner from one of the firms who has expressed pro audit firm views, a law partner who defended the Big 4 firms and has expressed similar views, and Chairman Doty whose views to date have been pro-investor protection.
By the way, the PCAOB published Staff Audit Practice Alert #8 yesterday to increase auditors’ awareness of risks when performing audits of companies with operations in emerging markets.
STA’s Beneficial Ownership Processing Study
Yesterday, the Securities Transfer Association (STA) released this study that evaluates the costs of beneficial owner proxy processing services, as compared to providing those same services to registered shareholders. After evaluating 20 Broadridge invoices, the study concludes that transfer agents can probably do it cheaper if the model was one of competitive pricing rather than a regulatory fixed rate. Having visited Broadridge’s processing facilities myself a few years ago, I imagine it would be hard for anyone to realistically compete with Broadridge’s actual processing of accounts – but it seems that there could be pricing issues that the NYSE needs to address.
Webcast: “Materiality: The Hardest Determination”
Tune in tomorrow for the webcast – “Materiality: The Hardest Determination” – to hear Linda Griggs of Morgan Lewis, John Huber of FTI Consulting, Eric Olson of Morrison & Foerster, and Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster provide practical guidance about how to make “materiality” determinations for disclosure purposes, as well as how to make those determinations after-the-fact (i.e., the litigator’s perspective).
On Friday, this WSJ article created a stir regarding a possible change in strategy by the SEC’s Enforcement Division and how it brings cases. Here’s an excerpt from the article:
Securities and Exchange Commission officials are trying to make it easier on themselves to hold more individuals responsible for wrongdoing during the financial crisis. In a major shift from the agency’s traditional enforcement strategy, the SEC could file more civil cases in which defendants are accused of negligence only, rather than harder-to-prove charges of intentional wrongdoing or recklessness, according to SEC officials.
In the past, the SEC sometimes persuaded individuals to agree to narrow negligence charges in order to settle the case, rather than fight the agency in court over more-serious allegations, according to defense lawyers. The SEC generally wasn’t willing to risk a courtroom defeat if the only allegation was negligence. The penalties for negligence typically are much less harsh than for intentional fraud, with smaller fines and less risk of a ban from working in the financial industry. A charge of negligence also can result in less reputational damage for a defendant than outright fraud.
So far, the strategic change has been evident in just one major enforcement action. But a flurry of negligence charges is possible as the agency pushes ahead with its investigations of Wall Street’s behavior before and during the financial crisis, according to SEC officials.
SEC’s Inspector General: The Mark Cuban Report
On Friday, the SEC’s Inspector General issued this report absolving the Staff of any misconduct during the insider trading investigation of Mark Cuban. As I blogged a few years ago: “a complicated aspect of the Cuban case is the strange involvement of a SEC Enforcement Staffer who hadn’t been working on the investigation into Cuban’s alleged insider trading – but yet felt compelled to send emails to Cuban about various aspects of his life while the case was being put together. This eventually led to Cuban responding to this rogue Staffer via email, copying then-SEC Chair Chris Cox.”
On Friday, the SEC’s IG also released his report relating to the payment of living expenses of Henry Hu – and reimbursing the University of Texas for what Henry would be making there – for his one-year stint as head of RiskFin…
Our October Eminders is Posted!
We have posted the October issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Yesterday, the SEC issued Fee Rate Advisory #3 to remind people about the new filing fee rates become effective tomorrow, as I blogged about a few weeks ago (the rate slightly declines to $114.60 per million, a 1.2% price drop). As explained in this SEC order, these new rates become effective regardless of when Congress passes the government’s budget. This is unlike past years, when the new rates didn’t become effective until five days after the date of enactment of the SEC’s appropriation for the new year, which often was delayed well beyond the October 1st start of the government’s fiscal year as Congress and the President battled over the government’s budget.
Court Order Available: Beazer Home’s Say-on-Pay Lawsuit Dismissal
Earlier this week, I blogged about the dismissal of Beazer Home’s say-on-pay lawsuit being dismissed and I noted that the judge rule from the bench. The judge has now issued a 24-page court order explaining the dismissal, which we have posted in the “Say-on-Pay” Practice Area on CompensationStandards.com.
SEC Sets Conflict Minerals Roundtable for October 18th
Yesterday, the SEC announced that it will hold a roundtable on conflict minerals on October 18th. A final agenda including a list of participants will be announced closer to the date of the roundtable. Before Section 1502 was dumped into the “Miscellaneous” section of Dodd-Frank, who would have thunk that the SEC would be grappling with this topic…
Congrats to Me! The NACD Directorship 100
Recently, I was honored to make the list of 100 most influential people in corporate governance according to Directorship, a publication recently bought by the NACD. There are many luminaries much brighter than me on the list but I’m happy to take what I can get…
Under at least two scenarios these days, a director may be required to submit a resignation letter – either when the company’s corporate governance guidelines require it when a director has a change in his/her job responsibility or as part of a majority vote provision. Below are our recent survey results about director resignations:
1. If a director resignation scenario arises, the process our company uses to obtain the letter involves:
– Corporate secretary or general counsel reminds the director of the need to submit the resignation letter – 47.1%
– Board chair or governance committee chair reminds the director of the need to submit the resignation letter – 41.2%
– Full Board reminds the director of the need to submit the resignation letter at a board meeting – 0.0%
– Nobody reminds the director of the need to submit the resignation letter – 8.8%
– Other – 2.9%
2. After a director resigns, the process our company uses as part of an “exit” interview – and to ensure that a Form 8-K under Item 5.02(a) is not required – involves:
– Board meets in executive session without the “resigning” director – 2.9%
– Board chair meets with the resigning director – 14.7%
– Nominating/governance chair meets with the resigning director – 23.5%
– CEO meets with the resigning director – 11.8%
– General counsel meets with the resigning director – 26.5%
– Corporate secretary meets with the resigning director – 8.8%
– Other – 11.8%
Please take a moment to participate in this “Quick Survey on D&O Questionnaires and Director Independence.”
Shame on Regulators: European Bank Blowups Hidden With Shell Games
From Lynn Turner: This Bloomberg article highlights what fools the European regulators and accounting standard setters now look like. The article rehashes how the banks and politicians ganged up together on both the FASB and IASB to immensely water down their rules three years ago, so that banks could prepare misleading financial statements that omitted losses on their investments. At the time, the SEC also failed to defend the FASB and in fact, when questioned, told a congressman they would see to it the FASB got the rule changes done in just 30 days.
Now, as the article highlights, this change has allowed (1) banks to avoid reporting the losses they have suffered on Greek Debt, (2) banks are slowing “dripping” their losses into their financials over a number of years including years to come, much like Chinese water torture, (3) resulting in banks failing to actively manage their problems, and (4) extending the problem and probably the magnitude of losses incurred. Back at the beginning of the 1990s, a report from the GAO noted the US government had engaged in similar financial shenanigans until Richard Breeden became chair of the SEC and forced the S&Ls and banks to report their true losses. Unfortunately, the politicians undid his work and the result is a negative outcome for investors.
This September-October issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– The Down Economy: Special Negotiating and Diligence Items to Consider
– Changing Due Diligence Practices for Uncertain Times: An In-House Perspective
– Due Diligence: Implications of Dodd-Frank’s Whistleblower Provisions for Acquirors
– $17.50 from Column A and $17.50 from Column B: “50/50 Split” Implicates Revlon
With the fate of mandatory proxy access behind us, the latest common question I have been hearing from members is: “what is the timing of Corp Fin’s proxy plumbing project?” On a recent Glass Lewis webcast, Skadden Arps’ Brian Breheny noted that rulemakings emanating from the proxy plumbing project will likely come in waves, with greater regulation of proxy advisory firms being one of the first. But Brian noted that even this was not likely to be proposed this year given so many Dodd-Frank rulemakings still to come. Brian thought it was likely to happen in ’12 – but even then the timing is uncertain. So nothing will likely be in place until the proxy season in ’13 at the earliest here.
As for what the SEC might propose, Brian believes companies may be disappointed if they are waiting for the SEC to change the relationship between proxy advisors and their investor clients. Rather, the SEC could modernize Rule14a-2(b)(3) by:
– Requiring more disclosure regarding potential conflicts of interest
– Requiring proxy advisor recommendations to be filed with the SEC, but on a delayed basis so as not to harm any competitive advantage for the proxy advisors
– Requiring proxy advisory firms to describe their review processes in filed reports
The SEC also could amend the investment advisor rules to remove a barrier to registration so that proxy advisory firms can – or are required to – register regardless if they have the requisite amount of assets under management that the rules currently require. So far, a number of commenters asked the SEC to consider requiring proxy advisors to provide a draft of their recommendations to issuers before publication. Brian thinks it’s unlikely that the SEC would propose such a rule, if only because it would be difficult to craft and police.
Finally, Brian surmised that because Rule 14a-9 already applies to proxy advisors, the SEC could possibly bring actions for fraud under 14a-9 if solicitation material was deemed to be false or misleading – however, such actions are difficult to bring because the question as to whether proxy materials are false or misleading is dictated by the facts and circumstances of the matter. Here’s the comment letters submitted to the SEC on proxy plumbing so far. Thanks to Darla Stuckey of the Society of Corporate Secretaries for taking notes on Brian’s thoughts!
DOL to Repropose Changes to Its Fiduciary Definition Rule
Last week, the DOL announced that it will re-propose its rule on the definition of a fiduciary to collect more feedback from the public – and Congress. Given some of the language in the press release about giving folks time to comment on the agency’s “updated economic analysis,” it appears this extension was related to the recent proxy access court decision – particularly since the DOL already has received ample feedback. The press release notes: “This extended input will supplement more than 260 written public comments already received, as well as two days of open hearings and more than three dozen individual meetings with interested parties held by the agency.” Anyways, this rulemaking has bearing on whether proxy advisors are considered fiduciaries. The new timing is that a new proposal is expected in early ’12.
Changing Due Diligence Practices
In this DealLawyers.com podcast, Andrew Sherman of Jones Day – and co-author of a new book, “The AMA Handbook of Due Diligence” – provides some insight into how due diligence practices are changing, including:
– How do the deal markets look these days?
– How have due diligence practices changed over the past few years?
– What practices do practitioners often overlook?
– What is the best way to determine if someone doing diligence knows what they are doing?
Yesterday, ISS released the results of its latest policy survey, which both companies and investors are invited to fill out. Although investors and companies appear to be on the same page regarding some pay practices, there are many where they may not be. Among the findings per Mike Melbinger in his blog:
– A majority of both investor (60%) and companies (61%) cited executive compensation as one of the top 3 governance topics for the coming year, similar to last year.
– Investors and companies had different views on when companies should address shareholder opposition during “say on pay votes.” On a cumulative basis, 72% of investors said there should be an explicit response from the board regarding pay practice improvements if opposition exceeds 30%. Among companies, 48% said an explicit response wasn’t necessary unless there was more than 50% dissent. (The most commonly cited level of opposition on a say-on-pay proposal that should trigger an explicit response from the board regarding improvements to pay practices was “more than 20%” for investor respondents.)
– A majority of investors (57%) indicated more engagement activity with companies in 2011. When asked about engagement activity with institutional shareholders, companies almost equally cited “about the same as in 2010” and “more engagement in 2011.”
– Pay levels relative to peers and a company performance’s trend are relevant for both investors and companies when determining pay for performance alignment. When determining whether executive pay is aligned with company performance, an overwhelming majority of investors considered both pay that is significantly higher than peer pay levels and pay levels that have increased disproportionately to the company’s performance trend to be very relevant. On the other hand, most companies indicated that both of these factors to be “somewhat relevant.”
– A majority of investors (57%) and 46% of companies agreed that discretionary annual bonus awards (i.e., those not based on attainment of pre-set goals) to be sometimes problematic if the awards are not aligned with company performance.
– Regarding new equity plans, responses from investor and companies varied as to whether positive factors, such as above median long-term shareholder return; low average burn rate relative to peers; double-trigger CIC equity vesting; reasonable plan duration; robust vesting requirements, should be taken into account to mitigate an equity plan where shareholder value transfer (SVT) cost is excessive relative to peers. Most investors were reluctant to indicate that any of those factors would “very much” mitigate the cost.
– Where SVT cost is not excessive and whether negative factors, such as liberal CIC definition with automatic award vesting; excessive potential share dilution relative to peers; high CEO or NEO “concentration ratio”; automatic replenishment; prolonged poor financial performance; prolonged poor shareholder returns, weigh against the plan, a majority of investors indicated all of the factors, with the exception of high CEO/NEO “concentration ratio,” should “very much” weigh against the plan.
– An overwhelming majority of investor respondents do not consider automatic accelerated vesting of outstanding grants upon a change in control or accelerated vesting at the board’s discretion after a change in control to be appropriate. The vast majority of companies disagree, and consider both scenarios appropriate.
During our upcoming pair of say-on-pay conferences (one regarding disclosure and one regarding pay practices – both combined for one price), come hear investor views from the investors themselves during the panel – “Say-on-Pay Shareholder Engagement: The Investors Speak” – featuring T. Rowe Price’s Donna Anderson; Cap Re’s Anne Chapman; Blackrock’s Michelle Edkins; CalSTRS’ Anne Sheehan and AFL-CIO’s Vineeta Anand. In addition, investors are sprinkled throughout the panels over the two days to help you learn their latest thinking.
Act Now: Come join 2000 of your colleagues in San Francisco – or thousands more watching live (or by archive) online – to receive a load of practical guidance and prepare for what is promising to be a challenging proxy season. Register now.
Beazer Home’s Say-on-Pay Lawsuit Dismissed
Last week, I blogged how the Cincinnati Bell say-on-pay lawsuit survived a motion to dismiss. Now the count is 1-1 since – as noted at the end of this Thomson Reuters article – a state court judge in Georgia dismissed the shareholder derivative say-on-pay lawsuit against Beazer Home with a ruling from the bench.
Meanwhile, Steve Quinlivan has analyzed the Cincinnati Bell decision and has identified errors in his “Dodd-Frank Blog” – and Marty Rosenbaum characterizes the decision as a “game-changer” in his “OnSecurities Blog.”
Webcast: “How to Handle Contested Deals”
Tune in tomorrow for the DealLawyers.com webcast – “How to Handle Contested Deals” – to hear Chris Cernich of ISS, Joele Frank of Joele Frank Wilkinson Brimmer Katcher, David Katz of Wachtell Lipton; and Paul Schulman of MacKenzie Partners discuss planning for and responding to deal contests.
A few weeks ago, I blogged both about the SEC’s efforts to study a push to get more companies public – a push fueled by Congressional interest – as well as the Groupon gunjumping saga. Both of these blogs are related in a sense because some would view Groupon as a good example of a company not ready to go public.
On Friday, the company filed it’s Pre-Effective Amendment #3 to its Form S-1. This amendment includes an Appendix A consisting of the information that the CEO sent to employees at the end of August – not the first instance of potential gunjumping for the company.
More importantly, the amendment changes the way that the company counts revenue – calling into question whether the company’s accountants can be trusted, as noted in this WSJ article and this blog. Simply opening the floodgates to allow more companies to prematurely lure investors into parting with their money – before these companies develop the proper type of compliance culture – will not magically cure what is wrong with our economy and job situation. If anything, it will make it worse as the credibility of our markets will take yet another hit…
Last week, Corp Fin Director Meredith Cross and Deputy Director Lona Nallengara delivered this testimony before the House Subcommittee on Capital Markets in a hearing about small business capital formation and job creation. Meanwhile, Meredith has recused herself from any further deliberations about crowdfunding because of some work she did for Lending Club before she came to the SEC, even though she had been cleared by the SEC’s ethics counsel.
Growing Activism on Corporate Political Spending Disclosure
For over a decade – well before the controversial Citizens United decision from the Supreme Court last year – there has been activism to elicit more disclosure from companies about their political contributions. The Center for Political Accountability has been successful in pressuring quite a few large companies into posting their political spending policies online. And there have been numerous rulemaking petitions submitted to the SEC, the latest coming last month from Professor Bebchuk and 9 others.
Activism through the shareholder proposal process on this topic has been growing, as reflected on pages 11-12 in this ISS post-season report.
And now we have this letter that recently was sent to all S&P 500 companies from the Sustainable Investments Institute (Si2) asking them to review their profile and provide feedback. Si2 is planning to release a report on November 10th based not only on the responses it receives, but on much drilled down data it has been collecting. The report, sponsored by the IRRC Institute, should be more comprehensive than research on this topic to date since it will focus on more than just the top tier companies – and it will enable us to see how things have moved from last year to this, now that companies have had a chance to react to Citizens United in their policies.
Ceres’ New “Proxy Voting for Sustainability” Guide
Last week, Ceres released a “Proxy Voting for Sustainability” guide which is designed to assist investors respond to environmental, social and governance – aka “ESG” – issues. The guide lays out 4 sets of principles and provides sample proxy voting guideline language. It also includes more than 75 specific best practice examples of proxy guidelines. There have been 720 ESG shareholder proposals over the past 2 years – and I expect there will be more going forward…
Early yesterday, I tweeted that the first say-on-pay lawsuit has survived a motion to dismiss and boy, did a get a reaction as nearly everyone had predicted that these lawsuits would be seen as frivolous. As noted in this order, the US District Court for the Southern District of Ohio refused to grant Cincinnati Bell’s motion because the company had not proven that it had met its fiduciary duties. The fiduciary duty standard in Ohio is a “deliberate attempt to cause injury to the corporation” or “reckless disregard for the best interest of the corporation.” Pretty breathtaking that the court thought the complaint supported “deliberate intent to injure” or “reckless disregard.” Thanks to Paul Hastings’ Mark Poerio for pointing this lawsuit out.
What does this all mean? A few things to consider:
1. More Lawsuits Coming – There have been 9 say-on-pay lawsuits filed so far. But I hear there are more in the pipeline because these 9 didn’t include demands on the board first. There are a slew of others that have first made demands – and if an agreement is not reached, lawsuits will be filed. And this development will likely encourage more suits to be filed as well.
2. More Failed Say-on-Pays in ’12 – I’ve been saying that this year was a test year for say-on-pay and that companies who just had their say-on-pay pass should not rest easy for next year. Here are just some of the factors that have led me to this belief:
– Conversations with institutions who appear willing to fail more companies next year now that they have had real experience with voting on large numbers of SOPs and realize that more engagement is possible if necessary
– Increasing anger about income inequality generally, including ramped-up rhetoric in an election year
– A rapidly declining economy and stock market – compared with all boats rising earlier this year
– Throw into the mix that we don’t know what positions ISS and Glass Lewis might change for the coming year. As well as investors and their policies.
– Directors were spared “against/withhold” vote campaigns this year in deference to say-on-pay. I wouldn’t necessarily bank on that happening again. And directors are likely to take a large number of “no” votes personally compared to SOP votes.
As I have learned from the prep calls for our upcoming pair of say-on-pay conferences (one regarding disclosure and one regarding pay practices – both combined for one price), I can tell you that we are still in the infancy of how say-on-pay will ultimately play out. And you will hear for yourself the horror stories when a company does fail its say-on-pay – and how the say-on-pay lawsuit really shakes up a boardroom – during the “Failed Say-on-Pay? Lessons Learned from the Front” panel during the conference.
Act Now: Come join 2000 of your colleagues in San Francisco – or thousands more watching live (or by archive) online – to receive a load of practical guidance and prepare for what is promising to be a challenging proxy season. Register now.
For Good Reason: Prominent Lawyers Support David Becker
A group of prominent member of the securities bar sent this letter yesterday to the House committees who held a hearing on the David Becker matter that I have been blogging about. A quick read of the letter illustrates pretty clearly how the SEC Inspector General’s investigation – and criminal referral – have all the trappings of a witch hunt.
In private conversations with lawyers more senior than me – those that know David far better than me – I have learned even more to support the notion that David might be the most ethical lawyer in the bar. So it clearly is no time to be idly sitting by and watch those not interested in justice and fairness do whatever they wish to accomplish personal (and unprofessional) goals. Here is David’s testimony – and SEC Chair Schapiro’s testimony – from yesterday’s hearing. Both are worth reading. And here is David Kotz’s testimony...
Tweeting Away! A Fake SEC Inspector General Employee
And apparently someone else think that the SEC’s IG referral is a crock. A few days ago, someone created this Twitter account pretending to be in Kotz’s IG office – Bill Hanrahan – and he has been sarcastically tweeting since. The fake guy’s tagline is “Bucking for a promotion since ’85.” Here are a few of the tweets so far:
– I can’t read lips so well but I think Schapiro asked my boss if he’d conduct an investigation into how he got to be so awesome. #madoff
– Need suggestions for new, totally appropriate venue to announce investigation. Used Fox Business on Goldman; maybe sit in Rick Perry’s lap?
– Proud of our new Becker precedent: if 7 or fewer people know you are not doing anything wrong…you are committing wrongoing.
– Heard DOJ paid for $8 muffins at conferences. Scones at my testimony prep right now taste like Harvey Pitt’s beard. Will ‘vestigate. #javert
– Need investigation re SEC failure to build time machine so it can predetermine all the unwitting mistakes it should not have made #TerraNova
– Working out a lot at #SEC gym a lot recently (you’ve got to be in shape to drag people through the mud)…
Let me be clear that this fake tweeter is not me! I do have a fake alter ego to have a little fun – @MrPoorCEO – but just the one. But these fake Twitter accounts can be worth real money – read this article.
From Suzanne Rothwell: A few weeks ago, FINRA published Regulatory Notice 11-41 warning broker-dealers that their regulator will closely scrutinize the research issued by an underwriter for compliance with FINRA and SEC research analyst regulations when an issuer has made advance public statements explicitly or implicitly indicating that participation in the issuer’s anticipated public offering is conditioned on the broker providing favorable research.
Although FINRA recognizes that “such uninvited pronouncements place prospective offering participants in a challenging situation,” FINRA nonetheless warns that “even tacit acquiescence to such overtures to be a violation of NASD Rule 2711(e),” the FINRA rule prohibiting brokers from promising favorable research to a company as an inducement or consideration for receiving business. Such acquiescence may also violate NASD Rule 2711(c)(4), which prohibits brokers from soliciting investment banking business, and the SEC’s research analyst certification.
The specific situation of such an issuer’s statements discussed in the FINRA Notice related to a recent WSJ article that reported that AIG “Chief Executive Robert Benmosche has complained to senior executives at investment banks about the unfavorable stock research . . .” and quoted Mr. Benmosche as saying: “For the next offering, I want to make sure there is a clear understanding of who AIG is and our trajectory, and why AIG is a stock that investors should own.”
Are there other areas where an issuer’s demands could lead to regulatory problems for their underwriters? Yes. When an issuer conditions a broker/dealer’s participation in its underwriting on a pre-offering purchase of the issuer’s unregistered securities, FINRA Rule 5110 will generally treat such purchases within 180 days prior to the issuer filing its offering with the SEC as additional underwriting compensation (valued on the difference between the purchase price and the offering price) and the securities will be locked-up for 180 days following the issuer’s offering.
At times, the value of the securities does not, when added to the discount and other compensation, make the arrangement unreasonable under FINRA underwriting compensation limits – but at times it does. If the compensation is unreasonable, sometimes the only solution is for the purchasing broker/dealer to withdraw from the underwriting. Not a good result. These situations can generally be avoided by the underwriter’s counsel reviewing the proposed pre-offering purchase and ensuring that the arrangement would not create later problems.
House Bill Seeks to Relieve Smaller Companies of Internal Controls Obligations
As noted in this Cooley alert, a new House bill introduced by Rep Benjamin Quayle (R-AZ) – “Startup Expansion and Investment Act” – would make internal control reporting and assessment requirements of SOX 404 optional for “smaller” companies. Have I lost count of many bills before this seeking the same thing or was that just a dream?
Congress wants smaller companies to go public more frequently. Congress wants smaller companies to not have strong financial controls. Congress wants investors to lose their money…
RSUs Don’t Constitute a Separate Class for Purposes of Section 12(g)
A few weeks ago, Corp Fin granted no-action relief to Twitter – allowing the company to treat restricted stock units as a separate class for Section 12(g) purposes. The Staff has taken the position that options aren’t counted either for Section 12(g) purposes for some time, going way back to ’01 – and this RSU position has been taken since this Facebook response in ’08.
