Author Archives: Broc Romanek

Tucked away on the “Division of Corporation Finance” page, the SEC just posted FAQs related to Sarbanes-Oxley at http://www.sec.gov/divisions/corpfin/faqs/soxact2002.htm.

Chairman Pitt lashed out at critics – including former Chairman Levitt – in his first public statements since his resignation – see http://www.washingtonpost.com/wp-dyn/articles/A30296-2002Nov8.html.

In addition, SEC Chief Accountant Bob Herdman resigned – see http://www.washingtonpost.com/wp-dyn/articles/A30556-2002Nov8.html.

The SEC has begun posting no-action and interpretive letters on its web site! They go back as far as early 2002 – and are divided by subject matter, alphabetically, and chronologically. They are at http://www.sec.gov/divisions/corpfin/cf-noaction.htm.

The SEC has posted its proposed rules on pension blackout periods and Regulation BTR at http://www.sec.gov/rules/proposed/34-46778.htm.

General Electric launched a new Corporate Governance web page, its at http://www.ge.com/commitment/governance/press_release/governance_press_release.htm.

Heated discussion with Division Director Alan Beller today at PLI conference in New York. We will posting comprehensive notes soon.

The first 10-Qs to be filed this quarter are getting interesting – look at Intel’s internal controls disclosure in its Form 10-Q…

Despite Chairman Pitt’s resignation last night, the Chair is staying on in transition mode – and presided over this morning’s open meeting. At the open meeting, the SEC proposed rules regarding attorney responsibility standards – and the SEC must adopt rules by January 26th pursuant to Section 307 of the Sarbanes-Oxley Act.

These proposed rules should prove to be quite controversial (as noted in our november ezine in the section regarding the ABA’s Professional Responsibility Task Force hearings). It was noted that the proposing release will be approximately 120 pages long – and that the Office of Economic Analysis didn’t have sufficient time to get a real grasp about the costs of the proposal (such as malpractice insurance rates). Commissioner Goldschmid noted that he generally had reservations about the proposals – but did not specify what are his reservations.

As proposed, Rule 205 would require “up-the-ladder” reporting – and many terms in the proposal are broadly defined. For example, the terms “appearing and practicing before the SEC” and “in the representation of the issuer” are broader than they appear on their face.

The scope of the rule also is quite broad as it would apply to all attorneys – defined as “any person qualified to practice law in any jurisdiction.” This means the rule would apply regardless if a person was formally in the legal department (e.g. someone who received a legal degree but serving as a business development officer would have to comply). The proposed rule would apply to both in-house attorneys and outside counsel. Finally, the rule would apply to non-US attorneys – including lawyers who are not licensed to practice in the US.

Among the other issues likely to be controversial include the “noisy withdrawal” process (whereby a “reporting attorney” reports “out” to the SEC in certain circumstances); the impact on the attorney-client privilege and attorney-client relationships in general; the concept of a “QLCC” (qualified legal compliance committee); and the fact that reporting attorneys would have to report violations that are “about to occur.” I’m sure there are more pricky issues – and they will be identified once the proposing release is available for review. The related press release is at http://www.sec.gov/news/press/2002-158.htm.

The SEC has posted its proposing release regarding rules on use of non-GAAP financial measures, including amendments to S-K for use of such measures in SEC filings and amendments to 8-K to require filing of certain press releases and ammouncements of earnings. Comments are due 30 days after publication in the federal register. These proposed rules would implement Sarbanes-
Oxley 401(b). The release is at http://www.sec.gov/rules/proposed/33-8145.htm.

The SEC has posted its proposed rules regarding off-balance sheet disclosure in MD&A at http://www.sec.gov/rules/proposed/33-8144.htm.

Not too many people expect Chairman Pitt to hold his job too long after tommorrow’s elections. Not sure what will happen to the other senior staffers that joined the SEC at Pitt’s request…here is another article about the most recent Accounting Oversight Board incident – http://www.washingtonpost.com/wp-dyn/articles/A59279-2002Nov2.html.

The SEC has announced a series of hearings regarding the credit rating agencies and their roles in the markets – see http://www.sec.gov/news/press/2002-157.htm.

In a truly remarkable turn of events, the just-appointed head of the Public Company Accounting Oversight Board, William Webster, has come under fire for serving as the chair of an audit committee of a company that is undergoing an investigation for fraud. Chairman Webster resigned from his directorship in July. Part of the allegations include complaints from the company’s independent auditor about inadequate internal controls – and a dispute over whether (and when) the audit committee was told about them.

Even more remarkable is that SEC Chairman Pitt was aware of this issue – but is reported to have not shared this information with any of the other SEC commissioners before they voted last friday to appoint the Oversight Board. As a result, Chairman Pitt has asked the SEC’s inspector general to conduct an investigation into Chairman Pitt’s own actions. Even this has come under fire, as Senator Paul Sarbanes (D-Md.), the head of the Senate Banking Committee, has noted that the inspector general reports to Chairman Pitt.

Senator Sarbanes has repeated his call for Chairman Pitt to resign and has asked Chairman Webster to reconsider his own appointment. In addition, Senator Sarbanes will conduct hearings into the process by which the Oversight Board was selected. At last friday’s open Commission meeting, Commissioner Harvey Goldschmid voted against all five appointees because of his displeasure over the process. For example, he had not received the names of the potential appointees – nor had a chance to vet their credentials – until shortly before the meeting was held to vote on the nominees.

See the Washington Post article about this new development at http://www.washingtonpost.com/wp-dyn/articles/A49150-2002Oct31.html.

Notes from today’s open meeting at the SEC (regarding proposed rules on pro forma information, “real-time” disclosure, off-balance sheet disclosure and pension blackout trading restrictions) are part of the November ezine, which was just posted at http://www.realcorporatelawyer.com/Ezine/EZineNovember2002.htm.

The SEC has moved its open Commission meeting relating to consideration of proposed rules under Section 307 of Sarbanes-Oxley regarding attorney standards of professional responsibility from 10/31 to next Wednesday, November 6th.

On October 25th, at one of the SEC’s most contentious open meetings in recent memory, the Commission appointed the five members of the new Public Company Accounting Standards Board. Under Sarbanes-Oxley, the SEC was required to establish this board by October 28th.

In a 3-2 vote, the Republican majority on the Commission selected former FBI and CIA director William Webster to chair the new board, with a term until 2007. The SEC’s two Democratic Commissoners, Harvey Goldschmid and Roel Campos, claimed that Mr. Webster lacks the expertise to oversee the accounting industry. This followed earlier accusations by others that the accounting lobby effectively blocked former TIAA-CREF chairman John Biggs from being selected as chair.

The other board members appointed were:

• Daniel Goelzer, a partner at Baker & McKenzie who previously spent seven years as general counsel at the SEC (term expires 2006).
• Kayla Gillan, former general counsel of the California Public Employees’ Retirement system (term expires 2005).
• Willis Gradison Jr., a former Republican congressman who is Senior Public Policy Counselor at Patton Boggs (term expires 2004).
• Charles Niemeier, the SEC’s Chief Accountant in the Division of Enforcement and co-chairman of its financial-fraud task force. Mr. Niemeier previously worked at Williams & Connolly (term expires 2003).

Commissioner Goldschmid voted against all five board members to protest the selection process and said that as far as he knew none of the five board members approved yesterday was properly vetted – and that he was not told their names until the morning before the meeting. Commissioner Campos dissented only to the choice of Chairman Webster.

After the SEC’s appointments, according to the Washington Post, Senate Banking Committee Chairman, Paul S. Sarbanes (D-Md.) declared that “the country would be best served if Mr. Pitt stepped down.” Others in the Democratic congressional leadership and Sen. John McCain (R-Ariz.) had already recommended that Chairman Pitt resign or be fired.

The October 26th Washington Post article regarding the meeting is at http://www.washingtonpost.com/wp-dyn/articles/A19572-2002Oct25.html. The related SEC press release is at http://www.sec.gov/news/press/2002-153.htm.