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."
With whistleblowing such a hot topic, it’s a good time to gain an in-house perspective on how to evaluate the many firms that assist companies to process whistleblower tips (we maintain a list of hotline providers in our “Whistleblowers” Practice Area). In this podcast, Joe Kolomyjec of Lionbridge Technologies addresses how to evaluate and select whistleblower hotline providers, including:
– Who within the company is involved with evaluating & selecting a hotline provider?
– What are the main factors that you initially considered important in evaluating hotline providers for Lionbridge?
– Did those factors change during the vetting process?
– How many hotline providers did you initially consider? How did you learn of providers to consider?
– How many vendors did you interview? Were all of the interviews telephonic?
– Were there any surprises during the process?
As noted in this Akin Gump blog, the Supreme Court declined last week to review the 11th Circuit’s decision in U.S. v. Esquenazi, leaving standing the appellate court’s expansive definition of “foreign official” under the FCPA.
Whistleblowers: Is New York’s AG a Better Alternative Than The SEC?
I would think “no” given that the SEC just blessed a $30 million payout to a whistleblower. But this Bloomberg article notes that some whistleblowers become frustrated with the SEC and turn to the New York Attorney General to report suspected violations.
Whistleblowers: Impact on SEC Enforcement & DOJ Cases
This study examines the impact of whistleblowers on the outcomes of SEC and DOJ enforcement actions for financial misrepresentation and found significant increases in penalties against firms and individuals when a whistleblower is involved. This suggests that whistleblowers are valuable to the SEC and DOJ – perhaps explaining why the SEC is willing to pay out $30 million to a single whistleblower! Here are some of the observations:
– 145 of the 1,133 enforcement actions (12.8%) during 1978-2012 have some form of whistleblower involvement.
– Average total monetary penalties assessed against firms in the 145 enforcement actions associated with whistleblower complaints was $143.9mm compared to $33.29mm for the 988 enforcement actions without a whistleblower.
– Average total monetary penalties assed against individual respondents in the 145 enforcement actions associated with whistleblower complaints was $63.6mm compared to $16.7mm for individual respondents in the 988 enforcement actions without a whistleblower.
– Average prison term of convicted respondents was 39.4 months in the 145 enforcement actions associated with whistleblower complaints compared to 17.9 months for the 988 enforcement actions without a whistleblower.
– Presence of a whistleblower increases the length of time needed to complete the enforcement action by 10% (approximately 10 months).
– Likelihood of an enforcement action given the filing of a whistleblower complaint increases to 20.5% compared to 4.3% without. This represents a 4.8x increase in the risk of an enforcement action for firms that have a whistleblower complaint filed against them.
– Estimated increase in total penalties associated with whistleblower involvement is $21.27 billion or 30.3% of the total $70.13 billion total penalties assessed in all 1,133 enforcement actions.
1. Which factor is most important in allowing a blackout period to end one day after an earnings release:
– Filer status being large accelerated filer and a WKSI – 18%
– Number of analysts providing coverage on company – 20%
– Average daily trading volume for the company – 18%
– None of the above is important – 44%
2. How many analysts covering the company is considered sufficient to allow blackout period to end one day after an earnings release:
– 1-5 – 6%
– 6-10 – 25%
– 11-15 – 8%
– 16 or more – 4%
– None of the above is important – 57%
3. What average daily trading volume is considered sufficient to allow blackout period to end one day after an earnings release:
– 1% of its outstanding common stock – 17%
– $5 million or more in average daily trading volume (daily trading volume x stock price) – 4%
– $10 million or more in average daily trading volume (daily trading volume x stock price) – 6%
– $25 million or more in average daily trading volume (daily trading volume x stock price) – 10%
– None of the above is important – 63%
SEC Could Lose Ability to Bring Enforcement Actions Before Administrative Law Judges
In this blog, Allen Matkins’ Keith Bishop notes that the SEC has considerable latitude in choosing whether to pursue enforcement actions in an administrative setting or in a true Article III court. He notes that the status of administrative law judges is under attack in Stillwell v. SEC, U.S. Dist. Ct. S.D. N.Y. Case No. 14 CV 7931…
Note that “Alan Dye’s Section 16 Hands-On Training Workshop” on January 9th is sold out. If this was something that you wished to attend, email me as we may schedule another session on a date in mid-’15 if there is enough interest…
Webcast: “Private Company Trading Markets: The Latest”
Tune in tomorrow for the webcast — “Private Company Trading Markets: The Latest” — to hear NASDAQ Private Market’s Greg Brogger, SecondMarket’s Annemarie Tierney, ACE Portal’s Peter Williams and our own Dave Lynn of Morrison & Foerster discuss how the private company trading exchanges are evolving as the Nasdaq and NYSE have recently got into the game.
As noted in this blog by Steve Quinlivan, the SEC Staff announced two items last week that will make it harder to sell unregistered securities. The Division of Trading & Markets issued this set of FAQs – and OCIE issued this Risk Alert – to remind brokers of their obligations when they sell unregistered securities on behalf of clients, such as when founders and employees sell their initial stakes in companies that have gone public or when investors sell securities in public companies that were acquired in private placements. This twin sets of Staff guidance was accompanied by the announcement of an enforcement action against E*Trade for improperly selling billions of shares of penny stocks through such unregistered offerings. Stan Keller notes that while this doesn’t deal with lawyers and no registration opinions, including resales, the guidance has relevance for lawyers…
Asset-Backed Securities: Corp Fin’s New Draft Registration Review Process
Last week, Corp Fin posted this announcement that asset-backed issuers can request staff review of draft registration statements starting next week – on October 20th. This project is to help facilitate compliance with new ABS rules that become effective on November 23rd, 2015. Per the announcement, Corp Fin will select at least two issuers per asset class on a first-come, first-served basis (and perhaps select other issuers) to participate in this draft filing review program.
Transcript: “Cybersecurity: Working the Calm Before the Storm”
We have posted the transcript for the recent webcast: “Cybersecurity: Working the Calm Before the Storm.”
Back in May, I blogged about a flap over Coca-Cola’s equity compensation plan. Showing how shareholder engagement works, the company announced this morning that its Compensation Committee has adopted “Equity Stewardship Guidelines” for the company’s equity plan.
Perhaps just as interesting is that the Compensation Committee Chair pushed out a blog on the company’s “Unbottled” blog about the announcement.
This looks to be a pretty innovative approach to explaining how shares under the equity plan will be used responsibly, while addressing the criticism about the plan. In addition to including a burn rate commitment that is expected to make the plan last its full term of 10 years, the Guidelines provide that Coca-Cola will include information on actual dilution, burn rate and overhang in their proxy statement each year. Plus they will continue to minimize dilution through share repurchases and encourage an open dialogue with shareholders about compensation. I look forward to seeing what they do in their next proxy statement…
All of the video archives from our two days of executive pay conferences are now posted…
U.S. securities regulators quietly granted Citigroup waivers from restrictions that would have crimped a range of the bank’s activities, including selling investments in hedge funds to individuals, following a recent securities-fraud settlement. The Securities and Exchange Commission, which in August completed a $285 million settlement with Citigroup over allegations related to complex debt instruments, granted the waivers late Friday.
The relief allows Citigroup to resume selling investments in hedge funds and private-equity funds to wealthy clients. The bank also retains its special status as a “well-known seasoned issuer,” or WKSI, which allows large companies to quickly issue stocks or bonds without the speed bump of an SEC review of their offerings. Kara Stein, a Democratic commissioner, dissented on granting Citigroup the expedited filing status, according to a person familiar with the matter.
Citigroup became subject to new restrictions in August, after a federal judge approved the SEC’s 2011 settlement with Citigroup over the sale of certain collateralized debt obligations to clients in late 2006 and early 2007. Under the SEC’s bad actor rule, parties with a “a relevant criminal conviction, regulatory or court order, or other disqualifying event” are restricted from participating in a private offering. The rule, adopted last year, is part of the 2010 Dodd-Frank regulatory overhaul.
Citigroup told clients in August it was working with the SEC to resolve the restrictions over the bank’s sale of hedge funds. The five-member SEC unanimously granted Citigroup its request for a waiver to resume selling so-called private fund investments, accepting the bank’s arguments that its $285 million settlement didn’t involve intentional misconduct or a large number of employees. The SEC grants waivers to let firms conduct normal business, as long as the waiver is seen as being in the public’s interest. The SEC also allowed Citigroup to retain its “WSKI” status, removing a restriction that applied to the bank given the SEC’s finding that Citigroup violated antifraud provisions of U.S. securities laws. Firms found to have violated those laws typically have their special status revoked for three years but are granted the option of appealing the decision.
The agency was divided that waiver, however, with Ms. Stein dissenting. She has repeatedly argued the agency has been too lenient on the largest financial institutions and voted against providing a well-known seasoned issuer waiver for the Royal Bank of Scotland Group PLC earlier this year after the firm reached a $612 million settlement with U.S. and U.K. regulators over allegations that traders at the bank tried to rig interbank lending rates. “Our website is replete with waiver after waiver for the largest financial institutions,” Ms. Stein said at the time, warning the commission’s decision to overturn RBS’s disqualification “may have enshrined a new policy—that some firms are just too big to bar.”
As with the hedge-fund waiver, the SEC granted the expedited filing waiver because the bank’s misconduct was limited in scope and confined to a small group of employees, a person familiar with the matter said. The SEC and Citigroup reached a $285 million settlement in 2011, but U.S. District Judge Jed Rakoff rejected it, saying the terms were “pocket change to any entity as large as Citigroup.” On Aug. 5, following a reversal of that ruling by an appellate court, Judge Rakoff approved the settlement.
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!
Today is the “Say-on-Pay Workshop: 11th Annual Executive Compensation Conference”; yesterday was the “Annual Proxy Disclosure Conference” – and the video archive of that Conference is already posted. Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference Here” – on the home pages of those sites – will take you directly to today’s Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Flash Player). Here are the “Course Materials,” filled with talking points and practice pointers.
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today’s conference agenda; times are Pacific.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see the CLE list.
ISS: New Policy Survey Results
Yesterday, ISS released its 2014-2015 policy survey results. 21 pages of interesting data (ie. key findings and detailed survey responses). Here’s analysis from Davis Polk’s Ning Chiu…
Today In “Hmmm”: Auditor Dismissed for Finding Internal Control Deficiencies
This Bloomberg article entitled “Munger Likens Auditor to Doctor Prodding Groin to Treat Nose” caught my eye. Charlie Munger is Warren Buffett’s right-hand man who also owns Daily Journal Corp. – and he fired E&Y after the auditor had determined there were flaws in the company’s accounting for acquisitions and deferred tax provisions (here’s the Form 10-K). Don’t like it when the auditor finds internal control deficiencies? Fire the auditor…
Today is the “Tackling Your 2015 Compensation Disclosures: Annual Proxy Disclosure Conference”; tomorrow is the “Say-on-Pay Workshop: 11th Annual Executive Compensation Conference.” Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference Here” – on the home pages of those sites – will take you directly to today’s Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: Windows Media or Flash Player). Here are the “Course Materials,” filled with talking points and practice pointers.
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here is today’s conference agenda; times are Pacific.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see the CLE list.
What People Are Really Doing When They’re on Earnings Calls
This article from the Harvard Business Review is pretty interesting.
This Dallas News article set me off. It talks about a CEO keeping his divorce a secret for 10 months. It’s not the board’s business – it’s not the business of shareholders either. My opinion is that folks should be evaluated based on their job performance – not how they manage their personal lives (unless it veers into criminal territory a la Ray Rice).
Of course, your personal life can impact your job performance – and if so, that’s a tough break and that flawed job performance is fair game to be judged on.
But to me, a divorce is no different than hundreds of other situations in our personal lives that might impact someone’s perception of how we perform – but not reflect how we truly perform. And if that’s truly the case, it ain’t no one’s business but your own.
I should note that this case has complicating factors in that the divorce might wind up with the CEO giving 20-30% of the company to his soon-to-be-ex-wife…
More on “Disclosure of Preliminary Voting Results”
As Steve Quinlivan notes in this blog, the “Investor as Owner” Subcommittee of the SEC’s Investor Advisory Committee has issued two recommendations on disclosure of preliminary voting results. The paper making the recommendations has a nice recap and lay of the land in this area…
This MoFo blog notes that a group of Senators has sent in a letter to SEC Chair White about the need to adopt the SEC’s proposal that would make certain changes to Regulation D, Form D and Rule 156. In contrast, SEC Commissioner Gallagher recently delivered a speech urging the SEC to withdraw those proposed rules…
Course Materials Now Available: Many Sets of Talking Points!
For the many of you that have registered for our Conferences coming up on Monday, we have posted the “Course Materials” (attendees received a special ID/PW this week via email that will enable you to access them; note that copies will be available in Vegas). The Course Materials are better than ever before – with over 50 sets of talking points comprising over 150 pages of practical guidance. We don’t serve typical conference fare (ie. regurgitated memos and rule releases); our conference materials consist of originally crafted practical bullets and examples. Our expert speakers certainly have gone the extra mile this year!
For those seeking CLE credit, here’s a list of states in which credit is available for watching the Conferences live in Vegas and by video webcast.
– How to Attend by Video Webcast: If you are registered to attend online, just go on Monday to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference Here” – that will be on the home pages of those sites – will take you directly to Conference. Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). Here is the conference agenda; times are Pacific.
– Register Now – There is still time to register for our upcoming pair of executive pay conferences – which starts on Monday, September 29th – to hear Keith Higgins, etc. If you can’t make it to Las Vegas to catch the program in person, you can still watch it by video webcast, either live or by archive. Register now.
– Registration for Attendance in Vegas – Walk-Ups Only: Going forward, you are no longer be able to register to attend in Vegas through this site (however, you still will be capable of registering online to watch by video at any time). You can still register to attend in Vegas – you just need to bring payment with you to the conference and register in-person.
In this 80-second video, learn how Zillow’s 43 live tweets during an earnings call led to a potential reach of 3 million (includes a shout-out to Q4’s Darrell Heaps who responded in this video):
SEC’s Enforcement Initiative Against Short Sellers Continues
Last week, the SEC charged 19 firms and one individual trader for engaging in short selling – in particular, stocks shortly before they bought shares from an underwriter or broker participating in a follow-on public offering. Each firm and the individual trader agreed to settle the SEC’s charges and pay a combined total of more than $9 million in disgorgement, interest and penalties.
– Much Ado About … Conflict Minerals in M&A?
– Exclusive Forum Provisions: A New Item for Corporate Governance and M&A Checklists
– Checklist: Special Committees – M&A Context
– Respecting Boilerplate: Definitions & Rules of Construction
Here’s news from this blog by Gunster’s David Scileppi:
In late August, Nasdaq announced changes to their annual listing fees. Generally, the fees will increase effective January 1, 2015, but Nasdaq is also adopting an all-inclusive annual fee and eliminating its quarterly fees. The new annual fee will now include fees related to listing additional shares, record-keeping changes, and substitution listing events. The all-inclusive fee is optional for issuers until January 1, 2018 at which point it becomes mandatory. Issuers have a choice to make:
Option #1 – An issuer can do nothing and continue to pay an annual fee as well as pay the quarterly fees to list additional shares. Under this method, an issuer will experience increased 2015 fees ranging from 0% to 40% depending on how many shares an issuer has outstanding. Generally, the largest increases are for issuers with less than 10 million shares outstanding (14% increase) and for issuers with more than 100 million shares outstanding (40% if there are between 100 and 125 million shares outstanding and 25% if there are more than 150 million shares outstanding). Think of this option as the same as flying on an airplane. You get a seat (usually), but if you want anything else you need to pay.
Option #2 – Elect to pay an all-inclusive annual fee. Because the all-inclusive annual fee includes the ability to list additional shares during the year, this fee will be higher than the à la carte method. If an issuer wants to elect the all-inclusive method, then the issuer must complete the All-Inclusive Annual Listing Fee Opt-in Form electronically through the Nasdaq Listing Center anytime between now and December 31, 2014. To give issuers some incentive to choose this method, Nasdaq will not increase the listing fees on issuers (who elect to pay the all-inclusive fee) before January 1, 2018 (and its fee can decrease if the number of shares issued and outstanding decreases). This option is like flying on Southwest Airlines. Your ticket includes two checked bags for no extra fee. (But, then again, who checks two bags per person anymore?)
Companies that list on Nasdaq after January 1, 2015 will be required to pay the all-inclusive fee. Nasdaq has included a comparison of the fees to help you make a decision on its website.
The SEC’s 2014-2018 Five-Year Strategic Plan
Last week, the SEC released its 60-page strategic plan for the next five years – 2014 through 2018 – as required by the Government Performance and Results Act of 1993 (the last one was released in 2010). I’ve blogged before about how I dislike five-year horizons for any plan since unforeseen events often change priorities and needs.
A quick perusal of the strat plan doesn’t reveal anything earth-shattering. I think the SEC realizes that five-year horizons are foolish too as I don’t see much of anything beyond what we already expect to potentially come out of the agency. On page 9, it is artfully worded how Congress places limits on the SEC’s resources. The Corp Fin-related content mostly is on pages 37-39. The influence of the Investor Advisory Committee is felt in the strat plan – for example, on pages 20-21, there is discussion about “enhancing” the no-action letter process – and more accurately and promptly responding to informal guidance requests.
Chart: SEC Filing Fees – 2002-2015
It really has been a yo-yo. Thanks to David Westenberg of WilmerHale for providing this chart of the SEC’s filing fees over the years:
Wow. A $30 million whistleblower award. Maybe we all soon will be shopping for a job where the CEO and CFO are crooked? Might be a nice way to cash in. Yesterday, the SEC announced an award of that size to a whistleblower in a foreign country. A whistleblower’s identity is kept confidential so we don’t know exactly where.
The kicker is that the SEC’s order notes that the whistleblower might have been awarded even more money if he had acted sooner in bringing information forward! I would have blown the whistle for a mere $5 million. Maybe there needs to be some kind of cap?!? Here’s analysis from Kevin LaCroix.
Climate Change: $24 Trillion Coalition!
As noted in this press release, big investors and a number of companies want more climate policy certainty in order to make investments. Nearly 350 global institutional investors representing over $24 trillion in assets have called on government leaders – see the press release (and this “Proxy Season Blog” entry) for specific aspects of policy and a price on carbon to move forward…
PCAOB: Staff Alert for Auditors Dealing with Going Concerns
Yesterday, the PCAOB issued Staff Audit Practice Alert #13 to remind auditors to continue to follow existing PCAOB standards when considering a company’s ability to continue as a going concern. Here’s some analysis from the “FEI Daily.”
