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."
A few weeks ago, a shareholder sued Aetna (& each director) in federal court based on the company’s statements of opposition regarding two “political contribution disclosure” shareholder proposals submitted to the company over the past two years. The plaintiff was not a proponent for either of the proposals. Here’s the proponent’s press release – and here’s the complaint.
I can’t remember a lawsuit being filed based on disclosure made in a Statement in Opposition – does anyone? A Statement in Opposition is a solicitation, but I can’t think of a suit brought on that basis. And the transparency allegations based on how Aetna disclosed content on its website is also pretty wild, particularly considering the SEC’s upcoming disclosure reform! An earlier withdrawn shareholder proposal plays a role too. This is a complaint worth reading.
Here’s an article from Courthouse News – and here’s one from the Huffington Post.
Say-on-Pay: Now 74 Failures
Last month, RCM Technologies (Form 8-K) became the 72nd with 28% support; MGP Ingredients became the 73rd failure with 21% support (Form 8-K) – and Syntroleum became the 74th with 49% support (Form 8-K). Thanks to Karla Bos! And that’s our final ones for the year…
In this WSJ article, it is reported that Mark Cuban continues to be smarting from his long and drawn out battle with the SEC over insider trading allegations that ultimately led to a court victory for him in a jury trial. Apparently, he is now considering a new venture publicizing transcripts of court cases involving the SEC and highlighting tactics he considers suspect.
While I can sympathize with anyone having to go through such a long court process – and the bizarre circumstances that he faced in some instances dealing with the SEC – it can’t be healthy to dwell on the past. The reality is that the facts that led to the investigation being brought appear on their face to warrant a look – and that all enforcement investigations don’t play out like they did for Mr. Cuban.
Before he decides to proceed with such a venture, I encourage Mr. Cuban to talk to reputable former SEC enforcement lawyers and get their take on the value of such a venture (and recognize that some of them are already shedding light on what goes down at the SEC – see this recent David Smyth blog about how the SEC sorts through tips). My own take is that merely reading a court transcript won’t give you enough of a sense of whether the investigative approaches being used by the SEC are appropriate. And a court transcript certainly won’t tell you a thing about the many headwinds behind the scenes that hinder the SEC from achieving its investor protection mission. If anything, Mr. Cuban should use his resources to help the SEC – not hurt it…
Did you know that Rule 144 is the sole form left that isn’t required to be filed electronically with the SEC? Recently, our very own Jesse Brill submitted this rulemaking petition, laying out the case for combining Form 144 and Form 4 – along with the sample combined form so that you can see what this might look like. Combining the forms would be a “win-win” as the SEC Staff, brokers & companies would save time and money – and investors would receive the information provided on a Form 144 sooner…
Comments on the New Reg D Proposals: Is the Tide Turning?
As noted by MoFo’s Anna Pinedo in this blog, despite many commentators weighing in against the latest round of proposed changes for Form D, Regulation D and Rule 156, SEC Commissioner Aguilar and Senator Levin have weighed in supporting the proposals. Here are the comments received – including this one from the ABA’s Business Law Section.
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A preliminary agreement reached between the European Parliament and EU Member States will require audit firms to rotate every 10 years, with extensions for up to 14 additional years if there is a joint audit, which is required in some EU nations and not uncommon in others, or 10 more years if the work is put out for bid. The original proposal sought mandatory rotation every six years. Listed companies, banks and insurance companies will reportedly be affected.
Other reforms are expected, including prohibition of certain non-audit services such as tax advice and services linked to the financial and investment strategy of the audit clients. A cap of 70% on fees generated for non-audit services based on a three-year average will also be imposed. Audit reports are expected to contain more information although the details were not clear, and third parties can no longer require that only the “Big Four” be used.
The text is subject to final approval and a reasonable transitional period, six years according to some accounts, is expected. One article argues that with the transition time period and the allowable extensions, it may be as long as 30 years before some companies will be required to switch auditors.
SEC Removes References to Rating Agencies in Bunch of Rules
Last week, the SEC finally removed references to credit ratings from a bunch of SEC rules, as mandated by Section 939A of Dodd-Frank. SEC Commissioner Gallagher issued this statement praising the action – and bemoaning that it took so long…
More on our “Proxy Season Blog”
We continue to post new items regularly on our “Proxy Season 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:
– Glencore Xstrata: Wild Results from an Annual Meeting
– Reviewing Key ESG Shareholder Proposals in 2013
– Interview with Amalgamated Bank: Shareholder Proposals & Communications
– Director Elections & Contests in 2013
– Does Compliance with Proxy Advisors’ Recommendations Decrease Shareholder Value?
– You Can’t Shoot Zombie Directors!
In this “Take Two Video,” I spend 40 seconds telling my own firsthand account of the boiler room operations of Stratton Oakmont from back in ’97. This was a time when I served as a SEC Staffer. Pretty funny story (from a lawyer’s perspective)…
Here is an interesting review of “The Wolf of Wall Street” from someone who used to be a boiler room broker…
Best Movies in 2013? My Take
Here’s the best movies list from the Washington Post – and here are reviews from Nell Minow (who doubles as ‘Movie Mom’ when she isn’t a governance guru). I didn’t see all that many movies this year as I am picky about what I see. But I do think that “The Way Way Back” should be on the “best of” lists and that “Dallas Buyer’s Club” and “Mud” should have been near the top. “Frances Ha” and “Nebraska” were fine – but both were not “Top 20” worthy. And something about “Her” scares me and you couldn’t pay me to go…
Every year, I try not to blog during the week of Christmas. And it never happens. On Friday, the SEC released Corp Fin’s Study on Regulation S-K. This report to Congress was mandated by Section 108 of the JOBS Act. It’s 106 pages – but double-spaced.
Comprising nearly a third of the Study, I loved reading the history section of the Study. It’s like your life flashing before your eyes. Memories of learning about the Wheat Report and the expansion of the availability of Form S-7 (which was the first streamlined registration statement). Hard to believe that the initial version of Reg S-K only called for a “Description of Business” and “Description of Property.” It’s hard to believe it’s been nearly 20 years since the Task Force on Disclosure Simplification made its recommendations.
The next section of the Study provides the history of each Item in Reg S-K, along with a brief description of comments submitted on each item through the SEC’s JOBS Act page. Only 5 comment letters were submitted.
Starting on page 92, the final 15 pages of the Study is the section that everyone should read – about possible next steps & the Staff’s preliminary suggestions for further study. The study notes there are two approaches to disclosure reform: a broad comprehensive review of disclosures or a more targeted review topic by topic. The former approach would obviously be a bigger project that would take longer. The study identifies these 4 issues that should be addressed during a reform project: principles-based disclosure requirements; scalability for different types of companies; how disclosure is delivered & presented; and readability & navigability of disclosure.
Even though this is just a Staff study, the study’s preliminary suggestions may present some tea leaves about how SEC Chair White wants to pursue disclosure reform (eg. reconsider lengthy & technical executive pay disclosures on page 100). As noted in the SEC’s press release, Chair White has “directed the staff to develop specific recommendations for updating the rules that dictate what a company must disclose in its filings. We will seek input from companies about how we can make our disclosure rules work better for them and will solicit the views of investors about what type of information they want and how it can be best presented.” Once the inevitable slew of memos are out, I’ll be posting them in our “Regulation S-K” Practice Area.
Wachtell Lipton v. Carl Icahn
This Forbes article notes a lawsuit filed by Wachtell Lipton against Carl Icahn over a fee dispute…
Exchange-Traded Notes: Corp Fin May Seek Better Disclosure
This Bloomberg article indicates that Corp Fin’s Amy Starr may seek better disclosure from lenders about how they value exchanged-traded notes…
In what has become an annual tradition, Cary Klafter of Intel again shares what I imagine has to be the world’s largest holiday disclaimer, running for 19 pages – nearly 25% greater than the last one…
Let It Snow, Make It So
Maybe you have to be a “Star Trek-Next Generation” fan to enjoy this video, but I found it hilarious:
Shareholder on a Shelf: An Earnings Tradition
And then Sharon Merrill’s Dennis Walsh gives us this hilarious holiday poem. Here’s an excerpt:
Have you ever wondered how the SEC could know;
If you’re naughty or nice in making your reported revenues and margins grow;
For 79 years it’s been a big secret;
Which now can be shared, if you promise to keep it.
At reporting time the SEC sends me to you;
I sit in the shadows to watch and report on all that you do;
My job is an assignment from Ms. Mary Jo White herself;
I am her helper, a friendly scout shareholder that sits on a shelf.
I chuckled when I read this DealBook article about how Fantex Holdings intends to open an online marketplace for investors to buy and sell interests in professional athletes. I laughed because I had been involved with a few of these types of schemes when I worked at the SEC in the Chief Counsel’s office. Way back then, the issuers argued that interests in athletes were not “securities” and thus didn’t need to be registered. As I recall, those no-action requests went nowhere as the “not a security” arguments were not persuasive.
But Fantex is taking a different approach. On October 17th, it filed a Form S-1 (which has since been amended), for an IPO in the NFL player Arian Foster – with the intention of selling about $10.5 million worth of “tracking stock,” representing a 20% interest in his future brand income. In exchange, Arian would receive $10 million; the balance will cover the costs of the deal. In addition, five pieces of free writing prospectuses were filed – the components of Fantex’s site and other selling documents. The Fantex platform itself has filed as a broker-dealer. As noted in this DealBook article, a second Form S-1 has been filed by Fantex for another football player, Vernon Davis.
What is a “Tracking Stock”? Is Securitization of Future Earnings Novel?
Okay, I need help since I’m not a securitization lawyer. Who out there knows how different this is than the securitizations of 15 years ago relating to David Bowie and others celebrities who monetized their future earnings? Is this Fantex stuff really a securitization? Or is this type of “tracking stock” something different? And how is this tracking stock different than the ones that a half dozen companies did in the late ’90s?
As noted in this Washington Post article, the Center for Plain Languages gave the SEC a grade of “D” when it comes to evaluating how well it communicates with the public. Things could be worse – the Treasury Department a received a “F.” Here’s the report card from the Center, which graded 20 federal agencies.
These grades were based on the “Plain Writing Act of 2010” – there is a bill called the “Plain Regulations Act of 2013,” which would require that all new and substantially revised federal regulations be written in plain language. I’m all in for that idea!
SEC to Propose Reg A+ Tomorrow!
Yesterday, the SEC surprised me with this Sunshine Act notice stating that Regulation A+ will be proposed at an open Commission meeting tomorrow. Another JOBS Act rulemaking proposal tucked in before the end of the year!
Here are the comments received by the SEC on Title IV of the JOBS Act (including Section 3(b) of the ’33 Act). MoFo’s Anna Pinedo blogs about a second comment letter from NASAA on Reg A+ that was filed just last week (here’s the 1st comment letter)…
Meanwhile, the Supreme Court has picked up a securities law case for next term – this one relating to ERISA stock drops. Read Kevin LaCroix’s blog for more…
More on “The Mentor Blog”
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:
– Survey: Board Activities
– Bylaw Amendment Could Deter Dissident Directors
– The Return of the Mini-Tender Offer?
– SCOTUS Oral Arguments: Whether SOX Protects Private Company Employees From Retaliation
– Study: Firms that “Cast” Earnings Calls Underperform
As I blogged last month, SEC Chair White delivered a speech on disclosure reform recently. There really is some interesting commentary from a variety of investors in this Fortune article about whether there is a “disclosure overload” in SEC filings. Most of them say “no”…
Meanwhile, SEC Commissioner Gallagher has weighed in with his thoughts on disclosure reform, as noted in this Davis Polk blog…
Speaking of “what’s material?,” the U.S. Supreme Court has set oral argument for March 5th in Halliburton v. Erica P. John Fund (No. 13-317), the case that may upset the Basic v. Levinson (fraud-on-the-market) applecart…
Survey: Board-Shareholder Engagement
This recent investor survey by PwC presents some interesting findings, including that 45% of investors prefer engaging directly with directors (see pg. 11). In comparison, here are the key findings from this recent NIRI survey:
– Majority of survey respondents (60%) state that their companies do not permit board members to engage directly with shareholders (defined as in-person or via telephone).
– Within companies that do allow direct communication, 65% state that any board member may speak directly, while 35% state that only certain board members may speak directly to shareholders.
– Within companies that do allow direct communication, 57% indicate that a member of management is not required to be present during these discussions.
– In general, as market cap increases, so does the likelihood that only certain board members may speak with shareholders and that management’s presence is required.
– Companies are only slightly more likely (43%) to facilitate indirect communication between boards and shareholders (defined as e-mail responses to questions via a third-party, such as the IR department or corporate secretary’s office), than direct communication (40%).
– The most likely venues for direct interactions between board members and shareholders are annual meetings (49%), through the proxy voting arms of institutional shareholders (11%), during non-deal roadshows/one-on-one meetings (9%), and at analyst days (8%).
– For those that reported board-shareholder contact within the last two years, the average number of direct communications over this period was nearly five.
– On average, one out of every five of these communications within the last two years was a result of activist or shareholder proxy proposal activities.
Considering the popularity of apps, I have been surprised that few companies have apps for their investors. Now there is a simple solution that might make these omnipresent. In this podcast, Jeff Corbin of theIRapp explains how “theIRapp” works, including:
– What is the difference from an investor’s perspective of an IR app and IR web page?
– How much work is it for a company to keep an IR app updated with content?
– How much does your IR app cost?
I thought that I should clarify my blog from last week – when Nasdaq filed the compensation committee independence proposed rule changes on November 26th, they were immediately effective. Two days ago, the SEC published the notice of filing and immediate effectiveness of the proposed rule change.
As noted in Section III of the notice (pp. 9-10), the rule change has a 30-day operative delay from the date of filing. That period will expire before companies are required to comply with Nasdaq’s compensation committee composition rules since the transition period for compliance is unchanged. Specifically, companies must comply by the earlier of: (i) their first annual meeting after January 15, 2014, or (ii) October 31, 2014.
In addition, at any time within 60 days of the filing of the proposed rule change, the SEC summarily may temporarily suspend such rule change if it appears to the SEC that such action is: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Exchange Act. I have no expectation that they would take such action. I have posted memos on the Nasdaq’s changes in CompensationStandards.com’s “Compensation Committee” Practice Area.
Corp Fin’s Focus on Segment Reporting
This WSJ article notes (as highlighted in this Cooley news brief) covers the recent AICPA’s conference and notes how Corp Fin’s Associate Chief Accountant Ryan Milne said that the Division was focusing on segment reporting. [The SEC Staff’s first few speeches from the conference are posted. More likely to come.]
According to the article, segment reporting was “the third most common area discussed in SEC comment letters in the first three quarters of this year, following tax and goodwill accounting issues, according to Audit Analytics. In its regular review process, the agency addressed segment reporting issues in some 435 letters to 184 companies this year through Sept. 30, according to the firm.” An SEC representative stated that the SEC expects to “continue to focus on this area.”
By the way, the comment period for the PCAOB’s proposal on the audit report has closed – here are the comments that the PCAOB received…
SEC Task Force Probes Use of Non-GAAP Metrics
And this WSJ article notes (as highlighted in this Cooley news brief) that the SEC’s Enforcement Division – using its 12-member “Financial Reporting and Audit Task Force” created in July – is scrutinizing companies’ use of non-GAAP performance measures.
