In a recent speech, the SEC’s Deputy Chief Accountant – Sagar Teotia – reminded companies that the clock is ticking on finalizing disclosures relating to the impact of tax reform. As you’ll recall, the OCA gave everyone a holiday gift last December by issuing Staff Accounting Bulletin No. 118.
At the risk of oversimplifying, SAB 118 permits companies to assess, record provisional amounts & ultimately finalize disclosure of the financial impact of tax reform over a “measurement period” of up to one year from the date of the legislation’s enactment. However, this excerpt from the Deputy Chief Accountant’s speech clarifies that SAB 118 does not allow companies to defer reporting of tax reform’s impact:
Let me clarify a point about the measurement period and the expectation to be acting in good faith. SAB 118 states that the measurement period ends when an entity has obtained, prepared, and analyzed the information that was needed in order to complete the accounting required under ASC 740 and in no cases should the measurement period extend beyond one year from the enactment date. This should not be interpreted as a window to put pencils down until we are close to one year from the enactment date to get started on the accounting. Instead, entities should continue to keep moving in good faith to complete the accounting.
The measurement period ends when an entity has completed the process necessary to finalize its assessment of tax reform’s impact – and for certain income tax effects, that could be well before the one year mark.
Diversity: CalPERS Board Diversity Update
CalPERS recently provided this update on its efforts to improve board diversity among its portfolio companies. Among its other actions, CalPERS:
– Engaged more than 500 U.S. companies in the Russell 3000 Index regarding the lack of diversity on their boards;
– Adopted a “Board Diversity & Inclusion” voting enhancement to hold directors accountable at engaged companies that fail to improve diversity on their boards or diversity & inclusion disclosures;
– Withheld votes against 271 directors at 85 companies & ran proxy solicitations at two targeted companies where diversity proposals were filed by other investors.
Future actions under consideration include development of enhanced key performance indicators (KPIs) for diversity & inclusion. The KPIs will enable CalPERS to move beyond assessing whether a company has a dimension of board diversity to a more granular assessment of whether it has a level of board diversity that reflects each company’s business, workforce, customer base, and society in general.
CalPERS also intends to use the data provided by these enhanced key performance indicators to identify US companies lacking in diversity and file majority vote proposals & vote against board chairs, Nominating & Governance Committee members, and long-tenured directors at those companies.
Our “Q&A Forum”: The Big 9500!
In our “Q&A Forum,” we have blown by query #9500 (although the “real” number is much higher since many of the queries have others piggy-backed on them). I know this is patting ourselves on the back – but it’s over 15 years of sharing expert knowledge and is quite a resource. Combined with the Q&A Forums on our other sites, there have been well over 30,000 questions answered.
You are reminded that we welcome your own input into any query you see. And remember there is no need to identify yourself if you are inclined to remain anonymous when you post a reply (or a question). And of course, remember the disclaimer that you need to conduct your own analysis & that any answers don’t contain legal advice.
I’m sure most of us have experienced situations where the Corp Fin review process seemed to drag on for what seemed to be forever. For most companies, even an extensive review process usually ends after 3 or 4 rounds of comments & responses – but for a select few, the comment letter process really does turn into “Purgatory.”
This “Audit Analytics” blog takes a look at those companies. Audit Analytics looked at 27 listed companies that had Corp Fin reviews involving at least 10(!) back & forth letters during the period from 2016 – April 2018, and tried to determine why they ended up in this predicament. The answers were interesting:
In many cases, long SEC reviews appear to be correlated with other significant failures including SEC enforcement actions. For example, in 2017, MDC Partners Inc appeared on our radar after the company was charged in an SEC Enforcement action. One of the legal charges was related to using misleading custom metrics – the same metrics that were questioned by the SEC in some of the MDC’s comment letters.
Zynga had a conversation that spanned eleven letters and 150 days. Some of the comments were centered on presentation of individually tailored non-GAAP metrics, a presentation that is explicitly prohibited by the SEC rules.
A major red flag for comment letters is noted when the SEC asserts that a company partially or completely failed to address the comments. Arguably, a company’s failure to respond should be taken in the context of the overall controls environment of the company. Since 2016, three companies failed to respond to SEC comments, including Axon Enterprise, Inc and Dana Inc. In such a case, the SEC will typically issue a separate letter warning that if the comments are not resolved the agency will terminate the review and release the comments to the public.
A slightly more common scenario is the failure to incorporate previously agreed upon disclosure text from SEC review into the subsequent filings. Audit Analytics identified six instances where the SEC noted inconsistencies between the disclosure and previous responses to SEC comments.
Under the circumstances, I don’t think it’s too surprising that any of the companies cited found the Corp Fin review process to be a very long & winding road.
By the way, if you’re wondering how long a company’s stay in SEC purgatory can be, the blog notes that Iconix Brands spent a total of 723 days in the review process. During that time, the company & the SEC exchanged a staggering 29 rounds of correspondence. Two other companies, MDC Partners (540 days/18 letters) & Acacia Research (427 days/26 letters) spent more than a year under review.
Revenue Recognition: Trends in Staff Comments
While we’re on the subject of Corp Fin comments, here’s a FEI memo that reviews comments issued on the new revenue recognition standard and identifies some trends. FEI says that Staff comments have focused on the following areas of ASC 606:
– Disaggregation of revenue
– Disclosure of performance obligations; consideration of significant payment terms
– Disclosure of performance obligations; determination of whether promised goods/ services are distinct
– Timing of satisfaction of performance obligations
– Principal versus agent considerations
– Transaction price determination and allocation to specific performance obligations
– Costs to obtain and fulfill a contract
The memo reviews & provides links to individual Staff comment letters and company responses.
“Hey, Why is the SEC Advertising ICOs in its Emails?”
Several members have mentioned to us that they’re confused as to why the SEC is including a link to an advertisement for an ICO in all of its email announcements. If you share this confusion, go ahead and click on the ad – it sends you to the SEC’s “HoweyCoins.com” mock ICO site.
I’m sure the SEC is usually quite concerned if a communication from the agency leaves members of the public scratching their heads – but if people are intrigued enough to click on the ad, I’ll bet they’re pleased that this one does.
In 2017, Delaware amended its corporate statute to permit corporate records to be maintained using distributed ledger technology – aka “blockchain.” While it’s not a Delaware corporation, Banco Santander recently became the first company to use blockchain as part of the voting process for its 2018 annual meeting. This “IR Magazine” article suggests that the results were impressive. Here’s an excerpt:
At this year’s Santander AGM, held on March 23, investors were asked to cast their vote twice: once in the traditional manner and once on the distributed ledger. Investors accessed the distributed ledger through Broadridge’s web application. One in five (21 percent) of the AGM participants made use of the new technology.
The results of the votes cast using blockchain were available within two days of the AGM, compared with the usual two or three-week wait with traditional proxy voting. In the near future, voters will be told real-time what the results are, according to Broadridge Financial Solutions.
The article notes that 60% of the company’s shareholders are institutions, and that its blockchain initiative is designed to increase turnout among those investors.
We’ve previously blogged about initiatives to use blockchain technology for voting at shareholder meetings – one of these initiatives involved Broadridge & several banks (including Santander), while another involved Nasdaq.
As we’ve blogged in the past, corporate America continues to look for ways to enhance the diversity of its boards of directors, with Amazon’s recent adoption of a “Rooney Rule” being the latest initiative in this area. Recently, however, investors in a company called “Destination Maternity” used a different route to increasing the number of women on its board directors – a good old fashioned proxy fight. This excerpt from a recent “Corporate Secretary” article has the details:
Shareholders have secured the rare replacement of an entire board – and the installation of a majority-female set of directors – following a proxy tussle at Destination Maternity.
The company late last month said that all four director nominees of investors Nathan Miller and Peter O’Malley had been elected to the board at Destination Maternity’s AGM. The company bills itself as the world’s largest designer and retailer of maternity apparel. The new board comprises Holly Alden, Christopher Morgan, Marla Ryan and Anne-Charlotte Windal.
The vote followed disagreements between Miller and O’Malley and the former board over the strategic direction and performance of the company. The investors have a turnaround plan they intend the new board to implement. The previous board – which comprised three men and one woman – insisted it had always acted in the best interests of company shareholders and criticized what it said were the investors’ ‘inexperienced and under-qualified candidates’ for directors.
Miller and O’Malley disputed this characterization and argued that the company needed to have a majority-female board. Despite the unusual demand, O’Malley, managing partner with Kenosis Capital, insists he and Miller are not activists but long-term investors. ‘We thought a maternity company should be run by women, who would be simpatico with customers,’ he tells Corporate Secretary.
Diversity initiatives are swell, but sometimes breaking a little furniture works wonders. . .
Securities Class Actions: Last Year’s “Bigliest” Winners
Kevin LaCroix recently blogged about an ISS report ranking 2017’s Top 50 plaintiffs’ law firms in terms of total cash settlements of North American securities class actions. Here’s an excerpt listing last year’s top 5 firms:
The report lists the Bernstein Litowitz law firm as having had the highest total of shareholder recoveries during the year, with $639 in total settlement funds recovered during 2017. $210 million of the law firm’s total is attributable to the largest 2017 settlement in the Salix Pharmaceuticals case. As I noted in a prior post discussing ISS Shareholder Class Action Services’ updated report on the Top 100 all-time securities settlements, the Bernstein Litowitz firm has the most Top 100 settlements, with the firm serving as lead or co-lead counsel in the 33 of the Top 100 securities class action lawsuit settlements.
The Robbins Geller law firm came in at second place on the 2017 Top 50 list, with $344 million in total settlement funds recovered. The report notes that Bernstein Litowitz and Robbins Geller have both finished in the top two positions on the list, in various orders for five straight years. As discussed in my prior post about the Top 100 all-time settlements, the Robbins Geller firm (inclusive of predecessor law firms) is second on the Top 100 list, with 17 of the largest settlements (including the largest ever settlement in the Enron case.)
Places three through five on the Top 50 list include the Cohen Milstein firm, in third place, with recoveries of $203 million; the Levi & Korinsky law firm in fourth place, with recoveries of $200 million; and the Block & Leviton law firm at $198 million. A total of eleven law firms had aggregate shareholder recoveries during the year in excess of $100 million.
Kevin speculates that Berstein Litowitz’s efforts may have netted it as much as $126 million last year. Nice work if you can get it.
On Friday, Liz blogged about the SEC’s changes to the definition of a “smaller reporting company” & its adoption of a new requirement for companies to use Inline XBRL in their filings. This Steve Quinlivan blog points out that changes have been made to many of the SEC forms due to this new regime. We’re posting memos about this development in our “Smaller Reporting Companies” Practice Area.
This excerpt from Steve’s blog notes the effect of the new Inline XBRL requirement – and points out that changes to the form may be applicable before compliance with the new requirement becomes mandatory:
The new Inline XBRL rules include conforming amendments to the cover pages for certain periodic reports, including Forms 10-K and 10-Q. The change to the cover pages eliminates reference to compliance with the website posting requirement. While there is a generous phase in period for required use of Inline XBRL, the rules are technically effective 30 days from publication in the Federal Register. Therefore, these changes to the cover page are potentially applicable to second quarter Form 10-Qs for calendar year issuers.
The changes to the “smaller reporting company” definition have resulted in conforming amendments to the cover pages for registration statements (Forms S-1, S-3, S-4, S-8, S-11, Form 10) & periodic reports (Forms 10-K and 10-Q). The change reflects the fact that while the new rules specify a larger threshold for SRC status, the definition of “accelerated filer” remains unchanged. The rules are effective 60 days from publication in the Federal Register.
Forget Fireworks – The Future Belongs to Flame-Throwing Drones!
If I had this awesome device, I’d win the 4th of July pyrotechnics contest in my neighborhood for sure. Enjoy the holiday – and don’t hurt yourself.
Lots of interesting stuff in this Proskauer memo analyzing market practices & trends for US-listed IPOs in 2017. Here are some of the highlights:
– In 2017, the average base deal size was $285 million and the median base deal size was $141 million, compared to $214 million and $116 million in 2016, respectively.
– 70% of EGCs included two rather than three years of audited financial statements (a 32% increase since 2013) and 56% of EGCs included only two years of selected financial statements (a 21% increase since 2013). Only 4% of EGCs included five years of selected financial statements in 2017, compared to 29% in 2013.
– Outside of 2014, IPOs in 2017 had the fastest time from the first confidential submission or filing with the SEC to pricing; the average number of days to pricing was 135 and the median was 103. In 2016, the average time from first submission/filing to pricing was 220 days.
– Since 2014, there has been a 41% decrease in the average number of first-round SEC comments and 37% decrease in the median number of comments.
– Approximately 30% of issuers went public with multiple classes of common stock in 2017 as compared to 18% of issuers in 2016. Almost 68% of these issuers provided for unequal voting rights among classes.
There’s plenty more where that came from – including information on “hot button” comments and data on pre-IPO private placements.
Insider Trading: Another Equifax “Guesser” in the Hot Seat
We previously blogged about the SEC’s filing of insider trading charges against a former Equifax executive who sold the company’s shares based on his correct guess that the company had experienced a massive data breach.
Last week, the SEC filed an insider trading complaint against another former Equifax employee, and this excerpt from the SEC’s press release indicates that the agency’s “insider guessing” theory features prominently in this new proceeding as well:
In a complaint filed in federal court in Atlanta today, the SEC charged that Equifax software engineering manager Sudhakar Reddy Bonthu traded on confidential information he received while creating a website for consumers impacted by a data breach.
According to the complaint, Bonthu was told the work was being done for an unnamed potential client, but based on information he received, he concluded that Equifax itself was the victim of the breach. The SEC alleges that Bonthu violated company policy when he traded on the non-public information by purchasing Equifax put options. Less than a week later, after Equifax publicly announced the data breach and its stock declined nearly 14 percent, Bonthu sold the put options and netted more than $75,000, a return of more than 3,500 percent on his initial investment.
As we noted in a prior blog, the SEC lost a case in 2010 premised on an insider guessing theory, so it will be interesting to see how the theory stands up as these actions move forward.
Our July Eminders is Posted!
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One of the many infuriating airline industry “innovations” over the past several years has been the practice of charging an additional fee for a priority boarding slot. So, I was a little surprised that two prominent law professors recently suggested applying a variation of this priority access model to corporate disclosures:
In our recent article, Making a Market for Corporate Disclosure, we argue that the under-disclosure concern could be addressed in a far broader way by constructing a well-regulated market for tiered access to corporate disclosure. We contemplate a transparent market for early-access rights to corporate information. In this market, firms could sell access to information that they soon would release to the public.
For example, when they have new information that they are willing to share with the public, firms could offer a well-advertised early peek—say, starting at 11:00 a.m.—to anyone willing to pay the market price for it. So long as firms had to make any selectively released disclosure products with material information available to the public by, say, 1:00 p.m., market supply of and demand for those products could generate improved public disclosure. All the while, the current floors of mandatory disclosure need not be changed.
Law professors love ideas like this (anybody up for legalizing insider trading?), but I dunno guys – I’m not sure there’s any aspect of the airline industry that I’d suggest anybody use as a model for anything.
Poll: Paying for Disclosure
Please take a moment to participate in our anonymous poll:
Last week, the WSJ reported that some companies may have found another way to be “creative” when it comes to reporting their results – and it’s attracted interest from SEC Enforcement. Here’s an excerpt:
Enforcement officials at the Securities and Exchange Commission have sent queries to at least 10 companies, asking the firms to provide information about accounting adjustments that could push their reported earnings per share higher, one person familiar with the matter said.
The queries follow the release of an academic paper that found evidence of companies nudging up earnings results. The academic research found the number “4” appeared at an abnormally low rate in the tenths place of companies’ earnings per share. Reporting that figure as “5” or higher allows a firm to round up its earnings per share another cent. For instance, a company with earnings of 55.4 cents a share would round to 55 cents a share, while a company with earnings of 55.5 cents a share would round to 56 cents.
What’s kind of puzzling is how long it’s taken for this alleged practice to draw attention from regulators. Warren Buffett actually raised this issue – and cited the study referenced in the WSJ article – at the 2010 Berkshire-Hathaway annual meeting.
Board Oversight: Updating Caremark for the #MeToo Era?
We’ve previously blogged about the increasing focus on the board’s oversight responsibilities in the area of sexual harassment. This Cleary Gottlieb blog suggests that the principles underlying Delaware’s Caremark doctrine might well provide the basis for an expanded concept of what’s required of corporate boards in the #MeToo era. This excerpt explains:
Chancellor Allen anticipates today’s business challenge for directors by expressly premising his holding on moral considerations: “one wonders on what moral basis might shareholders attack a good faith business decision of a director as ‘unreasonable’ or ‘irrational’” (emphasis added). That is not to say that the Caremark opinion suggests that moral failures should be a basis for director liability.
Rather, the Caremark opinion suggests that the standard for director liability should in some way reflect the moral issues at stake: asking whether there is a moral basis for the courts to hold directors liable for not ferreting out an obscure compliance failure that results in a modest financial penalty is also by implication asking whether there is a moral basis for the courts to not hold directors liable for turning a blind eye to issues of great political, social or cultural consequence.
For those who consider social issues as being beyond the responsibility of corporate boards, the blog cautions that Caremark’s “duty of attention” may provide the moral basis for judging directors based on how they deal with these issues.
Cybersecurity: What to Think About When Buying Cyber Insurance
Earlier this year, we blogged about efforts by some of the nation’s largest companies to get into the cyber insurance game. Now this Wachtell memo has some advice for those on the buy side about what they should consider when shopping for coverage. This excerpt addresses coverage for “preexisting conditions”:
Companies should understand whether a policy will restrict coverage for breaches stemming from conditions existing at the time the policy is purchased. While sometimes explicit, such limitations can also be implicated through the use of a “retroactive date” for the start of coverage. As some cyber events are caused by a latent, sometimes long-existing, vulnerability in a company’s infrastructure, this type of carveout could result in a significant gap in coverage.
Other topics include coverage of third party claims, the need to ensure that policy provisions are consistent with cyber-incident response plans, & coverage for data under the control of third parties.
Yesterday, in Lucia v. SEC, the SCOTUS held that the SEC’s appointment process for its ALJs violated the Appointments Clause of the U.S. Constitution. As this excerpt from the opinion’s syllabus notes, the Court’s decision was based primarily on its earlier decision in Freytag v. Commissioner, 501 U. S. 868 (1991), which held that Tax Court “special trial judges” were “officers of the United States” for purposes of the Appointments Clause:
Freytag’s analysis decides this case. The Commission’s ALJs, like the Tax Court’s STJs, hold a continuing office established by law. SEC ALJs “receive[ ] a career appointment,” to a position created by statute. And they exercise the same “significant discretion” when carrying out the same “important functions” as STJs do. Both sets of officials have all the authority needed to ensure fair and orderly adversarial hearings – indeed, nearly all the tools of federal trial judges.
The Trump Administration’s decision to “switch sides” in this case & support the argument that the SEC’s ALJs were unconstitutionally appointed might suggest that the case was decided along partisan lines. But that’s not what happened. Justice Kagan delivered the Court’s opinion, and the Chief Justice and Justices Thomas, Kennedy, Alito & Gorsuch joined in the opinion. Justice Breyer also concurred – in part – in the Court’s decision. Justices Ginsburg, Sotomayor & Breyer (in part) dissented. We’re posting memos in our “SEC Enforcement” Practice Area.
What About Prior ALJ Decisions?
As we’ve previously blogged, some have suggested that the decision to invalidate the SEC’s appointment process for its ALJs might call into question the validity of prior decisions. The Lucia Supreme Court didn’t speak to that issue directly, but if you’re interested in reading tea leaves, check out this excerpt from Justice Kagan’s opinion:
This Court has held that “one who makes a timely challenge to the constitutional validity of the appointment of an officer who adjudicates his case” is entitled to relief. Ryder v. United States, 515 U. S. 177, 182–183 (1995). Lucia made just such a timely challenge: He contested the validity of Judge Elliot’s appointment before the Commission, and continued pressing that claim in the Court of Appeals and this Court.
That emphasis on a “timely challenge” suggests that parties who didn’t make a timely objection to the ALJ’s authority in their particular case may be out of luck if they try to challenge a decision now. Or maybe not – look, I mostly played softball in law school, so don’t expect profound insights on SCOTUS opinions from me.
SEC to Consider Proposed Changes to “Smaller Reporting Company” Definition
According to this “Sunshine Act” notice, the SEC will consider adopting proposed amendments to the definition of the term “smaller reporting company” at an open meeting to be held next Thursday, June 28th. Other items of interest on the agenda include:
– Consideration of a proposed rule amendment that would mandate the use of “Inline XRBL” – which allows filers to embed XRBL data in filings – in operating company financial statement information and mutual fund risk/return summaries.
– Whether to propose amendments to the SEC’s whistleblower rules.
Let’s say you’ve filed a registration statement & one of your directors – we’ll call him “David Dennison,” for absolutely no reason in particular – signed the document through an attorney-in-fact. Is there a possibility that the now famous “he didn’t sign it” defense could call into question the validity of David’s signature?
This Olshan blog says that if you’ve properly complied with the requirements applicable to powers of attorney, there’s no reason to be troubled by the fact that one or more signatories executed the registration statement through an attorney-in-fact:
Proper powers of attorney should cover the specific filing being made by the company and any and all amendments to that filing, as well as all other documents in connection with the filing. The power of attorney, though electronically filed with a typed conformed signature in the document, should be manually executed by the officer or director and the original should be saved for at least five years.
If the power of attorney is in the Signatures section in Part II of the registration statement (with an appropriate reference thereto in the exhibits index), the manually executed original should be saved for five years, and all amendments to the registration statement manually signed by the attorney-in-fact on behalf of the officer or director should likewise be saved.
There are many valid business reasons to utilize a power of attorney and there is no legal reason why a corporate officer or director should not be deemed to have signed a registration statement in reliance upon a valid power of attorney.
Of course, if David subsequently says that the registration statement is “fake news,” that might be another kettle of fish. . .
Should You File That Shelf Now or Later?
Check out this Bass Berry blog if you’re trying to decide whether you should file a shelf S-3 now or wait until you’re planning to do a deal. For non-WKSI’s, the answer is usually easy – since your S-3 won’t automatically go effective, you can’t be sure that you won’t be delayed when you need it unless you get it on file & effective now.
The answer for a WKSI issuer is a little more complicated – and the blog lays out the pros & cons. Here’s an excerpt addressing one of the big reasons that even a WKSI might want to get a registration statement on file before a deal is imminent:
Given the fact that filing a registration statement has the potential to trigger financial statement filing requirements (such as the potential need to file retrospectively revised financials in connection with a change in business segments, the occurrence of discontinued operations, or probable or completed significant acquisitions or dispositions), filing a registration statement on a clear day at a time when such filing does not trigger financial statement filing requirements may prove beneficial in comparison to waiting to file a registration statement at the time of a future public offering when such financial statement filing requirements could be triggered.
Cons include the need to incur the costs associated with registration and the potential adverse effect on the stock price due to the perception that the company is signaling the market that a deal is coming.
Our June Eminders is Posted!
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While accounting departments throughout the nation may be pulling their hair out in an effort to get ready for FASB’s new lease accounting standard, this FEI article says that Wall Street analysts don’t seem to care very much about the new standard. Here’s an excerpt:
Despite the increasing drumbeat of concern regarding implementation of new lease accounting rules from financial preparers, there is palpable ambivalence from at least one major consumer of the new disclosures: Wall Street research analysts. Few, if any, analysts have questioned financial executives about their lease plans during the Q&A sessions of recent earning calls, where a majority of the accounting discussions revolved around revenue recognition issues.
And even once implementation begins in earnest as the 2019 deadline grows nearer, equity analysts admit they see fewer ramifications on their buy/sell decisions and models. “Revenue recognition affects all companies, while with leasing you may have some very specific industries and companies that are impacted significantly. From an equity analysis perspective we expect the lease accounting changes to be less complex,” says Zhen Deng, a senior analyst with CFR.”
This must be very encouraging news for those of you who just spent part of your holiday weekend dealing with some aspect of preparing for the new standard. As a colleague once said to me when a merger agreement I worked all weekend on got tossed into the garbage because the seller decided not to move forward, “Hey, at least it’s appreciated.”
Sell-Side Analysts: Still “Lake Wobegon U” Grads?
Speaking of securities analysts, remember former SEC Chair Arthur Levitt’s famous crack about them? “I worry that investors are being influenced too much by analysts whose evaluations read like they graduated from the Lake Woebegon [sic] School of Securities Analysis – the one that boasts that all its securities are above average.”
Levitt made those comments in a 1999 speech – and despite all of the water that’s gone under the bridge since then, this Marketwatch article says that Lake Wobegon U is still cranking out securities analysts:
There are no companies in the benchmark S&P 500 with majority “sell,” or equivalent, ratings among analysts. For the S&P 500, there are actually 505 stocks because five of the companies in the index have two classes of common stocks. Among the 505 stocks, analysts have majority buy ratings on 266.
For example, there are still 47 analysts who cover Amazon.com Inc. AMZN, -0.12% and 45 rate the stock “buy.”
There’s exactly one S&P 500 stock for which 50% of analysts rate the shares a sell: News Corp.’s class B shares NWS, +0.00% But it turns out that only two analysts cover the class B shares, while 13 analysts cover the class A shares NWSA, -0.06% For class A, four of the analysts rate the shares a buy, with eight neutral ratings and one sell rating.
The article says the same thing that many were saying back in the ’90s – read these reports for the valuable information they provide on companies & industries, but don’t rely on them for recommendations.
A member points out that it should be “Lake Wobegon,” and not – as Arthur Levitt & I originally spelled it – “Lake Woebegon.” I’ve learned my lesson, and that’s the last time I’ll ever rely on a former SEC Chair for spelling advice!
Analysts: From Russia with Guts
So is there any place where analysts call ’em as they see ’em? It turns out that the answer is yes, and it’s in the unlikeliest of places – Vladimir Putin’s Russia. This “FT Alphaville” blog tells the story of a brave man named Alex Fak, who until recently served as the head of research at Russia’s Sberbank. Here’s an excerpt:
Fak – who worked at the FT on a three-month fellowship in 2004 – was asked to resign after publishing a report that opined state gas monopoly Gazprom was ignoring its bottom line and benefiting its top contractors, including companies owned by Putin’s friends.
“Gazprom’s investment program,” which is seeing it spend $93.4bn on mega-projects like the Power of Siberia gas pipeline to China, Nord Stream-2 to Germany, and Turkish Stream, Fak and Anna Kotelkina wrote, “can best be understood as a way to employ the company’s entrenched contractors at the expense of shareholders.”
Fak went on to argue that Gazprom had abandoned other, cheaper capex projects that would have limited contractors’ ability to profit. If Gazprom were to be reformed after a recent government reshuffle and broken up into its components, Fak estimated, it would be worth $185bn – three times its current share price.
The blog says that Fak’s not the first analyst to be punished by a Russian bank for calling out inefficient state companies whose CEOs are “well connected.” Would a U.S. bank do the same? With all the Lake Wobegon U grads out there, it seems unlikely that we’ll ever know.
