In addition, I have found a Form 8-K filed by IsoRay from back in February where the company reported failing its SOP even though there were many more “For” votes than “Against” based on the way it decided to interpret Minnesota law (in comparison, Target – another Minnesota corporation – described the SOP standards a bit differently in its proxy statement – their way seems to make more sense). Actually, Seth Duppstadt of SharkRepellent.net found this for us – thanks!
The SEC recently announced its first use of a deferred prosecution agreement, one of the initiatives announced in January 2010 to encourage greater cooperation in enforcement investigations. The announcement of this agreement with Tenaris S.A. follows the agency’s first non-prosecution agreement in December with Carter’s Inc.
Tenaris, a manufacturer of steel pipe products, is incorporated in Luxemburg and has American Depository Receipts listed on the New York Stock Exchange. Tenaris allegedly bribed Uzbekistan government officials in bidding for government pipeline contracts, and made almost $5 million in profits from the contracts. A world-wide internal investigation triggered by other matters and conducted by outside counsel revealed Foreign Corrupt Practices Act violations in Uzbekistan. The company self-reported to the SEC and the Department of Justice, cooperated with the government and undertook extensive remediation efforts.
The SEC explained that Tenaris was an “appropriate candidate” for the agency’s first deferred prosecution agreement because of the company’s “immediate self-reporting, thorough internal investigation, full cooperation with SEC staff, enhanced anti-corruption procedures, and enhanced training.” The SEC noted that the “company’s response demonstrated high levels of corporate accountability and cooperation.”
Under the deferred prosecution agreement (available here), the SEC will refrain from bringing civil charges against the company; however, if the Enforcement Staff determines that the company has failed to comply with its obligations under the agreement, the Staff may then proceed with an enforcement recommendation to the Commission. The agreement includes a statement of facts that is not binding against Tenaris in other proceedings. Tenaris also agreed to cooperate with the SEC, DOJ and other law enforcement agencies; although the company shared the results of its internal investigation with the government, its continuing cooperation does not require it to waive the attorney-client privilege. Tenaris further agreed to pay $5.4 million in disgorgement and prejudgment interest. Relatedly, the company entered into a non-prosecution agreement with DOJ under which the company is paying a $3.5 million criminal penalty.
The factors and considerations that the Staff will rely upon in determining whether to enter into a non-prosecution agreement, a deferred prosecution agreement or a conventional settled enforcement action remain uncertain at this point, but, based upon the Commission’s actions to date, it is apparent that the breadth of any misconduct, the involvement of more senior corporate officers and a willingness to disgorge all profits from the alleged misconduct will likely be relevant factors beyond those specifically highlighted by the Staff in the Carter’s and Tenaris cases.
Wilson Sonsini Wins Chancellor Chandler Sweepstakes
As noted in this press release, Delaware Chancellor William Chandler announced he’s headed to Wilson Sonsini to open a Georgetown, Delaware office (as well as work in NYC). This WSJ blog captures the essence of the story – and here is more from Francis Pileggi…
Coming Soon: Over 175 New Derivatives Provisions
In their memo, Davis Polk notes that over 175 new Dodd-Frank derivatives provisions are scheduled to automatically go into effect on July 16th. Many of these provisions do not require action from market participants. Many other provisions could be deferred by the regulators based on their close connection to proposed rules. Yet, a number of significant self-executing provisions remain. The firm’s memo identifies some of these new provisions and some of the required tasks to become compliant with them.
The White House on Wednesday submitted to the Senate a pair of nominees for the Securities and Exchange Commission, requesting a second term for Democrat Luis Aguilar and naming former SEC staffer Dan Gallagher Jr. for a Republican seat that is due to become vacant in June. Mr. Gallagher, now a partner at law firm Wilmer Cutler Pickering Hale & Dorr LLP’s securities practice, served as a top official in the SEC’s trading and markets division during the financial crisis. He had served for several months as that division’s acting co-head when he left the agency in January 2010.
Mr. Gallagher, who joined the SEC in 2006, has served as counsel to former SEC Commissioner Paul Atkins and SEC Chairman Christopher Cox, both Republicans. Mr. Gallagher, if confirmed, would fill the seat being vacated by SEC Commissioner Kathleen L. Casey. Ms. Casey is stepping down next month, when her term expires. Mr. Aguilar, the Democrat, was nominated under President George W. Bush in 2008. His term expired last June. SEC rules allow commissioners to stay for as long as 18 months past the expiration of their terms if no successor has been appointed.
The SEC is an independent federal agency with five commissioners. With a Democrat in the White House, the commission is split, with three Democratic and two Republican seats. On commission votes, Mr. Aguilar typically sides with Chairman Mary Schapiro and Commissioner Elisse Walter, who occupy the other two Democratic seats. Messrs. Aguilar and Gallagher will need Senate confirmation. If confirmed, they would be serving at an agency that in recent months has stepped up insider-trading cases and is grappling with changes to the financial industry in the wake of the financial crisis.
SEC to Adopt Dodd-Frank Whistleblower Rules on May 25th
Next Wednesday, the SEC will hold an open Commission meeting to adopt final whistleblower rules under Dodd-Frank.
Putting an Overall Pricetag on XBRL
I’ve been blogging about the upcoming deadline regarding mandatory XBRL for smaller companies and the relative high pricetag for them. There is an interesting blog on this topic by Daniel Roberts, CEO of raas-XBRL, who estimates it will cost companies an aggregate of $550 million and over $1 billion during the 2011/2012 filing season.
Surprises from Spin-Offs
In this podcast, Carrie Darling of Callaway Golf Company shares her list of Top 5 surprises from spin-offs including:
– Work flow expectations and reality
– Culture (parent versus new co.)
– Restructurings
Poll: The Backyardigans
I had never heard of the TV Show called “The Backyardigans” but Carrie assures me it’s all the rage with the tot set and wanted me to post this poll:
In memory of Steve Carell’s departure from a fine show. An episode of “The Office” from a few seasons ago was a classic. Entitled “Shareholder Meeting,” the episode deals with a suffering corporate performance by Dunder-Mifflin – which is close to declaring bankruptcy – and an annual shareholder meeting that is not too far off the “bizarro” mark from Fortis’ crazy meeting last year. [The episode is archived on Hulu.]
The episode peaked at the end when Dwight Schrute endeavored to come up with a better way to run the meeting by making these suggestions during his turn to ask a question of management during the Q&A portion of the meeting:
“I’ve been standing in line all day. If this is any indication about how this company is being run, we are in big trouble. I want to say that there are options. What about taking a number? What about line varieties? Like an express line for quick comments of ten words or less that could move much more efficiently. What about ropes along the lines that you can hold on to?”
Corporate Governance Analysis: Issues Raised by “The Office”
Taking a page from the “That’s What She Said” Blog – a blog devoted to analyzing the employment law issues raised by “The Office” – below is my analysis of a few of the governance issues raised by this shareholder meeting episode:
1. Heavy security presence – Although a heavy security presence can needlessly scare attendees, it does make sense if a company believes there can be trouble and it wants to dissuade any would-be troublemakers from acting out. Given that Dunder Mifflin was in financial trouble, it probably was reasonable in this case.
2. Informing attendees of the ground rules – Attendees got rowdy pretty early, booing management right off the bat. Management should have done a better job controlling the meeting so it wouldn’t get out of control. One step in this direction is handing out ground rules for meeting conduct as folks came in the door.
3. Handling speakers – The all-white male senior management team also did poorly in managing its own microphone – allowing a middle manager (Michael Scott) to go beyond prepared remarks and blurting that the company had a 45-day plan when it didn’t. Not that I believe management’s remarks need to be completely scripted – but only true spokespersons should be delivering key statements. Then again, management was clueless in the face of angry attendees, essentially forcing Michael to do something to stem the tide.
4. 15-minute break during meeting – After Michael’s outburst about a non-existent plan, management called for a meeting break. This is not a bad idea if a meeting is getting out-of-control.
5. Long lines to ask questions – Perhaps the biggest surprise was that in terms of good governance, the meeting wasn’t a total wash. Numerous microphones were available and management appeared prepared to allow any and all questions.
6. Whistleblower protection – “That’s What She Said” provides analysis of the whistleblower implications of this episode, as well as the employee relations nightmare caused by management showing up in limos.
Poll: Who Should Serve as Inspector of Election & Tabulator for Annual Shareholder Meetings?
I’ve written before about my opinion on this topic – and practice still widely varies (and is evolving) – but this poll asks your opinion rather than what the practice actually is at your company (or at your clients):
Early Bird Extended for Say-on-Pay Intensive Conference – But One Time Only: Due to so many requests from those too mired in the proxy season to make the budget request, we have extended the early bird discount for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” We will not be able to extend this deadline again. Save 25% by registering by June 24th at our early-bird discount rates.
Posted: Complete List of Say-on-Pay Additional Soliciting Materials
Thanks to Dave, we have greatly expanded the list of additional soliciting materials filed by companies who campaigned for their say-on-pay – typically by disputing recommendations made by ISS in a letter to shareholders – in CompensationStandards.com’s “Say-on-Pay” Practice Area. We have 31 examples posted.
A note from a respected compensation consultant: “One of the reasons the Europeans are so muted in their criticism of pay is they get a fraction of the information the US and UK puts out. It is also worth noting that equity is vastly less in the EU than the US, so pay levels are much less.”
DOL: Considers Updating E-Delivery Standards for Employee Benefit Plans
Here’s news from Jeff Capwell and Lindsay Goodman of McGuireWoods, pulled from this memo: The DOL recently issued a request for information about providing information electronically to participants and beneficiaries of ERISA-covered employee benefit plans. Existing DOL standards for electronic delivery of plan information have been unchanged since 2002. Responses must be submitted by June 6th.
Last year, I blogged several times about Senator Grassley’s desire for a study to be conducted regarding SEC Staffers who depart for jobs at organizations that they regulate. I also blogged that this issue is as old as the SEC itself. And note that it’s an issue that exists at most federal agencies, not just the SEC (eg. last week’s FCC Commissioner announcement).
Ahead of reports expected from the GAO and the SEC’s Inspector General on the topic, the Project on Government Oversight (POGO) released a study on Friday that shows – between 2006 and 2010 – at least 219 former SEC staffers appeared before their former agency on behalf of private-sector clients in 800 different matters. POGO also has made its database available online, where you can search by Division or even an individual (yes, Big Brother is watching). Here’s an article covering the study.
Perhaps even more troublesome for the SEC, a House Financial Service Committee hearing produced fireworks on Friday when it was revealed that the former Chief of the SEC’s Fort Worth Regional Office – Spencer Barasch (now at Andrews Kurth) – has become the subject of a criminal investigation for continuing to represent fraudster Allen Stanford even after he was repeatedly told by the SEC’s Ethics Office that he couldn’t under rules barring former senior Staffers for appearing before the SEC on matters that they worked on during their time on the Staff. This NY Times article notes that Barasch blocked efforts to pursue Stanford at least 6 times over 7 years when he was at the SEC. Not good.
The SEC’s Whistleblower Office Does Not Want To Talk To You
Hat tip to Werner Kranenburg for pointing out this Forbes’ article entitled “SEC Whistleblower Office Does Not Want To Talk To You.” The author – Edward Siedle – tried calling the SEC’s new Office of the Whistleblower with disturbing results.
The SEC’s home page features a prominent button called “Questions – Tips and Complaints – Whistleblower Provisions,” right up in the top right corner. Prime real estate. But when you navigate to any of the pages associated with that button, your only options are submitting your facts electronically or through snail mail. No phone number.
And then Edward apparently called the Office of Public Affairs who told him the new Office didn’t exist (even though the SEC made the effort to issue this press release announcing the new head – my good friend Sean McKessy – back in February, even though the Office hadn’t been created yet. It still doesn’t exist as it’s still not funded). Edward was then given a phone number that wound up being the Office of Investor Education. And whistleblowing is not really their forte…
The Bigger Picture: Why Doesn’t the SEC’s Enforcement Division Provide a Phone Number?
Besides one more episode making the SEC seem silly, this article raises a serious issue. I often support the SEC – in this blog and otherwise – because I strongly believe in its mission, I’m in awe of the wisdom of many of its Staffers and I recognize how tough it is to get things accomplished there given its limited resources. But I had assumed that a fundamental problem from when I served there a dozen years ago had been fixed.
Now, I realize I was wrong to make that assumption. When I served in Corp Fin’s Office of Chief Counsel, a fair number of the calls I returned – returning calls to those with interpretive questions is the largest component of that job – were to laypeople who had some type of Enforcement complaint. Since the Division of Enforcement didn’t allow anyone with a fraud tip to phone it in, those calling the SEC with a complaint often got routed to Corp Fin – by the SEC’s receptionist I suppose – and trust me, it was not my favorite part of the job.
For starters, I wasn’t in Enforcement and I had enough on my plate as it was. But the real reason that I didn’t like these calls is that I couldn’t help them – they simply had made a bad investment decision and no fraud was involved. The caller just needed someone to talk to (i.e. they were kicking back drinking a beer on their couch, with Maury blaring in the background). Of course, the few calls that I received that appeared “legitimate,” I referred to the Enforcement Division.
Anyways, I always was troubled that Enforcement didn’t bother to make themselves accessible because collecting fraud tips is one of their primary functions regardless if a tip proves meaningful or not. As far as I can tell – nothing has changed. Here is Enforcement’s page regarding how to submit a tip – and that page eventually leads you to an online portal that requires a bunch of data to be submitted regarding your tip (after you click “accept” on a lengthy disclaimer). No phone number is posted. And this is a framework that doesn’t seem to provide a lot of comfort that taking the time to report a fraud will result in any action.
I know that Enforcement is strapped and has nowhere near the manpower it needs to pursue the numerous open investigations that it already has open. But it would seem relatively easy to rotate a group of Enforcement Staffers to pull phone duty so that someone would always be available to either take new complaints by phone or respond to calls left on voicemail. This is something that I imagine every other enforcement agency in the country maintains – and it would be seem particularly important to establish after the grief the SEC has received in the wake of Bernie Madoff, Allen Stanford, etc. Until that happens, I imagine the good folks in Corp Fin’s OCC receive fraud complaints and are taking in Maury…
I was surprised to see that the SEC’s Division of Trading and Markets issued a new no-action response related to electronic roadshows last week – this one to Roadshow Broadcast LLC.
I was surprised because a string of these letters were among the first positions that the SEC Staff took back in the late-90s related to the Internet (remember NetRoadshow I and II? Private Financial Network?) – I worked on a few of the letters when I served in Corp Fin – and then the Staff said they would issue no new letters. In 2005, the SEC adopted rules that superseded these no-action positions as part of its huge Securities Act Reform rulemaking. But I believe this new letter is different, relating to broker-dealer activity and not covering the same ground as in the prior letters. In fact, Corp Fin is not even a party to this new letter…
Your Legal Career in 6 Words or Less
I loved this “Legal Blog Watch” that cross-references Ross Fishman’s interesting challenge to lawyers and law marketers: Can you summarize your “lives, careers, experiences, firms – or just something [you’ve] been thinking about” in six words or less? Ross has many fine examples that he received on his blog.
Mine? It would be: “Still crazy after all these years,” with “Get crazy. Get loose. Go nuts” a close second…
We have posted the survey results regarding the latest disclosure controls and disclosure committee trends, repeated below (this new survey supplements the 2005 survey on disclosure committees):
1. Does your company have a formalized, written set of “Disclosure Controls & Procedures”?
– Yes – 66.7%
– No – 33.3%
2. Have your company’s Disclosure Controls & Procedures been formally updated and revised in the last year?
– Yes – 30.6%
– No formal changes, but there have been some informal changes during the last year – 27.8%
– No, there have been no changes in the last year – 41.7%
3. Does your company have a Disclosure Committee Charter?
– Yes – 58.3%
– No – 41.7%
– We don’t have a formal Disclosure Committee – 0%
4. If there is a formal Disclosure Committee, who is the chairman of the Disclosure Committee?
– General Counsel – 14.3%
– Securities Counsel – 5.7%
– CFO – 31.4%
– COO – 2.9%
– Controller – 25.7%
– Corporate Secretary – 0%
– Other – 20.0%
Please take our new “Quick Survey on Regulation FD Practices .”
5-Year Study: CFO and Auditor Departures Occurring Near Issuance of a Restatement
In their new study covering a five-year period, Audit Analytics reviewed both CFO and auditor changes and compared them to changes that occurred near the disclosure of a financial restatement. In the study, Audit Analytics considered a change to take place near a restatement if the change fell within the one-year time window beginning three months before and ending nine months after the disclosure of the restatement. The findings include:
– CFO Perspective: A review of CFO changes showed that the chance of a departure increased near the occurrence of a restatement, but the vast majority of the increase was attributable to CFO resignations, not dismissals. Therefore, CFOs that are required to restate financials do not appear to expose themselves to a considerable increase in the risk of dismissal.
– Auditor’s Perspective: Auditors, on the other hand, show an increase in both resignations and dismissals when a company discloses a restatement.
– Company’s Perspective: The loss of a CFO or auditor can be disruptive to a company. While approximately 24% of the general population tend to lose a CFO or auditor in a given year, about 37% of companies that file a restatement experience such a departure.
Mailed: March-April Issue of The Corporate Executive
The March-April Issue of The Corporate Executive includes pieces on:
– Dodd-Frank Update: Proposed Compensation Committee and Adviser Independence Rules
– Update on Restricted Stock and RSUs
– Correcting Social Security Withholding Errors
– Say-on-Pay: The Results So Far
Act Now: Get this issue rushed to you by trying a No-Risk Trial today.
Beginning May 9, 2011, the letter the Division staff will send to companies upon completion of the review of their Exchange Act filings will contain the following paragraph:
“We have completed our review of your filing[s]. We remind you that our comments or changes to disclosure in response to our comments do not foreclose the Commission from taking any action with respect to the company or the filing[s] and the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. We urge all persons who are responsible for the accuracy and adequacy of the disclosure in the filing[s] to be certain that the filing[s] include[s] the information the Securities Exchange Act of 1934 and all applicable rules require.”
As Corp Fin’s notice merely repeats the Tandy language that companies already provide when they respond to Staff comments, that’s not really news. But the real news may be that Corp Fin may start regularly using this “Division Announcements” avenue to communicate with us…
Capital-Raising Reform: SEC Chair Schapiro Testifies Before the House
A month ago, I blogged about the back and forth letters between SEC Chair Schapiro and Rep. Darrell Issa on capital-raising reform, particularly for pre-IPOs. Below is an excerpt from near the end of Chair Schapiro’s testimony that she delivered yesterday before the House Committee on Oversight and Government Reform. In her testimony, Chair Schapiro lays out a list of potential rulemakings in the capital-raising area that could happen in the near future (here’s a related Mercury News article):
As discussed above, I recently asked the staff to take a fresh look at our offering rules in light of changes in the operation of the markets, advances in technology and the acceleration in the pace of communications. I also requested that the staff think creatively about what the SEC can do to encourage capital formation, particularly for small businesses, while maintaining important investor protections. Areas of focus for the staff will include:
– the restrictions on communications in initial public offerings;
– whether the general solicitation ban should be revisited in light of current technologies, capital-raising trends and our mandates to protect investors and facilitate capital formation;
– the number of shareholders that trigger public reporting, including questions surrounding the use of special purpose vehicles that hold securities of a private company for groups of investors; and
– regulatory questions posed by new capital raising strategies.
In conducting this review, we will solicit input and data from multiple sources, including small businesses, investor groups and the public-at-large. The review will include evaluating the recommendations of our annual SEC Government-Business Forum on Small Business Capital Formation, as well as suggestions we receive through an e-mail box we recently created on our website. In addition, I expect our efforts to benefit from the input of the new Advisory Committee on Small and Emerging Companies the Commission is in the process of forming, which will provide a formal mechanism for the Commission to receive advice and recommendations about regulatory programs that affect privately held small businesses and small publicly traded companies.
– How are iPads being used as a way for directors to receive and view Board materials?
– How many directors are using iPads right now?
– What tips do you have for transitioning to iPads for board materials delivery?
I have now posted the speakers for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Here’s the “Proxy Disclosure Conference” agenda – and here’s “The Say-on-Pay Workshop Conference” agenda.
I’ve assembled an all-star cast to ensure you are fully prepared for Round 2 of say-on-pay. Not only are ISS and Glass Lewis representatives speaking multiple times, but you will hear from in-house people about how they grappled with proxy advisor recommendations they didn’t agree with. From companies that nearly failed say-on-pay. From many well-known compensation consultants and proxy solicitors. And perhaps most importantly, from the folks that actually vote the proxies – institutional investors – including these speakers:
– Vineeta Anand – AFL-CIO
– Donna Anderson – T. Rowe Price Associates
– Anne Chapman – Cap Re
– Michelle Edkins – BlackRock
– Kurt Schacht – CFA Institute
– Anne Sheehan – CalSTRS
– Albert Meyer – Bastiat Capital
Less Than Three Days Left for Early Bird: Save 25% by registering by this Friday, May 13 at our early-bird discount rates.
Whistleblower Laws in Court
On May 3rd, as noted in this memo, the 9th Circuit Court of Appeals held that the whistleblower law in Section 806 of Sarbanes-Oxley do not protect leaks to the media in Tides v. Boeing. This is the latest in a long line of whistleblower cases brought since SOX was enacted nearly a decade ago.
The next day, the US District Court – Southern District of New York – in Egan v. TradingScreen Brokerage Services – issued this order that takes a detailed look at who may invoke the anti-retaliation provisions under Section 922 of Dodd-Frank and what is required to invoke the protection. Although we are still waiting for final whistleblower rules from the SEC regarding whistleblower bounties, Dodd-Frank does allow for a private right of action. I believe this is the first whistleblower case under Dodd-Frank. Learn more in Kevin LaCroix’s “D&O Diary” Blog.
First Uses of Golden Parachute Approvals at Annual Meetings
In his “Dodd-Frank.com Blog,” Steve Quinlivan identifies the first five companies to use the optional advisory approval of golden parachute arrangements permitted by Dodd-Frank in connection with an annual meeting. Check it out.
Last week, four more companies filed Form 8-Ks reporting failed say-on-pay votes – and a fifth reported a near failure. The companies that failed were: Stewart Information Services (48%); Dex One (48%); NVR (44%); and Penn Virginia (39%). The near failure is well described by Mark Borges in his “Proxy Disclosure Blog” on CompensationStandards.com: “Cooper Industries reports that its “Say on Pay” proposal was approved by a vote of 50.36% – 49.64%. While the company indicates in its proxy statement that abstentions are not to be considered votes cast at the annual meeting (and, thus, have no impact on the vote’s outcome), there were over 2 million abstentions recorded. Had they been considered “negative” votes, the proposal would have been defeated, 50.4% 0 49.6%. Needless to say, the company would be well advised to pay close attention to its shareholders’ concerns about its executive compensation program.”
Less Than Four Days Left for Early Bird: Our Say-on-Pay Intensive Conference Lineup – We have announced the line-up for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save 25% by registering by May 13 at our early-bird discount rates.
Rumor: SEC Adopts Whistleblowing Rules on May 25th?
Many members are asking when the SEC will adopt its final rules regarding whistleblowing as required by Section 922 of Dodd-Frank. Originally, it was thought the SEC would act by the end of April. According to this Reuters article (entitled “SEC cool to corporate demands on whistleblowers”), the SEC may act on May 25th. More often than not, these rumors prove to be false – particularly here where a House Financial Services hearing on the proposal will be held on May 11th – and thus, I rarely blog about them. But given the keen interest, there you have it…
The Nuts & Bolts of Bank M&A
Tune in tomorrow for the DealLawyers.com webcast – “The Nuts & Bolts of Bank M&A” – to hear Bill Hickey of Sandler O’Neill & Partners, Rich Schaberg of Hogan Lovells, Larry Spaccasi of Luse Gorman and Suzanne Walker of Kilpatrick Townsend explore the latest trends and developments in bank mergers and acquisitions.
