In a sign that the SEC is continuing to consider the implementation of International Financial Reporting Standards, the SEC just announced a roundtable on July 7th for the purpose of discussing topics such as investor understanding of IFRS and the impact on smaller public companies and on the regulatory environment of incorporating IFRS. The roundtable is expected to involve three panels representing investors, smaller public companies, and regulators.
While on the topic of roundtables, the SEC also announced plans to hold a two-day roundtable jointly with the CFTC on May 2nd and 3rd to discuss the schedule for implementing final rules for swaps and security-based swaps under the Dodd-Frank Act.
A Strongly-Worded Defense of Dodd-Frank Act Implementation
In a speech earlier this week, Deputy Treasury Secretary Neil Wolin defended the Dodd-Frank Act and its implementation, taking on various criticisms of the law point by point. While the speech had no title, perhaps its theme is best described as “How Quickly They Forget.” Specifically with regard to the pace of reform under Dodd-Frank, Wolin addressed the critics by stating:
After the Dodd-Frank Act was signed into law last summer, many in Washington and in the financial services industry said that the legislation lacked details, and that the uncertainty of the shape of final regulations made it difficult for businesses to plan for the future. They called for clarity, and they wanted it fast. We said that regulators would move quickly but carefully to implement the legislation. We said that we would seek public input. We said it’s critical to get the details right. Recently, some of these very same critics – those who previously demanded clarity as quickly as possible – are saying that we’re moving too quickly. They now suggest that too many details are coming too fast. They say that regulators aren’t setting aside sufficient time to study the issues and make the right decisions, and that businesses won’t have time to adjust to the new regulations. Our response to them remains the same. Regulators have been and are moving quickly but carefully to implement this legislation. We continue to seek public input. And of course, it remains critical to get the details right. Although there may be reasonable debate about the substance of Dodd-Frank implementation work, there is no question that regulators have been implementing the statute in a careful, considered, and serious manner.
SEC and CFTC’s Joint Study on Mandating Algorithmic Descriptions for Derivatives
Meanwhile, the Dodd-Frank implementation effort marches on. Recently, the SEC and CFTC delivered to Congress a joint study on the “the feasibility of requiring the derivatives industry to adopt standardized computer-readable algorithmic descriptions which may be used to describe complex and standardized financial derivatives” as required under Section 719(b) of Dodd-Frank. As noted in this press release, the joint study concludes that current technology is capable of representing derivatives using a common set of computer-readable descriptions – and that these descriptions are precise enough to use both for the calculation of net exposures and to serve as part or all of a binding legal contract.
With articles appearing now in local papers about Say-on-Pay (here is a representative Baltimore Sun article from over the past weekend), it now seems that the Dodd-Frank mandated Say-on-Pay votes have finally seeped into the public consciousness. It is no surprise then that the SEC’s Office of Investor Education and Advocacy has just put out this slick Investor Bulletin on Say-on-Pay and Say-on-Golden Parachute votes. The purpose of the bulletin appears to be to explain, in neutral, plain terms, what the Say-on-Pay, Say-on-Frequency and Say-on-Golden Parachute votes are all about and why they are turning up in proxy statements this year. Unlike last year’s Investor Bulletin New Shareholder Voting Rules for the 2010 Proxy Season (dealing with the change to NYSE Rule 452 for the election of directors), it doesn’t appear that the SEC or the Staff is encouraging that this Say-on-Pay Investor Bulletin be expressly referenced in proxy statements.
Keep in mind that the Say-on-Golden Parachute voting and disclosure requirements are effective for initial filings made on or after this coming Monday, April 25th. To date, it appears that very few companies have opted to get the “advance” advisory approval of golden parachute compensation by including the Golden Parachute Compensation table and related disclosures in the annual meeting proxy statement so that it is subject to the Say-on-Pay vote. I have only counted five so far, but let me know if you have come across more than that.
Occidental Petroleum to Participate in First “Fifth Analyst Call”
As expected, Say-on-Pay has focused a great deal of attention on the engagement process this year, as companies explore new ways to have an effective dialogue with shareholders regarding corporate governance and executive compensation issues. According to this Dow Jones Financial News article, a group of investors led by F&C Asset Management and Railpen Investors is advocating the use of the “fifth analyst call” as a means for accomplishing effective engagement. The “fifth analyst call” is intended to supplement the four quarterly analyst calls with a call that is focused exclusively on corporate governance matters. The idea is that the call will occur between when the proxy statement is filed and the date of the annual meeting, so that the discussion can be about the corporate governance matters and executive compensation disclosed in the proxy statement.
The article notes that Occidental Petroleum has said that the company’s lead independent director and the chair of the executive compensation and human resources committee will participate in the first such “fifth analyst call,” which is scheduled to take place on April 26th. It remains to be seen whether others will follow Occidental Petroleum in adopting this approach.
For more on the “fifth analyst call” concept, check out this entry by Karen Kane of Karen Kane Consulting on The Mentor Blog.
Understanding Matrixx Initiatives
In this podcast, my colleagues Erik Olson and Stephen Thau of Morrison & Foerster talk about the recent Supreme Court case, Matrixx Initiatives v. Siracusano:
– What is the background of the case?
– What was the Supreme Court’s holding?
– What does this mean for companies going forward?
At the “Dialogue with the Director” session at last week’s ABA Spring Meeting in Boston, Corp Fin Director Meredith Cross indicated that the Staff plans to withdraw Regulation S-K Compliance and Disclosure Interpretation Question 116.08, which was issued last month to say that Instruction 3 to Item 401(a) of Regulation S-K only applied in the case of proxy statements, such that Item 401(a) and Item 401(e) disclosures about a director whose term would not continue past the annual meeting would need to be provided directly in Part III of Form 10-K or incorporated by reference into Part III from the proxy statement in order to satisfy the Form 10-K disclosure requirements. Going forward, the Staff’s position will be that biographical information for a non-continuing director need not be included in a proxy statement incorporated by reference into Part III of Form 10-K (in reliance on Instruction 3 to Item 401(a)), however an issuer that is including the Part III information directly in the Form 10-K (and thus does not have the benefit of Instruction 3 to Item 401(a)) would have to include the Item 401(a) and (e) information about the non-continuing director in the Form 10-K. Revised Regulation S-K C&DIs are expected out soon.
FINRA to Re-propose Rules on Broker-Dealer Participation in Private Placements
Also at last week’s ABA Spring Meeting in Boston, FINRA representatives announced that the FINRA Board of Governors had approved a re-proposal of the recent proposal to expand Rule 5122 to govern all private placements in which a member firm participates. As this Morrison & Foerster memo notes:
The most critical proposed revisions for participation of broker-dealers in offerings of unaffiliated entities are:
– Eliminating the provision that 85% of the proceeds (i) be used for the business purposes disclosed in the offering document, and (ii) not be used to pay offering costs, commissions or other compensation to participating broker-dealers and their associated persons;
– Requiring disclosure of use of proceeds;
– Changing the date of filing of the private placement memorandum (“PPM”) to 15 days after either commencement or first offer (not first sale), in order to avoid affecting the capital formation process;
– Creating a new Rule 5123 to address participation of broker-dealers in offerings by unaffiliated entities, thereby leaving the provisions of current Rule 5122 in place (including the 85% use of proceeds provision) for participation in offerings by affiliated entities;
– Retaining the expanded definition of “participation” (from Rule 5110(f)(5)); and
– Possibly adding an exemption for M&A transactions.
More on “The Mentor Blog”
We 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:
– More on “Are Auditors Becoming Irrelevant?”
– Enlightened Companies: Step Up and Co-opt the Fifth Analyst Call
-101 Suggestions for Corporate Law Students
– Study: The Latest IPO Trends
– A Governance Interview with Microsoft’s John Seethoff
Last week, the Supreme Court of Canada held a two-day hearing on the constitutionality of a federal Securities Act that was initially proposed back in May 2010. The Act would establish the Canadian Securities Regulatory Authority, which would oversee the regulation and enforcement of uniform federal securities laws in Canada. As anyone who has worked on a Canadian offering well knows, to this day Canada still works under a complex provincial system of securities regulation.
The Court of Appeals of both Alberta and Quebec ruled that the federal Securities Act was outside of the jurisdiction of the Canadian federal government, thus bumping the case up to the Supreme Court. Several provinces made submissions to oppose the legislation, including New Brunswick, Manitoba, British Columbia and Saskatchewan.
Following the hearings on April 13th and 14th, the Supreme Court reserved its decision. You can follow the proceedings on this Stikeman Elliott Canadian Securities Law Blog.
DOL OIG Issues Report on Proxy Voting by Pension Funds
The Office of Inspector General-Office of Audit of the U.S. Department of Labor recently issued its report entitled “Proxy-Voting May Not be Solely for the Economic Benefit of Retirement Plans,” which was prompted by continuing concerns about whether pension plans comply with the Employee Benefits Security Administration (EBSA) requirement that fiduciaries vote solely for the plan’s economic interests and that named fiduciaries periodically monitor proxy voting decisions made by third parties. This report follows a 2004 Government Accountability Office (GAO) study, which raised concerns about legal challenges created by ERISA and DOL statutory authority in ensuring that the requirement of “proxy-voting solely for economic interest” is carried out. Without adequate monitoring or enforcement of the proxy-voting requirements, the concern is that fiduciaries are using plan assets to support or pursue proxy proposals for personal, social, legislative, regulatory or public policy agendas which have no clear connection to increasing the value of investments for the benefit of plan participants.
The DOL OIG noted that the EBSA doesn’t have adequate assurances that fiduciaries or third parties voted proxies solely for the economic benefit of plans, and that the EBSA has dedicated few resources to the enforcement of the requirement. The report recommends that: (1) ERISA be amended to give the Secretary of Labor the authority to assess monetary penalties against fiduciaries that don’t comply with the proxy voting requirements; (2) the proxy-voting requirements be amended to require documented support for fiduciary monitoring of the economic benefit of voting decisions; and (3) the EBSA include proxy-vote monitoring in enforcement investigations. The Assistant Secretary for the EBSA did not agree to implement any of the OIG recommendations.
Mailed: March-April Issue of The Corporate Counsel
The March-April Issue of The Corporate Counsel includes pieces on:
– Today’s Marketplace for Securities of Pre-Public Companies
– Mary Schapiro’s April 6 Letter to Congress
– The Big Banks’ Loss Contingency Disclosure Approach–Will it Satisfy the SEC (and FASB)? – What if it Doesn’t?
– Capital Raising Methods Currently in Vogue–Chart
– Exhibit 5 Opinions in Shelfs–Staff Project
– Foreign Private Offering by U.S. Issuers?
– Backdating Stock Option Exercises–Mercury CFO’s Conviction
– Charter or Bylaw Forum Selection for Derivative Action
– A Few IFRS Convergence Thoughts from OCA Head
– Disclosure of Political Contributions
Act Now: Get this issue rushed to you by trying a No-Risk Trial today.
Last week, this WSJ article reported how Rep. Darrell Issa had sent this 17-page letter to the SEC on March 24th regarding small business capital formation, particularly in the pre-IPO context. That set off a barrage of news coverage. Last week, SEC Chair Schapiro responded with this 26-page letter, indicating that she has ordered a review of all the rules affecting capital formation for small companies and is reconsidering current restrictions on communications in IPOs. Learn more in the March-April issue of The Corporate Counsel that is being dropped in the mail today.
Small Company Capital Formation Act of 2011: Regulation A Revival?
On March 14th, Representative David Schweikert (R-AZ) introduced the Small Company Capital Formation Act of 2011 in the U.S. House of Representatives. The bill seeks to increase the offering threshold from $5 million to $50 million for public offerings of smaller companies exempt from registration under the Securities Act pursuant to Regulation A. The bill also will require the SEC to review the threshold every two years.
Activists Target Companies With Market Caps Over $50 Billion
From this memo by Marty Lipton of Wachtell Lipton:
In a speech to the Council of Institutional Investors last week, Nelson Peltz, one of the most successful of the activist investors, said the recent changes in corporate governance would enable him to make investments in the heretofore “untouchables”–companies with market capitalizations over $50 billion. Mr. Peltz noted that the new governance rules give activists more tools with which to pressure companies, noting that larger companies provide bigger profit opportunities than smaller companies.
Activist investors with significant records of success will be able to use the new governance rules to convince institutional investors, like the members of the Council of Institutional Investors, to join them in pressuring companies to change their business strategies to those advocated by the activists, whether or not they are in the best interests of the long-term success of the companies and their long-term investors.
There has been a notable increase in hostile takeover and activist investor activity this year. If the present favorable market conditions for this activity continue, there will be a further increase. There is also little doubt that Mr. Peltz’s prediction that the targets will be among the largest companies is also correct. All companies, even the very largest, should have up-to-date plans for dealing with activists and strategies to avoid inviting the notice of activists.
Heading Out for Spring Break!
I’m headed out for a week off – Spring Break ’11, doing the college campus tour thing with my oldest son. Reminds me of my youth, working in Fort Lauderdale for a spring break season after I graduated college. That’s back when Lauderdale was popular for spring break. Remember Spuds McKenzie?
Last week, the Senate Banking Securities subcommittee held a hearing on the Accounting and Auditing Profession (here is all the written testimony; here’s archived video of the hearing). Jim Hamilton covered some of the proceedings in his blog – and here are some thoughts from The Center for Public Integrity.
Lynn Turner testified at the hearing and below are some of his thoughts about it:
I have been attending and/or testifying at these hearings since 1985. What caught my attention is how similar some of the testimony was to what one might have heard back then with respect to standard-setting, albeit the numbers on the standards have changed. There was almost no retrospective review of what had gone wrong – e.g., why had the FASB not fixed its broken standards for things such as off balance sheet and risk disclosures – before things ended up as they did? Senator Reed, who chaired the hearing, asked: why weren’t there any warning signals from auditors and – why were the problems with financial reporting allowed to go on for so long? He pressed the FASB for a response as to why – after Enron and Sarbanes-Oxley – did the FASB not get the problem with off-balance sheet debt fixed?
Anton Valukas stated during his oral remarks that accountants and auditors need to quit hiding behind materiality and start doing financial reporting based on ensuring transparency. It was noted the FASB has been urged to adopt a standard, similar to what the SEC has, that would require disclosure of material information if it is needed to keep the financial statements from being misleading. Senator Reed asked the Executive Director of The Center for Audit Quality if she would support that and in her response, she skipped around the question without providing an answer – so much for audit quality.
In addition, she was asked if she would support Congress permitting the PCAOB to make their enforcement proceedings public, similar to what the SEC does today. Again she did not respond to the question, saying the PCAOB enforcement process that goes through the SEC is public, which is absolutely not correct. Needless to say, any of the audit firms could make public their Part II of the PCAOB inspections but have refused to do so. Here is my own testimony.
As a sidenote, check out this letter to the SEC from the Institute for Management Accountants about the IASB due diligence process.
How Secrecy Undermines Audit Reform
As the NY Times’ Floyd Norris covered well in his recent column, new PCAOB Chair Jim Doty delivered this speech before the CII recently and said that the PCAOB had gone back and inspected the audits of many companies that later failed or were bailed out. Specifically, he stated: “In several cases — including audits involving substantial financial institutions – PCAOB inspection teams found audit failures that were of such significance that our inspectors concluded the firm had failed to support its opinion.”
Here is an excerpt from Floyd’s column:
That is, it should be noted, not the same as saying the financial statements were wrong. It is possible that the audit firm did not do enough work to know if the statements were accurate but that they would have been acceptable even to a proper audit. Moreover, as Mr. Doty noted, “Auditors were not charged with enforcing good risk management practices at financial institutions.” But they were supposed to make sure the statements reflected the conditions at the time. That appears not to have happened at Lehman Brothers, at least when it came to leverage, and it might not have happened at other banks.
Foreign Corporations: Subject to California Law Requiring Disclosure of Voting Results
In 2009, the Securities and Exchange Commission amended Form 8-K to require reporting companies to report shareholder voting results within four business days. How do shareholders in private companies get access to this information? While it seems likely to me that most states would allow shareholders to obtain this information pursuant to general common law or statutory inspection rights, California statutorily requires corporations to provide this information.
California’s Requirement
For a period of 60 days following a shareholders’ meeting, a corporation must upon the written request of a shareholder “forthwith” inform the shareholder of the result of any particular vote. Cal. Corp. Code § 1509. This requirement applies to both annual and special meetings. The corporation must disclose:
– The number of shares voting for,
– The number of shares voting against, and
– The number of shares abstaining or withheld from voting.
In the case of election of directors, the corporation is required to report the number of shares (or votes in the case of cumulative voting) cast for each nominee.
Foreign Corporations
Foreign corporations (i.e., corporations not organized under the California General Corporation Law) that are qualified to transact intrastate business in California are required to provide this information at the request of a shareholder resident in California. Cal. Corp. Code § 1510(a). According to the California Secretary of California, there are more than 80,000 foreign corporations qualified to transact business in California.
In addition to natural persons residing in California, a shareholder will be considered resident in California if it is a state bank, national bank headquartered in California or any retirement fund for public employees established or authorized by California law. Cal. Corp. Code § 1510(b). Even if the foreign corporation is not qualified to transact business in California, it can be subject to the disclosure requirement if it has one or more subsidiaries that are domestic corporations or foreign corporations qualified to transact intrastate business in California. Finally, California has expansive provisions for determining who is a shareholder for purposes of this requirement. Cal. Corp. Code § 1512.
Like Disney and Hewlett-Packard before them (see this blog), General Electric and Northern Trust recently filed additional soliciting materials challenging ISS’s recommendations on their say-on-pay. We are compiling a list of all the companies that do this on CompensationStandards.com’s “ISS Policies & Ratings” Practice Area.
GE notes a “significant disagreement” with ISS. GE’s materials directly confront ISS. GE’s points are:
– ISS’s analysis fails to consider actions that aligned pay with performance during the recession.
– Mr. Immelt’s pay increased a modest 6.4% since 2007, the last year he received a bonus.
– ISS’s valuation of Mr. Immelt’s option grant significantly overstates his total compensation.
– ISS’s model to value options differs from GE’s model and is inconsistent with applicable accounting guidance.
Northern Trust
ISS claims Northern Trust has a pay-for-performance disconnect. Northern Trust’s materials reemphasize components of compensation related to equity-based incentive pay, cash incentives and business results. Northern Trust also claims that ISS’s calculations of comparative financial performance are flawed because the index includes several companies engaged in entirely different and unrelated businesses. Its also worth noting that Glass Lewis & Co. recommended shareholders approve executive compensation.
Yesterday, Allegheny Technologies joined those fighting their proxy advisor recommendation with these additional solicitation materials. And ISS’s Ted Allen blogged about how AFSCME has launched the first public “just vote no” campaign this proxy season against two companies over their pay practices.
XBRL: Foreign Private Issuers Using IFRS Get Relief from the SEC
On Friday, Corp Fin issued a no-action letter relieving foreign private issuers that prepare IFRS financial statements from filing XBRL until the SEC specifies a XBRL taxonomy that they can use. This will be a huge relief for FPIs as they were starting at a deadline of fiscal years ending on or after June 15, 2011 and no such taxonomy had yet been specified for IFRS. See more on Vanessa Schoenthaler’s blog including an update that Anne Leslie-Bini of rass-XBRL tells us that as of last June, there were 174 FPIs filing IFRS financials – with more than 300 additional now eligible to do so.
Smaller reporting companies will continue to cross their fingers for some sort of SEC relief too as they begin to comprehend the cost burden of XBRL, as I have blogged about several times recently.
Congress Splits the Baby on SEC’s 2011 Budget
As noted in this WSJ article yesterday, the SEC’s budget of $1.19 billion for the 2011 fiscal year – which we already are halfway through – will be $74 million more than last year (here’s the Senate Appropriations Committee press release). The budget is $116 million more than the steep cuts that the House Republicans tried to slice from the agency. So the SEC has dodged a bullet – for now. Here’s one of my numerous recent blogs regarding the politics being played with the SEC’s budget.
If you haven’t been to the SEC’s home page in a while, you will not have seen the new “Operating Status” box, which presently states: “The SEC is operating under normal conditions. All agency operations are continuing without interruption.” I know I’ll be hearing some sarcastic remarks from some of youse…
I’m not sure what you heard from your spouse, friends and colleagues about the news from the past week that CEO pay has gone up in the double digits over the past year, but I’m getting an earful. They are angry that too many CEO are being rewarded for laying people off in a poor economy or having their incentive packages reset at the bottom of the market. They have also read that there is a widening gap between the CEO’s pay and the median pay of other Named Executive Officers. And the recent Transocean flap doesn’t help things – here’s an excerpt from this Houston Chronicle article:
Only a wily compensation consultant could come up with a rationale whereby Transocean not only rewards its executives but touts its safety record after an accident like that. Only a tone-deaf board could endorse such a proposal and only a myopic corporate counsel could allow it to be placed in the company’s proxy statement.
Anyways, here are the two 2010 CEO pay studies that have been released so far:
And this Gretchen Morgenson NY Times’ column entitled “Enriching a Few at the Expense of Many” is quite thought-provoking, featuring a money manager who uses pay as a “crucial tire” to kick when making investment decisions and how companies overseas seem to do a better job of paying their CEOs.
I’m still in the process of developing the agenda for “The Say-on-Pay Workshop: 8th Annual Executive Compensation Conference,” but I do know it will feature a number of prominent investors since they are so important going forward in a say-on-pay world. Remember that this conference is paired with the “6th Annual Proxy Disclosure Conference” and they will be held on November 1st-2nd in San Francisco and via video webcast. Register now to obtain a 25% Early Bird Discount!
Hat tip to Lois Yurow for pointing out this hilarious “The Forbes Fictional 15.” Here is an excerpt from the opening:
You’re not imagining it: The rich do keep getting richer. Even the fictionally rich. The members of our 2011 list of wealthiest fictional characters have an average net worth of $9.86 billion, up 20% from last year. In aggregate, the Fictional 15 are worth $131.55 billion -more than the gross domestic product of New Zealand.
In its “Implementation of Dodd-Frank Act” rulemaking timeline, on Friday, the SEC pushed back its estimate of when it will push out proposed rules from April-July to August-December for the following topics that relate to Corp Fin:
– §952: Adopt exchange listing standards regarding compensation committee independence and factors affecting compensation adviser independence; adopt disclosure rules regarding compensation consultant conflicts
– §975: Adopt permanent rules for the registration of municipal advisors
– §1502: Adopt rules regarding disclosure related to “conflict minerals”
– §1503: Adopt rules regarding disclosure of mine safety information
– §1504: Adopt rules regarding disclosure by resource extraction issuers
The above topics join these four that had already pushed back to August-December a few months ago (as I blogged previously):
– Pay-for-performance disclosure (how compensation is related to financial performance; Section 953)
– Pay ratios (ratio of CEO pay to average employee pay; Section 954)
– Clawback policies (clawback of the compensation of current and former officers upon restatement; Section 954)
– Hedging policies (whether company has a policy regarding the ability of directors and employees to hedge; Section 955)
I don’t think these delays were caused by the threat of a government shutdown, although I imagine that certainly didn’t help. Note that about a dozen other rulemakings were pushed back that are not Corp Fin-centric. Hat tip to Davis Polk for tracking which rulemakings were delayed, not an easy task.
It also looks like there could be a delay in the implementation of Dodd-Frank’s investment adviser registration framework as reflected in this letter from the SEC’s Division of Investment Management to the President of NASAA. The letter anticipates that the SEC will have its new Advisers Act rules in place by the July 21st deadline – but that the SEC will consider extending the date by which advisers will be required to comply with the new rules to the first quarter of 2012 (particularly due to the need to reprogram the IARD to accept transition filings).
Say-on-Pay: A Sixth Failed Vote
Last week, Ameron International filed a Form 8-K to reveal it has become the sixth company to fail to receive majority support for its say-on-pay, with 42% voting in favor. As noted in this LA Business Journal article, the company also was the subject of a proxy fight. As I blogged earlier, I’m counting Hemispherx Biopharma as the 5th failed vote until someone convinces me otherwise (here is our list of failed votes so far)…
In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 1689 companies filing their proxies, 42% triennial; 4% biennial; 51% annual; and 4% no recommendation.
More on “Shutdown: Corp Fin Will Slow to a Crawl (If Even That)”
On Friday, I blogged about the SEC’s statement about how limited its operations will be during the government shutdown. I also posted a poll allowing you to guess how many Corp Fin Staff would be working during the shutdown (guess came out to: 10% for “less than 3”; 33% for “4-10”; 24% for “11-20”; 16% for “20-50”; and 1% for “more than 50.” I believe the “4-10” folks would have been closest to the mark).
On Friday, before the shutdown was averted, the SEC posted this contingency plan that provided more details regarding the lapse in operations compared to its statement that was posted on Thursday. In addition, a group of law firms issued this “10 Law Firm Consensus Report” that contains 12 FAQs regarding the impact of the shutdown on the SEC. And even more comprehensive is this podcast from Dave Lynn and Marty Dunn (which also was taped before the shutdown was averted) that addresses:
– Processing of filings during a shutdown
– Continuing filing obligations and counting business days
– Availability of no-action and interpretive advice
– Dealing with preliminary proxy statements
As noted in the SEC’s contingency plan, the rationale for federal employees not being permitted to work during a shutdown is a 19th-century law known as the Anti-Deficiency Act. I wonder if reading this blog would be considered “work” under that statute…
Yesterday, the SEC issued this statement explaining that in the event of a government shutdown, EDGAR will remain fully functional – but that the SEC’s Divisions (including Corp Fin) will be unable to process filings, provide interpretive advice, issue no-action letters or conduct any other normal activities. As a result, new or pending registration statements or applications for exemptive relief will not be processed regardless of the status of any review of those filings.
There will be only an “extremely limited number” of Staffers working during the shutdown – so although the SEC’s statement provides an email address and phone number for emergencies, I imagine only true emergencies will be handled by the Staff. Other than these designated essential Staffers, any attempt to work during the shutdown is a firing offense – so there is nothing that a staffer can do for you even out of kindness of their heart. The government is scheduled to shutdown tonight at midnight.
Proxy Access: Judges Question the SEC’s Rule
During oral argument yesterday, the three judges for the US Court of Appeals for the DC Circuit pressed the SEC on its assessment of the costs and benefits of its proxy access rule and asked whether the rule would empower labor and public pension funds at the expense of other investors, among other things.
As noted in this Reuters article, the judges frequently interrupted SEC Assistant General Counsel Randy Quinn during his arguments and even extended his time twice to ask more questions – and then Randy ran out of time to present a closing argument. The judges also pressed Randy when he mentioned that the proxy access rule would result in fewer contested elections. As Ted Allen noted in ISS’s Blog: “While it can be difficult to predict the outcome of a case based on oral arguments, the judges appeared receptive to the arguments by Eugene Scalia, the lawyer for the business groups, that the SEC inconsistently judged how frequently the rule would be used and how much it might cost.” Here are articles from the WSJ and Bloomberg – and this Cooley alert is good too.
Poll: How Many Corp Fin Staffers Will Be Working During the Shutdown?
As noted above, the SEC’s statement regarding the shutdown notes that only an “extremely limited number” of Staffers will be working if the shutdown is not avoided. Take a moment to predict how many Corp Fin Staffers that phrase means:
