I am just back from Toronto, and as always there were lots of informative sessions at the ABA Annual Meeting. One session was centered on a roundtable recently conducted by the University of Delaware’s John L. Weinberg Center for Corporate Governance, which led to a document entitled “The Report of Roundtable on Proxy Governance: Recommendations for Providing End-to-End Vote Confirmation.” This report identifies steps toward improving the shareholder voting process in response to the SEC’s proxy mechanics concept release. The report talks about taking the following steps with the shareholder voting process:
1. Early-Stage Entitlement Confirmation: All parties that anticipate submitting votes for a shareholders’ meeting should confirm their voting entitlements with the meeting tabulator within a defined period (six days) following the record date.
2. Encouragement of Early Voting: All shareholders are encouraged to cast votes early in the solicitation period and, in any event, no later than three business days before the shareholders meeting.
3. Enhancements to Exception Processing: Tabulators should promptly (within one day) communicate to vote-reporting entities the reasons vote reports are being rejected.
4. Vote Confirmation: The proxy process should enable investors to obtain, via the Internet or other electronic means, a vote confirmation on a demand or as needed basis, utilizing, e.g., existing Voting Instruction Form (VIF) control numbers.
More on FINRA’s Plate: Social Media
Yesterday, Broc blogged about a number of things on FINRA’s corporate financing agenda. As this Morrison & Foerster memo notes, FINRA Chairman and CEO Richard Ketchum recently noted that FINRA’s Social Networking Task Force continues to examine issues relating to the use of social media by member firms, and that FINRA intends to provide further guidance on social media issues later this year. The last guidance that FINRA provided on social media issues was in Regulatory Notice 10-06, and the MoFo memo summarizes the current landscape on social media issues for FINRA-member firms.
Webcast Transcript: “Understanding the Private Company Trading Markets “
We have posted the transcript for our recent webcast: “Understanding the Private Company Trading Markets.”
Here’s a briefing, thanks to Suzanne Rothwell: Yesterday, Joseph Price, Senior Vice President, FINRA’s Corporate Financing/Advertising Regulation, briefed the ABA Subcommittee on FINRA Corporate Financing Rules on current rulemaking and matters related to the Corporate Financing Department’s review of public offerings. Joanie Ward, Shayna Richardson, and Bleecker Hawkins from FINRA’s Corporate Financing Department also participated.
Amend Rule 5110 to Address Terminated Offerings
Mr. Price explained that FINRA staff are developing amendments to Rule 5110 that will: (1) delete a provision that permits a broker/dealer to receive “tail fees” in the event of a terminated offering and(2) amend the Rule to allow the underwriting agreement to include provisions providing for liquidated damages and a right of first refusal (ROFR) in the case of terminated offerings on condition that these provisions shall not become effective if an issuer terminates a broker/dealer for cause. Termination for cause would include a failure by the firm to provide customary services.
Mr. Price stated that the staff hoped to present the proposal to the FINRA Board in September for approval of a Regulatory Notice requesting comments. After comments are considered, FINRA will present a final version of the proposal for Board approval that would be filed with the SEC for additional comment and approval.
Proposed Amendment to NASD Rule 2340 re: DPPs and REITs
The FINRA Board recently approved the publication for comment of proposed amendments to the account statement rule (NASD Rule 2340) that would require changes in how valuations are provided on account statements in the case of unlisted DPPs and REITs. Currently, NASD Rule 2340 allows broker/dealers to use the offering price or par value on customer account statements for the duration of the securities offering (which generally are at least four years and sometimes longer using two or more consecutive registration statements) until 18 months after completion of the offering. Thereafter, the issuer must provide an estimated value for broker/dealers to use on the account statements.
Mr. Price advised that the proposal would require that the account statement valuation for the security during the offering must be a net par value that is the offering price minus any front-end fees. This net par value may only be used on account statements during the “initial” offering period covered by the first registration statement. The proposal would also clarify that a broker/dealer that knows that the issuer’s estimated value is unreliable is permitted to refrain from including the issuer’s value on the firm’s customer account statements. Mr. Price stated that broker/dealers are not required to monitor each valuation for validity.
Based on Mr. Price’s explanation of the preparation of the Notice, it appears that the Notice may be published before the end of September.
Proposed Rule 5123: Filing of Private Offerings
Mr. Price advised that SEC staff have provided informal comments on a draft of FINRA’s proposal to adopt new Rule 5123 that would require that FINRA members file private placements with FINRA, unless the offering comes within a filing exemption provided in current FINRA Rule 5122, and that the offering document must disclose the intended use of proceeds and offering expenses (including placement agent compensation). FINRA’s changes to the proposal would:
1. Clarify that refilling of an amended PPM would only be necessary in the case of a “material” amendment to the PPM, such as a major change that requires recirculation or a new offering.
2. Clarify that each firm participating in a private placement will be responsible for filing because different firms may charge different fees and it may be difficult for a firm to confirm that a PPM was previously filed by another firm.
3. Revise the timing of the filing requirement to be no later than 15 days after the date of first sale in order to be consistent with Form D filing with the SEC.
Mr. Price provided an explanation of FINRA’s anticipated review methodology. FINRA appears to be developing sophisticated artificial intelligence technology to identify PPMs that meet a certain risk score, based on numbers of factors. PPMs that display sufficient risk characteristics will be reviewed by FINRA staff. All PPMs filed will also be available to FINRA examiners when they conduct an on-site examination of FINRA members.
Mr. Price explained that if FINRA identifies, for example, an issue related to the issuer’s disclosure of the use of proceeds, FINRA review will focus on the broker/dealer’s satisfaction of its due diligence obligations under FINRA Rule 2210 (the suitability rule) in light of the problematic disclosure. Mr. Price is hoping that FINRA will be able to identify problematic offerings during the offering period in order to better protect investors. In response to a question, Mr. Price explained that FINRA was not proposing to expand any of the filing exemptions in FINRA Rule 5122 despite recommendations for such changes in some of the comment letters FINRA received when it published the original version of the proposal in Regulatory Notice 11-04.
Implementation of the New COBRADesk System
Joanie Ward and Shayna Richardson provided updates on the status of the development of major changes to the COBRADesk system for use by attorneys to submit information on public offerings for review by FINRA staff under FINRA rules. FINRA staff believe that the new system will significantly facilitate the submission and review of offerings. Ms. Ward stated that she anticipated that the new system would be fully implemented by June 2012. She also stated that the COBRADesk explanatory and guidance materials will be posted on the part of the FINRA website that does not require a COBRADesk password so that they are accessible by all members and their attorneys. Ms. Richardson encouraged the attorneys to continue to provide feedback to the staff on ways to improve review procedures and advised that some of the frequent filers will be contacted to test out the new COBRADesk system.
Setting Up Government Meetings
In this podcast, Lisa Noller of Foley & Lardner discusses strategies to set up a meeting with the government, including:
– How hard is it to set up a meeting with the government?
– How do you know whether you have the appropriate people attending from the government?
– Who should you bring to the meeting?
– What should you tell the government at the meeting?
– How important is follow-up after the meeting?
Flying out early on vacation today. Dave will be manning the blog for the next week. Good time to get out of town! Sell, sell, sell…
Much has been written about the DC Circuit’s proxy access decision in the Business Roundtable/Chamber lawsuit – including conjecture about what the SEC might do now regarding proxy access (see my blog with Stan Keller’s thoughts last week). As noted in this excerpt from this Covington & Burling memo, the court’s decision could have implications far beyond proxy access itself:
The SEC and other agencies will need to redouble their economic analysis in the rulemaking process. The most significant aspect of the shareholder access decision is its impact on future rulemakings by the SEC and other federal agencies. At its core, this case was about the level of economic analysis that an agency must employ when considering the potential consequences of a rulemaking. The adopting release for Rule 14a-11 included a long and detailed analysis that was intended to address the very issues that the Court ultimately concluded had been inadequately assessed in the rulemaking.
While many will observe that the Court has given the SEC a roadmap for adopting future rules, including potentially a revamped shareholder access rule, a closer reading of the opinion suggests that any such rulemaking will have to be accompanied by substantial economic analysis that may be beyond the resources that the agency can reasonably expend on any one rulemaking. Moreover, the shareholder access litigation sets a high standard for rulemaking by any agency, finding that the arbitrary and capricious standard requires a federal rulemaking to explicitly address the major comments raised in opposition to the rulemaking and provide a detailed explanation of why the rulemaking was not changed in response to such comments. In effect, this decision further elevates the importance of comment letters and even statements by dissenting agency officials.
XBRL: Liability Exemptions Phase-Out for Larger Companies
I’ve been blogging about a lot of hand-wringing by smaller companies facing mandatory XBRL and the related costs. But there is also cause for concern among larger companies as the XBRL liability exemptions are now phasing out too. As noted in this Skadden Arp’s memo:
When the SEC adopted the XBRL filing requirements in December 2008, it recognized the concerns that filers had raised about potential liabilities under the securities laws for errors and omissions in interactive data files by limiting certain liabilities for a two-year period. Each group of companies in the three-year phase-in period is provided the benefit of the two-year limited liability provisions. The limitations include deeming interactive data files “furnished” and not “filed” or part of a registration statement or prospectus for purposes of the liability provisions in Securities Act Sections 11 and 12 and Exchange Act Section 18, and exempting the interactive data file from the anti-fraud provisions of the securities laws if the company makes a good faith attempt to comply with the data tagging rules and promptly amends any deficiency after becoming aware of it.
The two-year limited liability period runs from the due date of the first Form 10-Q–exclusive of the available 30-day grace period for first-time filers noted above–for which a company was required to submit XBRL data. For the first group of companies that were required to comply with the XBRL requirements, large accelerated filers with a market cap of over $5 billion, these limited liability provisions will end on August 10, 2011. Because the filing deadline for the Form 10-Q for the period ended June 30, 2011 for large accelerated filers is August 9, 2011, the first group of companies will not lose the benefits of the limited liability provisions until they file their Forms 10-Q for the period ended September 30, 2011. Given the expiration of the limited liability periods, companies should evaluate their disclosure controls and procedures for interactive data files.
In the “Dodd-Frank Blog,” Jill Radloff provides examples of SEC filings amended to include XBRL exhibits. And for those seeking to make XBRL easier, the XBRL Challenge Contest seeks the top open source app for analyzing financial data…
The S&P Report: US Downgraded
Here’s a copy of the S&P research report that downgraded the US long-term securities late on Friday. By the way, we occasionally post research reports that are about the broader economy, etc. in the “Credit Quality Reports” section of our “Credit Rating” Practice Area.
Poll: The S&P Downgrade
Please give your anonymous vote on S&P’s decision to downgrade the US long-term securities to AA+:
As noted in this Working Assets alert, a coalition of environmental groups, led by Rainforest Action and Appalachian Voices, is calling on Delaware Attorney General Beau Biden to revoke Massey Energy’s corporate charter. According to this alert (which includes a petition for people to sign), a corporate charter can be revoked when there is “a sustained course of fraud, immorality or violations of statutory law” in Delaware. The activists are seeking to pressure Alpha Natural Resources, which acquired Massey earlier this year, to make changes to its mining operations and replace company executives. Thanks to Gibson Dunn’s Beth Ising for pointing this development out.
Potter Anderson’s John Grossbauer notes: “I don’t believe this type of activist approach has been used before in Delaware. The only thing close are the circumstances in Oberly v. Kirby where the Delaware Attorney General tried to block the sale of a control block of stock of a public company by a Delaware nonprofit corporation. The Attorney General lost this 1991 case because the Delaware Supreme Court said it was not a sale of all or substantially all the nonstock corporation’s assets given its purpose was not to hold the shares of a particular company and it needed to diversify its holdings (an issue with which the Hershey trust wrestled more recently).”
As I blogged yesterday, oral argument was held in the US District Court of DC in the PETA v Merck shareholder proposal case. As reflected in this order from the court, Merck prevailed when Judge Jackson dismissed the case. People for the Ethical Treatment of Animals (known as “PETA”) was seeking a court order to force Merck to hold a special meeting – since the annual meeting had passed and the company had excluded PETA’s proposal after obtaining Corp Fin no-action relief – so that shareholders could vote on a proposal that sought to have the company disclose its use of animal testing in in-house and contracted research. As noted in this Legal Time blog:
Hall said this afternoon PETA is weighing appellate options. She noted that Jackson said during the hearing that a more appropriate remedy would have been to seek a preliminary injunction first, a strategy Hall said the group plans to employ if they bring similar suits in the future.
Moxy Vote’s Report on Results of Shareholder Proposals
Yesterday, Moxy Vote released this report providing some stats and color commentary regarding the shareholder proposals submitted by its Advocates voted upon during annual meetings during this proxy season. It’s a nice supplement to ISS’s preliminary post-season report that I blogged about a few days ago…
In this podcast, Dave Lynn and Marty Dunn engage in a lively discussion of the latest developments in securities laws, corporate governance, and pop culture. Topics include:
– Choice of forum provisions
– The crowdfunding phenomenon
– Breweries we’d like to buy
Stan Keller on the Future of Proxy Access
In this brief memo, Stan Keller of Edwards Angell Palmer & Dodge weighs in on the future of proxy access, including the status of the Rule 14a-8 amendment. We have posted a number of memos on proxy access in the wake of the Business Roundtable/Chamber lawsuit in our “Proxy Access” Practice Area.
Speaking of lawsuits, there will be oral argument in the US District Court of DC held today in the PETA v Merck shareholder proposal case. Here’s the complaint filed back in April.
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:
– Private Placements: New “Know Your Customer and Suitability Obligations” for Brokers
– “Fifth Analyst Call” and Reflexive Confrontation
– HSN Board Refuses to Accept Director Resignation
– The LinkedIn IPO: A Favorable Comparison to the Internet Bubble Years
– More on “Insider Trading Analysis of Sokol Charges”
– During the first year of advisory votes on executive compensation under Dodd-Frank, investors overwhelmingly endorsed companies’ pay programs, providing 91.2% support on average.
– Shareholders voted down management “say on pay” proposals at 37 Russell 3000 companies, or just 1.6% of the total that reported vote results. Most of the failed votes apparently were driven by pay-for-performance concerns.
– “Say on pay” votes spurred greater engagement by companies and prompted some firms to make late changes to their pay practices to win support.
– Investors overwhelmingly supported an annual frequency for future pay votes, even though many companies recommended a triennial frequency.
– Among governance proposals, the biggest story this year was the greater support for board declassification. Shareholder resolutions on this topic averaged 73.5% support, up more than 12% from 2010, and won majority support at 22 large-cap firms.
– Shareholder resolutions on environmental and social issues reached a new high of 20.6% average support. Five proposals received a majority of votes cast, a new record.
– The arrival of “say on pay” contributed to a significant decline in opposition to directors. As of June 30, just 43 directors at Russell 3000 firms had failed to win majority support, down from 87 during the same period in 2010. Poor meeting attendance, the failure to put a poison pill to a shareholder vote, and the failure to implement majority-supported investor proposals were among the reasons that contributed to investor dissent.
Proxy Access: Will Shareholders Submit Shareholder Proposals in 2012?
The July 22 federal appeals court ruling that struck down the SEC’s marketwide proxy access rule, Rule 14a-11, did not affect the SEC’s amendments to Rule 14a-8 that would permit shareholders to resume filing proxy access bylaw proposals. Those amendments were placed on hold by the SEC last October after two business groups brought a legal challenge to Rule 14a-11. At that time, the SEC said the 14a-8 changes were “intertwined” with the marketwide access rule.
If the SEC lifts its stay on its Rule 14a-8 amendments, shareholders will be able to submit access bylaw proposals in 2012. Investors would not face any additional ownership hurdles other than the requirements that already apply to proponents–i.e., owning at least $2,000 in company stock for more than a year.
Several investors said last week they are looking into submitting access proposals next season. Investors could file binding or non-binding resolutions, but some states require higher ownership thresholds for binding bylaw proposals. It appears likely that proponents would seek holding periods and ownership thresholds that are more permissive than Rule 14a-11’s requirements of a 3 percent stake for at least three years. Labor funds generally prefer a two-year period, and some activists have argued for a lower threshold (such as 1%) at large-cap firms.
So far, it appears that the activist investor community is undecided about whether to file access proposals in 2012 and how many companies to target. There is a concern that the filing of dozens of access resolutions next season might bolster corporate arguments that the SEC should refrain from adopting a new marketwide access rule and just allow private ordering to work. There also is a concern that low support levels for poorly targeted proposals would be cited by corporate critics as evidence that most shareholders don’t want access. Conversely, some activists argue that strong shareholder votes for access in 2012 could help prod the resource-stretched SEC to prepare a revised access rule. If activists do file access proposals next season, it appears that they may focus on a few high-profile companies with well-known governance issues.
Back in 2007, two well-targeted shareholder access proposals did attract broad investor support, winning at least 43 percent approval at UnitedHealth Group and Hewlett-Packard. There also was majority approval for access at Cryo-Cell International, a small-cap firm. However, the SEC, which then had a Republican majority, approved a rule in late 2007 to stop investors from filing access resolutions.
If shareholders bring access resolutions in 2012, no-action challenges by companies would be inevitable. Some companies may seek to exclude investor access proposals (as firms have done in response to special meeting requests) by offering their own management resolutions with greater hurdles to access – such as a 10% (or higher) ownership threshold.
Transcript: “Top IP Pitfalls in Deals: How to Avoid Them”
We have posted the transcript for our recent DealLawyers.com webcast: “Top IP Pitfalls in Deals: How to Avoid Them.”
As it has done before, the SEC has adjusted its tentative rulemaking calendar to push back some of the expected proposal and adoption dates for the remaining executive compensation and corporate governance items on its agenda. Thanks to Mike Melbinger, who blogged this information yesterday on CompensationStandards.com (see Davis Polk’s blog for more analysis):
On Friday, the SEC modified its schedule for adopting rules relating to the Dodd-Frank Act, including the key provisions applicable to executive compensation, as follows:
August – December 2011 (planned)
– §951: Adopt rules regarding disclosure by institutional investment managers of votes on executive compensation
– §952: Adopt exchange listing standards regarding compensation committee independence and factors affecting compensation adviser independence; adopt disclosure rules regarding compensation consultant conflicts
January – June 2012 (planned)
– §953 and 955: Adopt rules regarding disclosure of pay-for-performance, pay ratios, and hedging by employees and directors
– §954: Adopt rules regarding recovery of executive compensation
– §956: Adopt rules (jointly with others) regarding disclosure of, and prohibitions of certain executive compensation structures and arrangements
July – December 2012 (planned)
– §952: Report to Congress on study and review of the use of compensation consultants and the effects of such use
Dates still to be determined
– §957: Issue rules defining “other significant matters” for purposes of exchange standards regarding broker voting of uninstructed shares
Thus, it seems unlikely that all five of the clawback, pay-for-performance, CEO pay ratio, incentive compensation rules for large financial institutions, and hedging by employees and directors provisions will be effective for next year’s proxy season. However, if they meet this schedule, one or two of the provisions will be effective for proxies filed after January (as with the say on pay rules, published in January 2011). Fortunately, the SEC will propose rules first (and already has for a couple of the provisions), so we should know well in advance which provisions will be final for the 2012 proxy season.
1st Annual Reports: CIGFO and FSOC
As noted by Vanessa Schoenthaler in her “100 F Street Blog,” Section 989E of Dodd-Frank created the Council of Inspectors General on Financial Oversight (CIGFO). Appropriately named, CIGFO is made up of the Inspector Generals of nine federal agencies-the Fed, CFTC, HUD, Treasury, FDIC, FHFA, NCUA, SEC and SIGTARP- involved in financial oversight. Last week, CIGFO released its 1st annual report.
In addition, as noted in the Dodd-Frank.com Blog, the Financial Stability Oversight Council, or FSOC, issued its 1st annual report last week too. The report fulfills the Congressional mandate to report on the activities of the Council, describe significant financial market and regulatory developments, analyze potential emerging threats, and make certain recommendations.
Lehman Case Hints at Need to Stiffen Audit Rules
Last week, Judge Kaplan of the Federal District Court for the Southern District Court of New York delivered his decision – In re Lehman Brothers Secs. and ERISA Litig. (SDNY; 7/27/11) – involving Lehman, its executives, its investment bankers and auditors. As noted in this NY Times article, Judge Kaplan’s conclusion was “the company misled investors and its officers and directors may be held liable. But the company’s auditor seems likely to escape any responsibility for an audit that wrongly concluded the company’s financial statements were completely proper.” As a result, some experts have opined that there could be shortcomings in a number of accounting standards including those on disclosures of risk, SOP 94-6, SFAS 107 and SFAS 140.
Maybe the debt ceiling standoff is making everyone act a little strange in this town, as noted in this observation from Lynn Turner about the latest from Congress:
This newly proposed legislation – the “SEC Modernization Act of 2011” – raises serious questions in light of the fact members of Congress have proven themselves incapable of any resemblance of managing of the debt issues and their own spending bills. It also reflects badly on Congress which has seriously failed to carry out its own oversight functions and in light of those shortcomings, is “piling on” the SEC in a manner which is likely to increase its costs of operations significantly – and refocus significant attention away from its core mission of protecting over 100 million investors.
In this legislation, the sponsors – who apparently fail to have a basic understanding of the SEC – have nonetheless decided it is they who are best to:
1. Decide the structure for the SEC, rather than leaving it up to the CEO they nominate as Chair of the SEC.
2. Take away the revolving discretionary fund that the SEC has used to direct spending to top priorities and instead direct it should only be spent on information technology, notwithstanding the House is now proposing also to “starve” the SEC of sufficient funding for carrying out its duties.
Some of the sponsors are the same very people who have severely criticized the SEC for its failure to act on tips on the Madoff matter, yet they are also failing to give the SEC the money to do so, cutting off sufficient funding to staff the new office of whistleblowers. So they want to have their cake and eat it to, criticizing the SEC while at the same time, legislating that it cannot possible do what it is being criticized for not doing.
This legislation is duplicative of existing legislation that already requires the SEC to consider cost benefits. And as noted in the recent proxy access decisions of the DC district court, when the SEC has failed to do so to the satisfaction of the court, it is held accountable. Yet at the same time, the GAO has issued a number of reports (see this example) which highlight how the SEC is doing its job and doing it well. Given the vast magnitude of rule making that has been thrust upon the SEC, Chair Schapiro has done a tremendous job working through it, including seeking public comment from all the proposed rules.
When the Congress cannot even figure out how to deal with deficits and spending, one would think they would not have time for such unnecessary and duplicative legislation, that can only serve to impede the protections investors need, as highlighted by the lack of regulation directing contributing to the worst financial crisis in 75 years, which cost, and continues to cost, tens of millions of Americans their jobs. It is very clear the sponsors of this legislation want to return to unregulated markets which created this economic mess in the first place, putting their own jobs and campaign financing necessary to keep their jobs, well ahead of the interests of those on Main Street.
Piling On: Trio of House Reps Ask SEC for Report on Proxy Access Workload
In this letter to the SEC sent on Thursday, a trio of House Representatives seek information about how many Staff hours were spent on proxy access rulemaking over the past decade, including a dollar amount associated with that labor (and an estimate of these items for litigating over the rule) including any amounts spent on outside counsel. To me, it’s funny how the letter mentions that the origins of the rulemaking were politically motivated – when it sure seems that this request after the SEC lost the Business Roundtable/Chamber case is…
Sidenote: The FEI has made this silly music video entitled “Hey There Bob Pozen,” just in time for the 3rd anniversary of the ‘Pozen Committee” report.
Our August E-minders is Posted!
We have posted the August issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Regardless of your political bent, you will enjoy’s last night’s 5-minute skit from “The Daily Show with Jon Stewart” that tackles the 1-year anniversary of Dodd-Frank. Jon Oliver is dressed up in a beaten-up costume representing the legislation and sings his answers to Jon’s questions about where the rulemakings stand now, etc. Pure comical genius:
Recently, the Canadian securities regulators issued a Staff Notice about how their continuous disclosure review program was faring (see this press release). The CSA (Canadian Securities Administrators) is a council of the securities regulators of Canada’s provinces and territories.
I don’t know enough about how the Canadian’s review program works to compare it to Corp Fin’s (both use some sort of risk-based approach), but the Staff Notice is interesting. For starters, note the example disclosures in the appendix – including examples of deficient disclosures! It’s rare that a regulator provides example disclosures of any kind (due to fear of one-size-fits-all disclosures, not blessing any particular disclosures in case they prove problematic, etc.) – but it definitely can be helpful to those of us drafting the darn things…
July-August Issue: Deal Lawyers Print Newsletter
This July-August issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– Tweeting Transactions: Social Media, Business Combinations & the Federal Securities Laws
– The Evolution of Poison Pills
– Advance Notice Bylaws: The Current State of Second Generation Provisions
With the debt ceiling deadline approaching, a number of companies are likely considering the need to include risk factor or other disclosures in their Form 8-Ks (when reporting earnings) or Form 10-Qs – or already have done so. For example, EBay included a risk factor in its Form 10-Q filed last Friday. And Centene Corp. included the following risk factor in its Form 10-Q filed Tuesday:
The failure of the federal government to raise the federal debt ceiling could affect funding for Medicaid and our cash flow.
As has been widely reported, the United States Treasury Secretary has stated that the federal government may not be able to meet its debt payments in the relatively near future unless the federal debt ceiling is raised. If legislation increasing the debt ceiling is not enacted and the debt ceiling is reached, the federal government may stop or delay making payments on its obligations, including funding for Medicaid. A failure by the federal government to fund or a material delay in the funding for Medicaid could have a material adverse effect on our cash flows.
Whether a company should include this type of disclosure will depend on the potential impact of the debt crisis on its business. Brian Breheny of Skadden notes: “My general sense is that unless the company is in a specific industry that is reliant on government funding, holds a material amount of government securities, or can specifically identify a risk it may experience if the debt ceiling negotiations fail, then general disclosure regarding the debt ceiling negotiations is generic and probably unnecessary.”
More on “SEC Filings: What is the Difference Between a ‘Schedule’ and a ‘Form’?”
In response to my recent musings about the differences between an SEC “form” and “schedule,” Scott Cooper of Rayburn Cooper & Durham responded with this interesting note:
In reading your blog regarding Schedule 13Fs, I recalled that I was involved with that rule-making as a Investment Management Staff attorney under the direction of Lee Spencer. That project was a long time ago and I do not remember any extensive discussion of whether to call it a “form” or “schedule.” One distinction was that IM had responsibility for Section 13(f) while Corp Fin was responsible for the rest of the Williams Act. I believe that all IM reports and registration statements were called forms but I’m not sure about that.
A more important distinction – at least in my memory – is that Form 13F was to be one of the first forms/schedules designed to be filed in a computer format which meant at the time sending in a tape with the data. The idea was the market and the SEC would be able to manipulate the data and that it could be quickly dispensed if it was received on tape in a standard format. My principal mission was to design the standard format working with some of the few technology staff that the SEC had at the time. We also required a paper copy that was quite massive. Public dissemination became controversial as the SEC wanted to have an outside firm do it and there was a perceived economic benefit to having the data first.
In my undergraduate days, I had taken a computer science course and knew a little about programming, since the course work in the early 70’s was to actually prepare punch cards to run programs. You spent a lot of time in the computer lab printing cards and hoping that the result was correct. Not many of my attorney colleagues at the SEC had done so and I always assumed that is why I was asked to assist.
Based upon the Form 13F experience, I transferred to Corp Fin’s Office of Disclosure Policy and worked to develop other Williams Act rules with John Granda and John Huber and then in Integrated Disclosure projects. Thanks for letting me take a trip down memory lane (for at least the parts that I can remember!)
Understanding Corporate Espionage
In this podcast, Carolyn McNiven of DLA Piper – a former federal prosecutor – explains how companies can better protect themselves from corporate espionage, including:
– What are the most common types of corporate espionage?
– What steps can boards take to ensure that management is protecting corporate assets against these acts?
– When does a company have a duty to disclose that something has been stolen from them?
