We are excited to announce that Marty Dunn has just come aboard as Editor of our print newsletter, The Corporate Counsel. Marty joins our esteemed team of Editors: David Lynn, Alan Dye and Mike Gettelman. As many of you know, Marty spent 20 years at the SEC, most recently as Deputy Director and former Acting Director of the Division of Corporation Finance; Marty is now a partner at O’Melveny & Myers. We are looking forward to Marty bringing a new dimension to each issue of The Corporate Counsel with his unique insider’s perspective and his ability to apply practical guidance to situations that you grapple with every day.
Marty worked on the May-June issue of The Corporate Counsel that was just mailed. This issue analyzes these topics:
– Reaching Out for Say-on-Pay Approval: Additional Soliciting Material this Proxy Season
– Reporting Shareholder Meeting Voting Results – Form 10-Q/K Reporting
– Phrasing Management’s Say-on-Pay Proposal on the Proxy Card
– Shareholder’s Withdrawal of 14a-8 Proposal After Proxy Statement is Mailed – Impacts?
– Beware of HSR Filing Requirements That Can Apply to Equity Compensation of Executives
– More on Choice of Forum – Shareholder Approval
– Former Director Disclosure in the 10-K?
– Eliminating a Form 11-K Obligation
– Legislative Action on Exchange Act Registration Thresholds
– More Legislative Action – Regulation A+?
Act Now: Get the “Rest of 2011 for Free” when you try a ’12 No-Risk Trial now.
ISS’s 2011-2012 Policy Survey
Perhaps a little earlier than in prior years, ISS recently released its 2011-2012 Policy Survey. Responses and comments are due by August 3rd. Although it’s only a survey, the questions, responses and comments serve as the basis for ISS’s policy formulation process. As noted by an anonymous inhouse member yesterday on our “Proxy Season Blog, ” some companies are looking at this survey closely – and it’s likely that more will be submitting comments compared to prior years due to say-on-pay and a greater interest in providing input these days…
Webcast: “Key Disclosure Policies: The Dangers of Standing Pat”
Tune in tomorrow for the webcast – “Key Disclosure Policies: The Dangers of Standing Pat” – to hear Stacey Gear of Primerica, Isobel Jones of Del Monte Foods, Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster, Jane Whitt Sellers of McGuireWoods and Bill Tolbert of Jenner & Block provide practical guidance about revisiting your corporate disclosure policies as well as your disclosure training program for officers, employees and directors.
Last week, the 7th company that failed to garner majority support for their say-on-pay was sued – Cincinnati Bell in a federal district court in Ohio (here’s the complaint). For reasons I’m not sure of myself, I count this as the 8th say-on-pay related lawsuit even though this one didn’t involved a failed SOP. We continue to post pleadings from these cases in CompensationStandards.com’s “Say-on-Pay” Practice Area.
SEC Filings: What is the Difference Between a “Schedule” and a “Form”?
As noted in this article, Warren Buffett recently filed his latest Form 13F to disclose his latest portfolio holdings and the Form notes that some information has been omitted since its confidential. This 1998 form letter from the SEC gives some indication of the standards required for 13F filers to receive confidential treatment.
I know these Form 13F filings are closely followed by some investors, particularly those filed by Warren’s Berkshire Hathaway. But for me, it raised this esoteric securities law question in my mind: Why does the SEC call some of its forms a “Form” and others a “Schedule”?
It seems odd that investment managers are required to file a “Form 13-F” and not a “Schedule 13-F” – particularly since Schedules 13D and13G are required to be filed by shareholders once they cross a certain percentage of ownership in a company. All of these filings are made by shareholders to report holdings – why don’t their filings have the same “label”?
I don’t know the answer. At first, I thought that the difference would be based on the language used in the statute that creates the obligation. That could be the distinction, but I’m not sure. Looking at Section 13(f)(1) of the ’34 Act, the SEC has been delegated to create a Form 13-F filing obligation under this language: “…shall file reports with the Commission in such form…” In comparison, Section 13(d)(1) and Section 13(g)(1) creates the filing obligation of a “statement.”
So although there is no mention of “Form” or “Schedule” in the statute, a distinction may exist because the statute requires that a “report” be filed under 13(f) – and that a “statement” be filed under 13(d) and (g). If someone out there knows if this is a distinction that matters, please fill me in. I struck out with my research (even Louie Loss) and asking old-time’ish colleagues. Maybe the difference comes down to some sort of authority or Administrative Procedures Act king of thing? Dunno.
From the perspective of the SEC’s rulemaking process, I understand that the main difference between a Form and a Schedule is that a Schedule is usually codified as part of the Code of Federal Regulations – whereas with a Form, only the description is codified as part of the CFR (as the Form is maintained separately and doesn’t appear in the CFR). That’s a nice tidbit but it still doesn’t explain how we got here in the first place. Not that this difference matters one iota in real life but it seems like good food for thought for securities law purists…
Webcast: “Understanding the Private Company Trading Markets”
Tune in tomorrow for the webcast – “Understanding the Private Company Trading Markets” – to hear Annemarie Tierney of SecondMarket, Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster, Sharon Hendricks of Gunderson Dettmer and Kim Kovacs of OptionEase discuss the current environment for secondary sales in private companies like Facebook, and what policies and record-keeping procedures companies considering these programs should adopt to ensure compliance with the securities laws.
One of the most interest things going on (besides the liquidity aspect of all this and the related impact on equity compensation) is the emergence of new businesses building on top of the secondary trading markets. For example, there are equity research firms who are commencing research on private companies – and data companies who are mining through Delaware filings to reverse engineer private companies’ cap structures. This is a fundamental shift in the world in which private companies operate, including their expectations of confidentiality. There are also endless technical issues beyond the obvious ones, including how these new markets affect the various definitions of “public trading market” used under tax and securities laws (280G, 409A, Reg S) and how this can impact private company valuations. Tune in to learn more…
On Friday, Corp Fin issued 8 new Compliance & Disclosure Interpretations (and withdrew one), as well as issued this statement that provides a framework about how WKSIs can seek waivers of ineligible issuer status (three new no-action letters were recently decided under this framework). The new CDIs are:
In her “100 F Street Blog,” Vanessa Schoenthaler briefly describes these new CDIs. And in the May-June issue of The Corporate Counsel that was mailed last week, some of these new positions are analyzed more fully – get the “Rest of 2011 for Free” when you try a ’12 No-Risk Trial now.
Kudos to FINRA for Strengthening Revolving Door Rules
From Suzanne Rothwell: Recently, FINRA submitted a rule filing to the SEC that amends its Code of Procedure to prohibit a former officer of FINRA for a period of one year after termination of FINRA employment from appearing on behalf of a client before any FINRA hearing related forum or testifying as an expert witness in a FINRA forum.
FINRA asked that the filing be treated as immediately effective and, therefore, the new requirements are already effective although not yet published by the SEC. This is continued progress in enhancing the ethical standards for attorneys serving as officers of FINRA and helps to avoid any untoward appearance of wrongdoing or undue influence by a former attorney officer. FINRA points out in its rule filing that the ABA’s Model Rules of Professional Conduct includes provisions that would prevent a lawyer who has represented FINRA in an case from subsequently representing the respondent in the case.
Webcast: “Top IP Pitfalls in Deals: How to Avoid Them”
Tune in tomorrow for the DealLawyers.com webcast – “Top IP Pitfalls in Deals: How to Avoid Them” – to hear Karen Butcher of Morgan Lewis, Jose Estevez of Skadden Arps and Ryan Schneider of Troutman Sanders to hear the latest regarding how to spot and resolve intellectual property issues when doing a deal.
For those not enamoured with social media, you probably are sick of hearing the phrase. But it’s something that really is here to stay – President Obama’s Twitter Town Meeting this week should seal the deal if there were any doubters about Twitter’s staying power – and it will continue to dramatically upend how we share information. Developments are happening so fast that I could devote this daily blog solely to the topic – but I will limit myself to occasional bouts of social medianess instead. Here are a handful of interesting blogs that you should check out:
Following up on the videos that I recently posted in this blog, here’s the Minneapolis chapter of the Society of Corporate Secretaries doing some “jive talking” after I did a panel regarding the proxy season followed by a standalone presentation on social media (thanks to Marty Rosenbaum for blogging about my appearance). These Minneapolis folks can really boogie:
And here is a video from the Society’s Annual Conference held in Colorado a few weeks ago during the plenary session:
And I would be remiss if I didn’t share this picture of me with my good friend Neal Smith of CSC in his snazzy jacket during the Conference’s opening reception:
Until this year, I think it was fairly rare that a shareholder proponent would bother to file something with the SEC to disagree with a company’s Statement in Opposition to the shareholder proposal. These Statements in Opposition are disclosed in a company’s proxy statement directly after the 500-word-or-less proposal and are governed by Rule 14a-8(m).
Under that rule, the company must provide a copy of its Statement at least 30 calendar days before definitive proxy materials are filed (or a 5-day timeframe if the SEC Staff requires the proponent to revise its own proposal under a no-action response). Once a proponent sees the company’s Statement, it can contest what it says if it feels its materially false and misleading with the SEC Staff.
In the alternative, the proponent can just “go public” with how it feels about the company’s Statement if it first files a Notice of Exempt Solicitation under Rule 14a-6(g) – the information in this Notice can then serve as the proponent’s formal rebuttal (technically, the proponent doesn’t have to file this Notice unless they cross the $5 million ownership threshold of Rule14a-6(g). For the larger institutions, you can assume that to be the case, but necessarily for the smaller ones – thus, not all of these responses get filed with the SEC).
With the ability for proponents to easily publicize their views on the Web, it seems that proponents are now more willing to publicize their displeasure about how a company comments on their proposal by filing a Notice of Exempt Solicitation with the SEC rather than just complaining to the Corp Fin Staff. For example, As You Sow filed this Notice of Exempt Solicitation recently relating to a fracking proposal submitted to Exxon Mobil. And here’s another one filed by As You Sow rebutting First Energy’s Statement in Opposition. And here is one from the Detroit Province of the Society of Jesus sent to OM Group. Hat tip to Simon Billenness for pointing this trend out and Keir Gumbs for being the legal beagle!
Study: A Ten-Year Comparison of Restatements
In a recent study, Audit Analytics looked back over ten years of restatements and, among other things, found the following:
– The quantity of restatement and non-reliance disclosures peaked in 2006 with 1795 disclosures.
– Each of the three years thereafter experienced a decline in the number of disclosures with 683 restatements in 2009.
– After three years of decline, financial restatements experienced an uptick in quantity in 2010, largely due to non-accelerated filers, but the severity remained low.
– In 2010, the number of restatements disclosed by accelerated filers decreased.
In this podcast, Kevin Penzien of Citco Corporate Services explains how companies manage the complexities of multiple foreign subsidiaries, including:
– Why should foreign subsidiaries be a priority for the corporate secretary? Don’t they have bigger fish to fry?
– Why not just hire local outside counsel to assist with foreign subsidiaries?
– Which foreign markets are particularly hot among your clients? And which jurisdictions are most difficult for US multinationals to manage legal entities?
– What are the typical foreign subsidiary implications in M&A transactions?
Always interesting, Broadridge has released its annual report regarding how the proxy season fared from its unique perspective. Here are a few gems I pulled from the report:
– 362 billion shares were processed this proxy season, a 12 billion shares increase over last season.
– Number of shares voted increased by over 8 billion shares – 94.7% of shares voted were done so electronically.
– Percentage of shares voted edged up, primarily due to increased use of ProxyEdge (83.6% of all shares voted through Broadridge) and continuing increase in Internet voting.
– Quorum increased to 83.5% from 83.4%, on average.
– 100,000 shareholders used mobile phone voting, with 30% of those voting for the 1st time.
Here are Broadridge’s e-proxy stats as of the end of 2010 – and here is a report with the proxy season stats for ’08-10.
How to Handle XBRL’s Last Phase-In
With mandatory XBRL now in effect for all companies, there is a bit of a whirlwind of folks asking questions regarding XBRL. Jill Radloff has two useful blogs – “Correcting Errors in XBRL Filings” and “XBRL Grace Periods” – and I also recommend the resources in our “XBRL” Practice Area.
In this podcast, Dan Roberts of raas-XBRL analyzes Year 3 implementation issues related to the SEC’s phase-in of mandatory XBRL, including:
– What phase of XBRL recently took effect?
– What implementation issues are smaller companies facing now?
– What can smaller companies do to overcome these issues?
– How does raas-XBRL help clients overcome these issues?
Dodd-Frank: 4th Rulemaking Progress Report
Here is the 4th progress report from Davis Polk regarding all of the various agencies engaged in Dodd-Frank rulemaking.
On Friday, Corp Fin updated its Financial Reporting Manual for issues related to subsidiary guarantor financial statements, ICFR reporting requirements for newly public companies, reporting requirements in a reverse recapitalization, as well as other changes. The good news is that Corp Fin has added a new summary of changes that comprise the current update at the beginning of the Manual. Last revised in April (and December and October before that), Corp Fin has been updating the Manual much more frequently than in the past, deciding to do so a little bit at a time rather than major rewrites as in the past.
SEC Announces IFRS Roundtable’s Agenda
The SEC has announced the panelists and agenda for its IFRS Roundtable to be held this Thursday, July 7th.
Last week, the SEC delegated authority to the Enforcement Director to disclose information that could reasonably be expected to reveal a whistleblower’s identity if the disclosure wouldn’t result in a loss of confidentiality.
Our July Eminders is Posted!
We have posted the July issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Last week, the IRS proposed new regulations under Section 162(m), which would significantly change the rule that applies to pre-existing stock option plans of private companies that then go public. Among other things, the proposal also reinforces that individual award limits must be stated in an option plan. The NASPP will be covering this proposal in detail (here’s the NASPP’s Blog if you haven’t checked it out yet).
New movie on the horizon? Will Ferrell will star as “a narcissistic hedge fund manager who thinks he has seen God.”
Yes, It’s Time to Update Your Insider Trading Policy
We have posted the transcript of the webcast: “Yes, It’s Time to Update Your Insider Trading Policy.”
Mailed: May-June Issue of The Corporate Executive
The May-June Issue of The Corporate Executive includes pieces on:
– The Interplay of Section 162(m) and ASC 718
– RSUs and Unaccepted Grants
– Deferred RSUs and ERISA
– Tax Deposits for RS/RSUs
Last month, I blogged about an SEC Enforcement action against two individuals who attempted to raise $300 million via a website, a Facebook page and a Twitter account, to finance a company which would purchase the Pabst Brewing Company. The SEC’s order noted that the offering was attempted to be “crowdsourced.”
A few members weighed in with similar stories from the old days. For example, Stephen Quinlivan notes that back in the late ’90s, James Page Brewing Co. placed a small ad on the side of its six packs to sell securities in a Regulation A/SCOR deal. And here’s an old NY Times article about the Boston Beer offering mentioned in last month’s blog, courtesy of John Newell of Goodwin Procter.
I do remember other examples of companies selling directly to their customers back in the ’90s (egs. Spring Street Brewing Company; Annie’s Homegrown); some of which are referenced in the “Public Companies” section of this ’97 study on technology and the markets that I helped draft back when I was at the SEC.
It’s Here: Crowdsourcing Offerings Through Mobile Phones & Tablets
This recent piece from “The Atlantic” discusses a relatively new start-up – Loyal3 – which allows companies to create “Customer Stock Ownership Plans” similar to the ones described above, but with the twist that the plan is run through on an app for your smart phone, tablet, etc. As noted in this WSJ article, Nasdaq has partnered with Loyal3 to offer CSOPs to listed companies. [This piece entitled “Nasdaq Social Partner Was Called on the Carpet” from “Investor Uprising” notes the Loyal3’s CEO’s troubling past.]
The piece in “The Atlantic” notes that these CSOPs are “dolled-up Direct Stock Purchase Plans.” DSPPs have been wavering in popularity – both among issuers and investors – over the past decade. The piece also notes that some companies may use CSOPs to give away stock to their customers for free, claiming Frontier Communications is planning to do. I haven’t found any other information to indicate this indeed will happen (searching Google generally and SEC filings made by the company). Anyways, Travelzoo went this “free stock” route back in ’98 before it went public six years later (here’s a law review piece on “free Internet stock offerings” from back in the day).
SEC to TSRA (Trade Sanctions Reform and Export Enhancements Act of 2000): Back Off!
From a member: You should be aware of a development we’ve seen over the past few years – namely, Corp Fin searching company websites for any mention of countries on the state sponsors of terrorism list and then sending letters to those companies suggesting that they are violating both the export laws and SEC disclosure obligations. It seems that the Staff may be overlooking the fact that US export laws do not prohibit all business with any country on that list – as those laws permit certain business with certain such countries.
This blog provides an example. It explains that UPS received a letter from the SEC demanding an explanation about how UPS could do business in Iran, Sudan and Cuba when those countries are on the state sponsors of terrorism list. The SEC’s diligence on this issue appears to be searching the UPS website for references to countries on the state sponsors of terrorism list. Although it’s hard to see how the Staff would otherwise diligence this issue, this remains a concern for some companies.
Internal Pay Disparity: House Committee Passes Bill for Repeal
In this Cooley news brief, Cydney Posner notes how the House Financial Services Committee passed the “Burdensome Data Collection Relief Act,” the substance of which is a single paragraph that would repeal Section 953(b) of Dodd-Frank and make any regulations issued pursuant to it of no force or effect. Section 953(b) is the provision in Dodd-Frank that – once the SEC adopts related rules – will require companies to disclose in proxy statements and other filings the median of the annual total compensation of all employees of the issuer, excluding the CEO, the annual total compensation of the CEO and the ratio of the two.
SEC Continues Push for Enhanced Disclosure of Litigation Contingencies
We have previously noted the SEC’s efforts to urge companies to enhance their disclosure of litigation contingencies and, in particular, to provide estimates of “reasonably possible” loss or range of losses in actions for which accruals have not been established and for exposure in excess of established accruals in other actions, or to explain why such estimates cannot be provided.
The SEC appeared to focus its earlier comment letter efforts on financial services companies, many of which have relatively extensive litigation disclosure. Now, however, the SEC appears to have extended its focus to at least some companies outside of the financial services sector, including companies whose litigation exposures are not as extensive as those of many financial services companies.
Needless to say, each company’s disclosure of loss contingencies must be prepared in light of its own litigation exposures, and it is difficult to generalize concerning the nature of disclosures that should be made. The Chief Accountant of the SEC’s Division of Corporation Finance has publicly stated that disclosure of a “reasonably possible” range of losses may be done in the aggregate.
Consistent with the Chief Accountant’s position, some companies have disclosed an aggregate range of reasonably possible losses for cases for which they were able to provide such an estimate, while alerting investors that they were not able to provide a meaningful estimate of reasonably possible loss or range of loss for all of the litigation contingencies described in their quarterly (or annual) filing. These companies have not typically disclosed which of their litigation proceedings are included within the aggregate range. Providing aggregate disclosure without identifying the included versus the excluded cases helps minimize the prejudice to a company that would follow from adversaries being given potential insights regarding its views of the merits (or settlement value) of individual litigation matters. Where appropriate, companies may also explain in their disclosures that the estimated range of reasonably possible losses they have disclosed is based on currently available information and involves elements of judgment and significant uncertainties, and that actual losses may turn out to exceed even the high end of the range.
Relatedly, the FASB – last July – issued an exposure draft regarding proposed new accounting standards for litigation contingency disclosure. However, after the FASB received numerous comments critical of the proposed standards, it announced that it would postpone the adoption of new standards pending “redeliberations” on the topic. Most recently, the FASB stated that its project on “Disclosure of Certain Loss Contingencies,” has been reassessed as a “lower priority” and that further action is not expected before this December.
This Davis Polk blog on the topic lists “several large financial institutions (American Express Company, Bank of America Corporation, Citigroup Inc., The Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Company) gave an estimate of possible loss or range of loss above their existing reserves for the first time in their Form 10-Ks for the 2010 fiscal year and updated those estimates in their 2011 first quarter Form 10-Qs.”
