Yesterday, the SEC announced that it would appeal the US District Court for the Northern District of Texas’ decision dismissing its insider-trading case against Mark Cuban. As noted in this article, Cuban’s lawyers are not happy.
Last month, I blogged that Cuban had sued the SEC to recoup attorney’s fees and expenses from the SEC, alleging bad faith.
For the enforcement afficionados out there, check out Russ Ryan’s nice blog on the SEC’s recent decision to delegate formal order authority.
More In-House Legal Departments Joining the Blogging Party
Recently, I noted that Microsoft’s legal department is participating in blogging on behalf of the company. Now Doug Chia of Johnson & Johnson has also joined this emerging trend – here is his first post – and his second.
Here is a note from Doug:
I’m really encouraging my counterparts to start experimenting with using different media to reach the retail side. At the end, retail apathy may be too strong to counter, but we’ve at least got to try to reach them and not just rely on our traditional press release, SEC filing and proxy solicitor call M.O. The time has come for new approaches and if the amendments to Rule 452 don’t make that abundently clear to us, I don’t know what will.
And here is a note from me – If in-house lawyers are blogging, I can’t understand how some law firms continue to prohibit their lawyers from doing so. Gain some exposure by contributing content to one of our blogs. Drop me a line and I can help teach you how easy it is…
How to Prepare for a Proxy Access World
We have posted the transcript for our recent webcast: “How to Prepare for a Proxy Access World.”
Helping you to gear up for a difficult proxy season, I have decided to start a weekly proxy solicitor podcast series. Each week, a new podcast with cover a hot topic that you may well face soon – with practical guidance from a proxy solicitor to help you navigate troubled waters. Here is our first installment in the series:
In this podcast, Scott Winter of Innisfree provides some insight into how to handle split voting (i.e., voting for nominees from opposing proxy cards in a contest) and its intersection with the 14a-4 bona fide nominee rule, including:
– What is split voting?
– How often do we see split voting?
– How do shareholders actually split their votes?
– Are there any ways we could make changes to the system which would make split voting easier?
Venture Capital: Facing a Changing World
We have posted the transcript for our recent webcast: “Venture Capital: Facing a Changing World.”
As noted in the WSJ Law Blog, well-known venture capital lawyer Craig Johnson has passed away. Craig was the found of the Venture Law Group in the early ’90s, and more recently founded the Virtual Law Partners. A true pioneer.
Verifying Pay Amounts: A Company’s Special Use of Experts
With the SEC’s proposal to enhance disclosures regarding the use of consultants when setting CEO pay levels, I thought it was worth noting this blog from Mark Borges’ “Proxy Disclosure Blog” from a few months ago (Mark’s daily blogs are so good that I could be re-blogging all of them):
Universal Corporation, the global tobacco merchant, provides a very thorough presentation of its executive compensation program in its proxy statement, which it filed earlier today. One item in particular caught my attention as I read the company’s Compensation Discussion and Analysis (which begins at page 20).
In the discussion of its compensation committee’s engagement of experts and other advisors to assist it in the discharge of its duties, the company includes the following paragraph:
“During fiscal year 2009, the Compensation Committee also retained our independent auditor, Ernst & Young LLP, whom we refer to as Ernst & Young, to review management’s calculation of performance measures and the amount of the annual incentive awards to be paid to our executive officers in order to report to the Compensation Committee whether such calculations were accurate and properly prepared. Ernst & Young’s role was limited to a review of management’s calculations, and did not involve an audit of the calculations or any components used in the calculations. Ernst & Young presented their report to the Compensation Committee, but did not attend any other Compensation Committee meetings.”
Given the increased attention on incentive compensation arrangements, and the concerns about “erroneous” calculations forming the basis of award payouts (especially as reflected in the TARP executive compensation standards), it shouldn’t come as a surprise that compensation committees have begun to independently verify performance metrics before making bonus awards. While I expect that several companies already do this, Universal’s disclosure is the first time I’ve seen it expressly addressed in the CD&A.
Coming Very Soon: 2010 Executive Compensation Disclosure Treatise and Reporting Guide: Now that we have seen the SEC’s proposals and Treasury’s legislation – that will force you to radically change your executive compensation disclosures and practices before next proxy season – we are wrapping up the ’10 version of Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise and Reporting Guide,” which we will deliver to subscribers later on in October.
To obtain this hard-copy ’10 Treatise when its printed in October (as well as get online access to the ’09 version right now on CompensationDisclosure.com, as well as the valuable quarterly “Proxy Disclosure Updates”), you need to try a no-risk trial to the Lynn, Borges & Romanek’s “Executive Compensation Annual Service” now.
Tune in tomorrow for our webcast – “The NYSE Speaks ’09: Latest Developments and Interpretations” – to hear senior NYSE Staffers discuss the latest developments and what to expect in the near future, including amendment of the NYSE’s corporate governance listing standards. Please print out these Course Materials in advance and join these experts:
– John Carey, Chief Counsel – US Listings, NYSE’s Office of General Counsel
– Carol Hoover, Vice President, NYSE Regulation
– Cindy Melo, Managing Director, NYSE Regulation
– Howard Dicker, Partner, Weil Gotshal & Manges
– Bob Messineo, Partner, Weil Gotshal & Manges
The Board’s Executive Pay Duties: Potential Impact of US Supreme Court’s Jones Case
Recently, Mike Melbinger blogged about the potential importance of an upcoming US Supreme Court case – Jones v. Harris Associates. Here is the SEC’s amicus curiae brief for the case (and here’s a list of the other briefs filed).
In this CompensationStandards.com podcast, Bill Wright of Fisher & Phillips describes how this case may have implications for executive compensation practices, including:
– How does the US Supreme Court’s decision to hear Jones have potential implications in the executive compensation area?
– What is the importance of Judge Posner’s dissent from the 7th Circuit’s denial of rehearing en banc?
– When should we expect the US Supreme Court to deliver an opinion in this case?
TARP IG Report: Treasury Misled Public on Bailouts
As noted in this NY Times article, TARP’s Special Inspector General Neil Barofsky – known as “SIGTARP” – reportedly released a 50-page audit report yesterday that criticized the Treasury Department (including Hank Paulson) for making “some misleading public statements last fall and raising the possibility that it had unfairly disbursed money to the biggest banks.” Guess I’m getting used to being lied to as I’m not surprised in the least – are you?
I got many excited emails from members on Friday noting this Bloomberg article, confirming a rumor I had been hearing all week: the SEC is taking more time to consider the comment letters it has received. This WSJ article notes that the SEC’s new goal is to consider access rulemaking is January or February.
According to this NY Times article, Senator Schumer issued a statement expressing disappointment – so there still is considerable pressure on the SEC to do something on access and this rulemaking is far from dead in the water. The Commission still seems to have a 3-2 vote in favor of access when they do consider final rules.
My guess is that in addition to analyzing the comment letters, the SEC may be waiting for Congress to pass a bill that gives the SEC clearer authority to conduct this rulemaking – in anticipation of a likely lawsuit – and that the SEC still needs to figure out how to handle the mechanics of proposed Rule 14a-11 since there are numerous open issues on how access would work in practice. Much work remains on getting a handle on the “proxy plumbing” and the SEC continues down that path, holding a two-day roundtable on securities lending last week.
This Simpson Thacher memo notes a speech from Commission Elise Walter on Friday, noting that she would give “careful consideration” to an opt-out” provision, but that she was less receptive to directors having an “unfettered choice” to have this discretion.
Simpson’s memo notes that there is no indication about whether the SEC may still act before the upcoming proxy season on its Rule 14a-8(i)(8) proposal to end the practice of allowing companies to exclude shareholder proposals relating to director elections. My guess is that the SEC will not act on this proposal separate from the 14a-11 proposal for fear of enraging those in favor of a-11 since that might look like that is all the SEC is willing to do in the access area.
And as long as I’m guessing, I also think the January/February timeframe may be too soon for the SEC to act – there are a lot of open issues and the pressure of an upcoming proxy season no longer bears down on this rulemaking. But that is just conjecture on my part…
6th Time’s a Charm? SEC Further Delays Auditor Attestation Requirement for Smaller Companies
On Friday, the SEC issued a press release announcing that it’s giving smaller companies (ie. nonaccelerated filers) an additional six-month deferral to produce the long-awaited auditor attestations under Section 404(b) of Sarbanes-Oxley. So this latest extension pushes back the deadline from years ending after December 15, 2009 to years ending after June 15, 2010. (Remember that smaller companies have already been required to include a Section 404(a) management’s report on internal control in their annual reports.)
It’s worth noting that Sarbanes-Oxley – adopted back in ’02 – still hasn’t been fully implemented even though we’re up to our eyeballs in a new sea of regulatory reform. So is this 6th delay in the smaller company deadline “final”? In other words, will smaller companies finally be facing the gun?
SEC Releases Internal Controls Cost-Benefit Study
To answer the question posted above, I believe the answer is “yes, it’s final.” That’s because the SEC stated rationale for the delay was that it wanted to give smaller companies and their auditors more than three months to digest the results of the Section 404 cost-benefit study its Office of Economic Analysis released on Friday.
The cost-benefit study was conducted to determine whether the ’07 reforms (i.e., management guidance issued by the SEC and PCAOB Auditing Standard No. 5) really did lower costs by producing more cost-effective internal controls evaluations and audits. The study reveals that these ’07 reforms did indeed fit the bill and that costs are lower. And to answer the question quite clearly, the SEC’s press release notes:
“Since there will be no further Commission extensions, it is important for all public companies and their auditors to act with deliberate speed to move toward full Section 404 compliance,” said SEC Chairman Mary L. Schapiro.
As noted in this NY Times article, Rep. Paul Kanjorski, Chair of the House of Representatives’ Capital Markets Subcommittee, released a series of three draft bills yesterday. The Investor Protection Act would overhaul the SEC’s Division of Enforcement (much of the bill falls in line with what the Obama Administration proposed over the summer, with a few exceptions). The Private Fund Investment Advisers Registration Act would require the registration of all hedge fund and private equity managers and mandate certain recordkeeping and disclosure requirements. The Federal Insurance Office Act deals with insurance company issues.
Regarding the SEC’s enforcement program, the bill would:
– Establish a whistleblower fund
– Dramatically increase SEC budget nearly two-fold over five years
– Close various statutory enforcement gaps (e.g., penalties in c&d proceedings, nationwide service of process, etc.)
– Expand access by SEC to grand jury materials
– Impose a deadline on SEC to complete exams and investigations within 6 months (or 1 year for “complex” matters)
Other types of provisions include:
– Give the SEC authority to reduce the disclosure time frame for beneficial ownership and short swing profits reporting to less than 10 days
– Impose fees on registered investment advisers
– Establish consistent duties for brokers, dealers and investments advisers in connection with retail investors
– Require pre-sale disclosure regarding investment company shares
Section 16 and PUHCA
A member sent this in recenty: “This is really a trivial matter, but I just noticed on the top of Forms 3, 4 and 5 (eg. see this Form 4 on the SEC’s site), there is still a reference to filing the forms under PUHCA of 1935. I think the forms may have been last revised before the 1935 Act was repealed in 2005. I would imagine the SEC forms folks will delete the reference at some point in the future.”
CDIs vs. C&DIs vs. CD&Is…
On another semantics note, here are some thoughts from a member reacting to my preference for the term “CD&Is” (or at least “CDIs”) compared to “C&DIs” when referring to Corp Fin’s Compliance and Disclosure Interpretations:
I was at a mtg down at the SEC lately and its painful to hear the Staff force themselves to follow the “C&DIs” convention when they vocalize it. I agree that “C&DI” should be banished from the English language as an instance of blind pursuit of logic at the expense of flow. (Another example that drives me crazy: “Forms 4.”) But CD&I is just plain wrong. I vote for CDI.
Take this anonymous poll below to express your own views:
With the comment letter deadline behind us, the SEC has received over 550 comment letters on its proposed proxy access rules – with more still dribbling in late. This is compared to over 15,000 comment letters submitted on the 2003 proposed proxy access rules, although that rulemaking was the subject of intense “form letter” campaigns (with roughly 14,500 form letters submitted by mostly individuals supporting the proposed rules in 2003). So in essence, the number of “real” comment letters between the first time the SEC proposed proxy access and this most recent third attempt is the same.
Loosely, most of the letters were against proposed Rule 14a-11, while about 110 were “for” it. Even some letters “for” it recommended some tweaks, particularly lengthening the holding requirement to two years from one year and changing the “first in” nomination formula to “largest shareholder.”
Here is a rough breakdown in the views expressed in the first 500 letters (note more letters were submitted since the breakdown was made):
– Public/private companies – 119 letters, nearly all opposed proposed Rule 14a-11 – but a majority supported the proposed amendments to Rule 14a-8(i)(8) subject to further amendments. Law firms/individual lawyers submitted 27 letters that reflected similar sentiments (except the few from plaintiff firms). Most of the 29 letters from trade associations also reflected these views.
– Small businesses/individuals – 241 letters, many of whom opposed the proposed rules because of opposition to increased governmental involvement in business.
– Institutional investors/unions/public pension funds – 52 letters, universally supported the proposed rules except for the Vanguard Group and Carpenters letters.
– Governance service providers/activists – 15 letters, letters submitted by RiskMetrics, Glass Lewis, The Corporate Library, CtW Investment Group and similar service providers supported the proposed rules – while Computershare/Georgeson and the Altman Group each submitted a letter recommending that the SEC first reform the shareholder communications process by eliminating the NOBO/OBO distinction.
– Academics – 8 letters representing 96 academics, most of these letters supported the proposed rules.
Have you seen this Black Eyed Peas’ “Dipdive” video from Oprah’s show? It’s unbelievable. If humans can do this, how come we can’t solve world hunger, etc.?
Posted: 279-page Financial Crisis Manual
Recently, we posted this 279-page Financial Crisis Manual from Davis Polk. This monster is a comprehensive review of financial crisis laws as they apply to US financial institutions, covering the major Federal Reserve programs, Treasury’s capital investments and warrants, the FDIC’s debt guarantees, the public-private investment program, the enforcement landscape and executive compensation. It’s great to have a reference work that gathers all the scattered primary sources of financial crisis laws, regulations and contracts in one place.
How to Prepare for the Upcoming Proxy Season
As could be expected given the expectations for the upcoming proxy season, our “4th Annual Proxy Disclosure Conference” – which will be held at the San Francisco Hilton and via Live Nationwide Video Webcast on November 9th – will be attended by many of you.
This full-day Conference crams a lot of practical disclosure guidance into a single day, with a total of 12 panels, including:
– How the Latest Developments Impact You
– How to Avoid the Conflict between the Lawyer and the Consultant (and HR): Working for Full Disclosure
– Why Disclosures Matter: ‘Real World’ Perspectives
– The SEC Staff Speaks: What to Expect from the Comment Process
– Practice Pointers: How to Implement ‘Say-on-Pay’
– The New Challenges of Bonuses (and Clawbacks)
– How to Handle ‘Out-of-Money’ and Other Down-Market Arrangements
– Dealing with the Complexities of Perks
– Conducting – and Disclosing – Pay Risk Assessments
– The Latest on the CD&A
– Form 8-Ks for Compensation Changes – What to Do
Now that Congress is moving on say-on-pay (and other compensation-changing initiatives), you need to register now to attend our popular conferences and get prepared for a wild proxy season. Remember that the “6th Annual Executive Compensation Conference” (held on 11/10) is paired with the “4th Annual Proxy Disclosure Conference” – so you automatically get to attend both Conferences for the price of one. Here is the agenda for both Conferences.
Act Now: Register now to attend live in San Francisco or by video webcast. If you can’t make these dates, note that both Conferences will be available through a video archive.
Yesterday, the SEC’s Inspector General issued a 46-page report with a list of 21 recommendations to improve the Division of Enforcement. In addition, the IG issued a 86-page report with a list of 37 recommendations to improve the Office of Inspections and Examinations. Implementation of these recommendations will result in a radical overhaul of these parts of the SEC.
Both Enforcement and OCIE concurred with the recommendations – and are required to submit corrective action plans to the IG within 45 days. Actual implementation of these corrective actions may take quite some time as some will require quite a bit of work (and funding), like the creation of a database for tips and complaints. Here is a WSJ article – and here is a NY Times article regarding the report.
What is “Axiom”? A New Legal Profession Model?
In this podcast, Mehul Patel of Axiom explains how Axiom works and how it can help lawyers find work as well as legal departments find staffing, including:
– What is Axiom?
– What types of lawyers are your clients looking for?
– What types of projects does Axiom most often get hired for?
– What has been the biggest surprise since Axiom started?
Our October Eminders is Posted!
We have posted the October issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Just reading through the Fall issue of Carl Hagberg’s “Shareholder Service Optimizer” – chock full of great stuff as always – and Carl has given me permission to post this excerpt based on his recent experience as independent tabulator at Intel’s novel annual meeting (which I previously blogged about):
Your editor has the honor to serve as the Inspector of Election at Intel’s 2009 annual meeting, the first “virtual annul meeting” ever. In an interesting twist of fate, he had testified a few years ago about why a “virtual annual meeting” that had been proposed by a group of vulture capitalists would not work – simply because the proper technology to allow “virtual voting” in a secure and auditable fashion could not then be put into place … at least by that group. So he was already on the record, under oath, as to what would really be required to pass muster. We’re here to tell you that Broadridge has “cracked the code” technologically, but that the meeting – and the technology – was really cool.
Intel, of course has provided a “live” webcast of its meeting in previous years. And they’d also solicited shareholder questions over the web in advance of the meeting. What was totally new, however, was the virtual, on-line, real-time voting feature.
Here’s how it worked: Broadridge closed the voting sties in advance of the meeting in order to establish the quorum and arrive at firm “preliminary numbers”. Then, they reopened the polls – for internet voting only – shortly before the meeting began. As shareholders registered for the live webcast they were asked to enter their identifying numbers (from the proxy card if they were registered holders, or from the VIF if they were street-name holders) if they wished to have the opportunity to vote “live” during the meeting.
While normally your editor does not vote his own proxy if he’s the inspector … to be sort of “super-independent” … he logged on in this case, in order to see exactly how the system was working. A box popped up almost instantly on his computer screen verifying that he was entitled to vote, and providing the spots he’d need to click on in order to make his selections.
As the live webcast began – with a few second delay that was also kind of cool to observe along with the “really live meeting” – the box remained open on the right-hand side of the screen. Since his vote has really immaterial in terms of the outcomes – and since he wanted to see exactly how things would work, he decided to cast his votes midway through.
A new screen popped up to tell him his votes had been recorded … and that he could click again if he wished to change his mind or keep his options open during the course of the meeting, which he did. When the polls were declared closed, the voting screen instantly disappeared, and a message popped up to inform viewers that the voting period had closed. How cool could this possibly be!
Broadridge could not, of course, report the final votes at once: The votes cast at the meeting had to be “run” against the preliminary vote file, to be sure that any earlier votes were revoked by the online vote. And, as backup, Broadridge was able to print out all the details on t he votes cast at a meeting …. And yes, your editor’s vote was among them, as he fully expected it to be. The final tabulation was read by M+2….
…Another concern your editor has expressed revolves around the good-governance aspect of allowing shareholders to ask questions … and the extra preparedness that most meeting chairmen engage in to be ready for them. But Intel’s process assured that this worked fine too – and frankly, the technology is there to let shareholders type in their questions, or to record a statement in advance if they really want to. The meeting chairman alternated nicely between “live” questions and questions from the Internet. And, as Cary Klafter, Intel’s Corporate Secretary told the Society at its annual conference, most of the internet questions – any many of the live ones too – were about products, and had nothing at all to do with “governance” matters … although not every company can count on this, of course.
Note that my title uses “quasi-” before “virtual” as I worry that semantics may get the better of us. Most folks rightly use the term “virtual meeting” to describe what I call an “electronic-only shareholder meeting” (eg. my recent blog about Herman Miller) and Intel did indeed hold a physical meeting – so it wasn’t completely “virtual”…
Allegations of Bad Faith: Mark Cuban Goes for SEC’s Blood
The latest in the Mark Cuban/SEC saga – now Cuban has sued to recoup attorney’s fees and expenses from the SEC, as noted in “TheRacetotheBottom” Blog. As noted in this blog, the US District Court for the Northern District of Texas dismissed the SEC’s insider-trading complaint against Cuban back in July. Man, the SEC’s Enforcement Division just can’t catch a break in the assault on its reputation…
Last Chance for Discounted Rate: Lynn, Borges & Romanek’s 2010 Compensation Disclosure Treatise
Now that we have seen the SEC’s proposals and Congress’ say-on-pay legislation – that will force you to radically change your executive compensation disclosures and practices before next proxy season – we are wrapping up the ’10 version of Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise and Reporting Guide,” which we will deliver to subscribers in October.
Act Now for $100 (Or More) Discount: To obtain this hard-copy ’10 Treatise when its printed in October (as well as get online access to the ’09 version right now on CompensationDisclosure.com, as well as the valuable quarterly “Proxy Disclosure Updates”), you need to try a no-risk trial to the Lynn, Borges & Romanek’s “Executive Compensation Service” now.
If you order by this Thursday, October 1st, you can take advantage of a $100 or more discount. The many of you that currently subscribe can renew by October 1st to also receive this discount. Get the new Treatise hot off the press when it comes out!
It’s been quite some time since the SEC’s Enforcement Division brought a Regulation FD case (two years since the last one) – and I count only nine such cases since Reg FD was adopted earlier this decade (according to the list in our “Regulation FD” Practice Area). On Thursday, the SEC announced an administrative proceeding in which a former American Commercial Lines CFO (Christopher Black, who was the company’s de facto IRO) agreed to pay $25,000 for a Reg FD violation that occurred a few years ago. The CFO is alleged to have selectively disclosed material, nonpublic information regarding the 2nd quarter ’07 earnings forecast to a limited number of analysts. Here is the SEC’s complaint.
Here is a summary of what allegedly happened according to the complaint:
– In mid-2007, the company issued a press release projecting second quarter earnings in line with 1st quarter earnings.
– Later that week, the CFO sent an e-mail from his home to the eight sell-side analysts who covered the company that said that the company’s earnings per share for the second quarter “will likely be in the neighborhood of about a dime below that of the first quarter,” effectively cutting in half the second quarter earnings guidance.
– This selective disclosure and resulting analysts’ reports triggered a significant drop in the company’s stock price.
The SEC’s litigation release identified these factors to explain why an enforcement action wasn’t pursued against the company itself:
– Prior to the selective disclosure by Black, the company cultivated an environment of compliance by providing training regarding the requirements of Regulation FD and by adopting policies that implemented controls to prevent violations.
– The CFO alone was responsible for the violation and he acted outside the control systems established by the company to prevent improper disclosures.
– Once the illegal disclosure was discovered by the company, it promptly and publicly disclosed the information by filing a Form 8-K with the SEC the same day.
– The company self-reported the conduct to the SEC Staff the day after it was discovered and the company provided extraordinary cooperation with the Staff’s investigation.
– The company took remedial measures to address the improper conduct, including the adoption of additional controls to prevent such conduct in the future.
These factors noted by the SEC serve as a good reminder that companies should have Regulation FD policies and well-documented compliance training programs in place. In our “Regulation FD” Practice Area, we have a bunch of sample Reg FD policies.
PCAOB Issues 1st Year AS #5 Implementation Report
Last Thursday, the PCAOB issued a report on the first year of implementation of AS #5 regarding internal controls. In FEI’s “Financial Reporting Blog,” Edith Orenstein wonders whether the SEC’s “Study of the Costs and Benefits” regarding internal controls reporting under the SEC & PCAOB rules is not far behind…
Many companies have adopted stock ownership guidelines requiring executives and directors to own stock in their company based on a multiple of their salaries or board retainers. With the current market downturn and drop in net worth for many people, some companies are changing their stock ownership guidelines. Below are the results from a recent survey we conducted on this topic:
1. At our company, we are:
– Enforcing our stock ownership guidelines without change – 52.2%
– Revising our ownership requirements – 23.3%
– Terminating or suspending our stock ownership guidelines entirely – 5.6%
– Granting waivers selectively to executives or directors who aren’t meeting the guidelines – 3.3%
– We don’t have stock ownership guidelines – 15.6%
Please take a moment to respond anonymously to respond to our “Quick Survey on “Board Committees Interacting with Full Board
.”
Move SEC’s Enforcement to DOJ? Good Grief…
If I tried to give my opinion on each of the hundreds of reform recommendations made in the wake of the financial crisis, that’s all this blog would be about. Plus, it’s probably humanly impossible to keep up with them all. Everyone has a say in how we should fix what is broken.
But sometimes I see something that causes my brain to hurt and I can’t help but say something. This Bloomberg article posits the idea of “spinning off” the SEC’s Enforcement Division to the Department of Justice because Enforcement
needs “independence.” And now I quote from the article, “That way, after people in the division of market regulation “notify the pit bulls” in enforcement about suspicious activity, the SEC has no further role in the investigation and can’t be pressured by the target firm to go easy.”
Ah, where do I start…I guess with these thoughts:
1. The SEC is an independent agency – just like the DOJ. It’s only been politicized during the last decade by an intruding Congress who had pushed for deregulation (as I’ve blogged about before) – just like the DOJ became politicized this decade (remember Alberto Gonzales?).
2. Not to say the SEC hasn’t slipped up occasionally this decade, but I haven’t seen the DOJ do anything particularly stellar recently. At this time, the SEC only has the authority to bring civil actions for violations of the federal securities laws – the DOJ is the agency tasked with bringing criminal charges. Do you see the DOJ using that authority to bring criminal charges against the perpetrators of the financial meltdown? I don’t.
3. Do the folks behind this idea think that the DOJ (or any other law enforcement in the world) doesn’t engage in negotiations with targets to arrive at a compromise solution? The SEC doesn’t go “easy” with its targets.
4. There is a clear lack of understanding about how the SEC really works in this article. Investigations with Market Reg or Corp Fin implications aren’t simply “handed off” to Enforcement. For example, Enforcement Staffers rely on Corp Fin Staffers for their expertise to help parse financial fraud.
I agree with the idea in the article that Enforcement should build a better mechanism to allow investors to submit complaints. But people have to realize the very limited resources of the SEC – it only has so many horses. And the number of crazy complaints that the SEC receives would boogle your mind (and that’s before this market crash). Thousands of investors who gambled in the market and lost think they have a case against someone. That somehow investing in the market was a guarantee. Do you want to spend your money as a taxpayer chasing down every single one of these crazy “leads”?
This September-October issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:
– Convertible Debt Exchange Offers: Considerations for Distressed Issuers
– Mitigating Value and Dilution Risks in Stock-for-Stock Mergers
– Caveat Everybody: Changes in Control as Assignments of Contract Rights
– Substituting Tort for Contract: Tortious Interference Claims Against M&A Affiliates
