Well, it’s been done before. Annual meetings held solely online. Inforte was first company to conduct their annual meeting solely online in April ’01. Ciber did it in ’02 and ICU Medical in ’04. Siebel Systems had plans to do it in ’03 – but changed course in the face of criticism.
Now we have a relatively small company – Herman Miller – that filed this proxy statement last week, indicating that it would be the latest company to hold a virtual meeting. And you want to know the biggest surprise of it all – this will be the third year in a row that the company will do so! Slipped under the radar. Anyone aware of any other companies out there doing this?
Although I drafted them about eight years ago, these FAQs on conducting electronically-only meetings remains the best thing out there on the topic (because its about the only thing written on the topic) – it’s posted in our “Annual Shareholder Meetings” Practice Area.
Here is one of the FAQs worth considering:
What risks does a company face if it holds an electronic-only stockholders’ meeting with no physical counterpart?
Increased shareholder activism is quite possible – as well as potential negative media coverage based on the scorn of disappointed stockholders that like to have the opportunity to attend physical meetings.
Some investors have expressed concerns that electronic-only meetings would deprive them of the opportunity to meet with company representatives face to face. They believe that these physical meetings allow investors to better express their positions – and that management and the board listen more closely when communications are made in person.
After Delaware changed its laws in 2000, the Council of Institutional Investors wrote letters to the CEOs of all companies incorporated in Delaware urging them not to conduct electronic-only meetings. Unions also are concerned about the changes in the Delaware law.
Particularly for matters that are contested at a stockholders’ meeting, electronic-only meetings pose the risk that a company can be surprised by large stockholders who vote at the meeting or change their vote – thereby making the outcome of meetings less predictable.
A risk for management is that an electronic-only meeting likely would result in greater attendance with more questions asked compared to a physical meeting – since attending an electronic meeting is fairly easy. This is a risk for those companies who like their meetings small and intimate (i.e. the fewer questions, the better) – but an advantage for those who don’t mind the attention.
Whistleblowing and In-House Counsel: Not Blowing in the Wind?
From Keith Bishop: A few weeks ago, the 9th Circuit Court of Appeals delivered an opinion in Asdale v. International Game Technology. This case involved claims by two former in-house lawyers under the whistleblower protection provisions of Sarbanes-Oxley.
The lawyers’ former employer argued, among other things, that they should not be able to maintain their SOX claims because doing so would require the use of attorney-client privilege. The 9th Circuit agreed with the analysis of the Third Circuit (ie. Kachmar v. SunGard Data Systems, 109 F.3d 173 (3d Cir. 1997)) and Fifth Circuit (i.e. Willy v. Administrative Review Board, 423 F.3d 483 (5th Cir. 2005)) – and held that confidentiality concerns alone did not warrant dismissal of the lawyers’ claims. The 9th Circuit also noted that nothing in the SOX whistleblower provisions indicates that in-house attorneys are not also protected “even though Congress plainly considered the role attorneys might play in reporting possible securities fraud.” We’ve been posting memos on this case in our “Whistleblowers” Practice Area.
Attorney-Client Privilege Issues for Executive Email Communications
Here’s more news on the privilege front, courtesy of Mike Melbinger of Winston & Strawn from his “Melbinger’s Compensation Blog” on CompensationStandards.com:
Because the work of executive compensation professionals often involves email communications among executives, I wanted to note a recent case on the extent to which the attorney-client privilege would apply to communications between the executive and his/her lawyer. The issue in Stengart v. Loving Care, No. A-3506-08T1, slip op. (N.J. Super. Ct. App. Div. June 26, 2009), was whether the privilege would apply to communications from an executive’s personal email account, which the executive accessed from a company computer on company time (while at work), to an outside lawyer representing her in connection with her departure from the company.
This is an issue that should be important to anyone who:
– Advises executives in compensation and/or employment matters
– Advises employers in compensation and/or employment matters, or
– Drafts company computer-use policies
The application of the privilege to email sent from the workplace is fact-intensive. The factual analysis determines whether or not the communication was truly confidential. This is that case for both company-owned email accounts and personal email accounts accessed via company computers from the workplace. The leading federal case on the question, In re Asia Global Crossing, Ltd, 322 B.R. 247 (S.D.N.Y. 2005), lays out several factors to consider:
– Does the company maintain a policy banning personal or other objectionable use;
– Does the company monitor the use of the employee’s computer or e-mail;
– Do third parties have a right of access to the computer or e-mails; and
– Did the company notify the employee, or was the employee aware, of the use and monitoring policies?
The approach adopted by the In re Asia Global court and every other court we surveyed, focuses on the effect that the company policy had on the employee’s expectation of confidentiality. A strong and clear company policy can make it impossible for an employee to claim that his/her communication was confidential. On the other hand, a policy that is unclear or does not cover a certain type of electronic communication will leave the door open for the employee to claim that his/her communication was confidential.
However, the court in Stengart v. Loving Care held that emails sent by an employee from her personal, web-based, password protected email account, accessed from a company-owned computer while at work, were protected by the attorney-client privilege. The court held this, despite the company having a computer use policy which indicated that employees had no expectation of privacy in their computer use, and that all data stored, created, or transmitted via company computer was the property of the company. The Stengart court may have misunderstood the role of company policy. The issue should not be whether a court will enforce company policy, but rather whether company policy had the effect of placing the employee on notice that his/her electronic communications through company computers could not be considered confidential.
Many thanks to summer associate Ben Ellison from Notre Dame for his research and drafting help on this Blog.
Last week, the PCAOB announced that one of the founding Board Members – Charley Niemeier – will be leaving the PCAOB. His term expired a year ago and his actual departure date is unknown. Upon his departure, there will be only three of the five Board slots filled – with Bill Gradison’s term expiring in October and potentially slimming down the Board to two (remember in the mid-90s when Arthur Levitt and Steve Wallman were the only two SEC Commissioners – Commission meetings are somewhat of a joke when its two guys talking to each other).
It’s likely that SEC Chair Schapiro will act before the PCAOB gets too thin up top – and by filling three new slots, the PCAOB’s direction could well change…
PCAOB Staff Issues Guidance on Impact of FASB Codification on Its Standards
Last week, the PCAOB Staff issued these “Questions and Answers” to provide guidance on how the FASB’s codification project impacts references to authoritative literature.
Farewell to a Corp Fin Giant: Bill Toomey
Starting back when the number of SEC Staffers was substantially smaller, Bill Toomey was a Corp Fin staple for nearly 40 years before he retired ten years ago. Here is a note that Corp Fin circulated yesterday:
It is with great sadness that we inform you that one of our former Division members, Bill Toomey, recently passed away. Bill joined the Division in 1959 as an attorney. He enjoyed a long career in the Division, serving in many important positions and retired in 1998. Those of you who had the opportunity to work with Bill will always remember his consistent willingness to spend time sharing his knowledge with less experienced attorneys and his overall character as a consummate gentleman. Several of those whom Bill mentored continue to serve in the Division today. Bill took great pride in his SEC career and represented the best of the Commission in the many years that he served on the staff.
You can make memorial contributions to the Hillandale Volunteer Fire Department (24), 10617 New Hampshire Ave, Silver Spring, MD 20903 or Montgomery Hospice, 1355 Piccard Dr, Rockville, MD 20850.
Last Wednesday, the SEC released this 22-page executive summary from it’s Inspector General David Kotz regarding the SEC’s failure to nail Bernie Madoff, ahead of the full 477-page report released late Friday (note that it’s the “public” version, some names have been redacted). SEC Chair Schapiro released this statement with the executive summary – and this one with the full report, both of which highlight the 13 reforms undertaken post-Madoff.
As could be expected, the IG’s report resulted in front-page news as the gruesome details of the SEC’s failures would sink any former Staffer’s heart. And this is a story that won’t end for quite some time (FEI’s “Financial Reporting” Blog notes Senate Banking Committee hearings commence this Thursday) and is likely to produce more heartache. For example, I can’t bear the thought of the SEC promoting the fact that they may create a “Fraud College,” as noted in the Bloomberg article. Such nomenclature screams out that the SEC hasn’t been doing the basics when it comes to training.
The repeated bashing of the SEC – unfortunately, much of it warranted – over the past year surely has made a folk hero of its Inspector General David Kotz. This is notable from a historical perspective because the SEC’s IG was someone that hardly knew existed for decades and decades. Now it is among the highest profile jobs at the agency.
Given that the Madoff report is 477 pages, it’s likely that Kotz had a lot of assistance writing it. That’s quite a tome. The IG’s organization chart indicates that the office includes 18 Staffers (including Kotz himself) – but page 7 of the report lists a total of nine in the Office (including two summer interns) that worked on the Madoff investigation. On page 5 of the report, it’s noted that 4 forensic contractors were hired to help investigate (as well as an email recovery expert). Someone will get smart and publish this thing as a book…
Upshot of Madoff Mess? SEC to Finally Be Self-Funded?
Ironically, this Bernie Madoff mess may result in the SEC finally getting funded more adequately. Cries for self-funding have resurfaced, led by Senator Schumer who issued this press release last Thursday noting that he is drafting legislation that would enable the SEC to fund itself from the fees it collects. The SEC historically has collected a level of transaction and registration fees for the US Treasury Department that far outweighs – by about 50% – the funds that Congress appropriates to the SEC to operate. It’s a gravy train that will be hard for the US government to wean itself from.
Beginning in early August, SEC Chair Schapiro began beating the drum for self-funding, as noted in this Financial Times article. This follows a long-line of SEC Chairs seeking the same thing, as it’s hard to run an independent agency when you are dependent on politicians for funding. The SEC is one of only two financial regulators in that must go through the annual Congressional appropriations process. Banking regulators got self-funding a couple of decades ago.
Drilling down into the details, the SEC is part of the appropriations and budget request that includes the Departments of Justice and Commerce. Indirectly, Congress uses the fees that the SEC collects to help balance the budgets of the DOJ and Commerce, even though those paying the fees are not receiving benefits from those agencies. Essentially, the excess fees that market participants pay serve as a “tax.” Here is a mid-’02 GAO report that provides numerous details about a self-funding alternative.
Back from a record-length vacation (two weeks without email!) and the papers over there are filled with stories about banker bonuses and how the French have gotten their bankers to agree to some restrictions. French President Sarkozy pushed hard for these restrictions and he intends to make it a big point at the upcoming G-20 summit so that French bankers don’t seek employment elsewhere. Here is a WSJ article from last week describing these developments.
On a lighter note, I thought I would share a few vaca videos that may interest you:
1. “Wall Street” English
One of my favorite moments in Paris was spotting a billboard on the subway promoting the Wall Street Institute, which promises to teach you how to speak “Wall Street” English and more. Maybe talking the talk in Paris is all it takes to be an i-banker? Here is the billboard:
2. Public Company Offerings in The Hague
While walking down the street in The Hague, I spotted a storefront which had a host of securities law and compliance books – unbelievable, eh? – including one entitled “Prospectus for the Public Offering of Securities in Europe.” See if you can spot it:
3. Dancing Along the Seine River
One of the nicer sights in Paris wasn’t in the guide books. We first spotted it during one of the river boat rides in the Seine – folks of all ages swing dancing along the banks (and many more just eating cheese and drinking wine). The second video below is a closer look as I went in to investigate. Like a storybook come true:
We recently wrapped up our Quick Survey on “Corporate Airplane Use by Outside Directors.” Below are our results:
1. At our company, when it comes to allowing non-employee directors to use the company’s plane to travel to – and from – board meetings:
– Yes, we allow – but we disclose the aggregate incremental costs associated with such use as director perks in the Director Compensation Table – 1.0%
– Yes, we allow – but we believe such travel is for a business purpose and thus do not disclose it in the proxy statement – 60.8%
– Yes, we allow – but we believe such travel is for a business purpose and therefore only disclose that such travel is permitted in the narrative portion of the proxy statement – 12.4%
– Yes, we allow – but only a percentage of the amounts associated with such use is considered for a business purpose – so some of the cost is disclosed in the Director Compensation Table – 0.0%
– No, we don’t allow non-employee directors to fly on the company plane to our board meetings – 7.2%
– No, as a result of a recent change in our travel policy, we no longer allow non-employee directors to fly on the company plane to board meetings – 1.0%
– We don’t have a company plane – 17.5%
Please take a moment to respond anonymously to respond to our “Quick Survey on “Affiliates” for Rule 144 Purposes.”
Poll Results: How Do You Look Up a SEC Rule?
Recently, I posted a poll about how our members look up a SEC rule. Here are the results, as members look up a SEC rule by referring to:
– SEC’s web site – 16.3%
– Another web site (eg. U. of Cincinnati’s site) – 38.4%
– Free financial printer handbook – 12.1%
– CCH looseleaf service -16.8%
– Other – 11.6%
– What SEC rules? – 2.6%
Greg Wiessner of Wright Express Corporation said he liked the poll but noted: “How come you didn’t include the Appeal Securities Act Handbook (a/k/a “the Red Book” or “Aspen Book”)? As a junior associate, I remember being confounded by a senior partner asking me to find a rule and telling me to either look it up in CCH or online – both of which I found useless.
Shortly thereafter, another partner joined the firm and asked me – knowing I worked on securities matters – to borrow my “Handbook” for an hour because his had not come in yet. I was embarrassed to admit I didn’t even know what he was referring to. He promptly changed the order from one to two books so I’d have my own. When it showed up, I was amazed that each act was tabbed by practical designation, not all in one big mess.”
Trivia: The “Handbook” was named after the now defunct Appeal Printing Company, which originally published it.
Non-U.S. Issuer Lawsuits
In this podcast, Bruce Vanyo of Katten Muchin Rosenman discusses the increasing trend of non-US issuers facing lawsuits in NY courts, including:
– Are more foreign issuers being sued in the US in securities class actions?
– Can you describe how the non-US issuers are being sued in New York?
– What are the causes of these developments?
– Is there anything a non-US company should do in an attempt to stave off being sued in New York?
The most recent U.S. Circuit Court of Appeals for the First Circuit decision in United States v. Textron – a 3-2 en banc decision – has caused quite a stir. This decision follows one from January, in which I blogged thoughts from Stan Keller, who noted then: “The First Circuit decision may amount to an illusory victory for Textron with mischievous consequences.”
In its new en banc decision, the court significantly narrows the “work product” doctrine by ruling that it did not protect tax accrual work papers. The court found that the law “does not protect from disclosure documents that are prepared in the ordinary course of business” instead of in anticipation of litigation or in preparation for trial. Textron had argued that if it were not for the possibility of litigation with the IRS, the papers would not be prepared at all because no reserves would be needed. We have posted the opinion – and memos analyzing it – in our “Audit Documentation/Work Papers” Practice Area.
In their 26-page dissent, Judges Torruella and Lipez noted that there was a split among the circuits and that the “time is ripe for the Supreme Court to intervene and set the circuits straight on this issue.” The depth of the dissent may help those fighting for work product protection going forward as it seems more reasoned than the majority opinion.
The Textron decision is a continuing attack on the work product doctrine, which is likely to continue partly because the definition of “work product” is not all that clear. A split in the 2nd Circuit – as well as the far-reaching implications of the 1st Circuit’s decision – may well lead the US Supreme Court to grant certiorari in this case.
As we’ve been covering in this blog for a while, there has been a marked uptick in activity in the Foreign Corrupt Practices Act area over the past year or so. This is highlighted by SEC Enforcement Director Rob Khuzami’s recent speech – discussing his first 100 days in office – announcing the formation of a new FCPA unit, which will seek to develop new and proactive approaches to detecting FCPA violations and work more closely with foreign regulatory counterparts to develop a global approach to prosecution. This likely signals the end of the de-centralized SEC enforcement of the FCPA, with each regional office having the authority to bring FCPA cases.
For example, the SEC recently settled an enforcement action against Nature’s Sunshine Products and its then-COO and CFO for FCPA violations. What makes this case interesting is that the SEC did not allege any illegal activity (or knowledge of the illegal activity) on the part of the COO or CFO, but rather invoked the often-forgotten “control person” doctrine in Section 20(a) of the Exchange Act to allege that the two men had violated the FCPA based on their position as control persons. It is fair to say that this case serves notice that a broader enforcement effort against executives who fail to adequately supervise employees is underway.
Also notable is how the Department of Justice recently invoked the Travel Act to prosecute a case against Central Components for bribery of a non-government official (the company also pled guilty to FCPA violations). This case demonstrates that the government is casting a wide net to prosecute bribery. We have been posting memos analyzing all the activity in this area in our “Foreign Corrupt Practices Act” Practice Area – and Kevin LaCroix recently covered a host of FCPA developments in his “D&O Diary Blog.”
Ahead of our upcoming webcast with a group of senior NYSE Staffers – “The NYSE Speaks ’09: Latest Developments and Interpretations” – the NYSE has issued proposals to amend its corporate governance listing standards. These proposals will be analyzed during the program. It’s been quite a while since the standards were last revised…
Where Were the Lawyers? Judge Rakoff Asks in BofA Settlement Case
Back from vacation and I see that things have heated up in the case where US District Court Judge Jed Rakoff’s decision to not approve a $33 million settlement between the SEC and Bank of America over allegations of misleading proxy materials because the bonus obligations due to Merrill Lynch employees were not fully disclosed. When I left a few weeks ago, the Judge was about to hold a hearing to discuss the issues involved. At the hearing, he asked for briefs from both parties by August 24th.
On the 24th, the SEC and Bank of America submitted the briefs as requested by the Judge. Here is the brief submitted by the SEC, including the controversial Disclosure Schedule that was not included in the proxy materials as Exhibit A. Here is Bank of America’s brief that asserts that obligation to pay bonuses was disclosed.
As noted in this NY Times article, Judge Rakoff’s request for documentation regarding who was responsible for the decision not to disclose Merrill’s bonuses resulted in both parties blaming the lawyers in their briefs. Although as Tom Gorman notes, “The briefs read as if they were filed in two different cases.”
On August 25th, Judge Rakoff – apparently not very happy with the briefs – issued this order. As noted by Barbara Black in the “Securities Law Prof Blog“:
Judge Rakoff still isn’t satisfied with the explanations given to him by the SEC and the Bank of America about the settlement involving the disclosure (or lack thereof) of Merrill bonuses in the BofA proxy statement. He instructed the SEC to provide more explanation about why it didn’t follow SEC policy and seek penalties from individual defendants. He also didn’t accept the agency’s explanation that its hands were tied because the corporation asserted reliance on advice of counsel as a defense and would not waive the attorney client privilege and give the SEC the documents. How could the corporation base a defense on attorneys’ advice without disclosing the advice? The judge asked for further submissions due September 9th.
The Judge could hold a second hearing on the settlement – or he could approve or reject it after receiving this new rounds of briefs.
Here are a number of commentaries on what has transpired so far:
Last Friday I blogged about the “grass roots” letter writing campaign that had been ginned up to oppose the SEC’s access proposals. It being a slow news week in Washington, it seems that reporters have turned to reading some of the more serious comment letters on the proposals, as a number of stories came out this week, mostly covering the level of opposition to the proposals. For example, this WSJ article notes some of the various suggestions for tweaking the proposals both from those for and against the changes, all seemingly made against the backdrop of a strong presumption that something will be adopted in November of this year. (The WSJ article also notes that the US Chamber of Commerce was behind the small town letters expressing concern over adoption of the access proposal, with more efforts expected to be ramped after Labor Day.)
I thought that I would highlight a couple of letters that caught my eye which have very little to do with the particulars of the proposals, but nonetheless make a case that, once again, now might not be the right time to move forward with implementing a new access regime. In this letter from several former SEC Senior Staffers, they credibly note “[w]e are, however, concerned that at this particular juncture in its history, it would be a mistake for the Commission to divert its resources to these matters. Simply put, there are far more important regulatory matters on its agenda.” The letter goes on to point out:
Importantly, each of these subjects is of far more immediate concern to the SEC than proxy access. Proxy access is a regulatory problem that the Commission has labored to address for virtually the entire history of the Commission. As the proposing release notes, the Commission has considered the problem in virtually every decade, in 1942, 1977, 1980, 1992, 2003, 2007, and last year, in 2008. On each occasion the Commission began with bold proposals to fundamentally revamp the process and concluded with modest actions that, frankly, accomplished little. This disappointing history is not a criticism of past Commissions. Rather it demonstrates that the problem is complex and the Commission’s legal authority to act in this area is limited. The substance of corporate governance remains a matter of State, not Federal, law. Absent Congressional action to dramatically alter the Federal / State landscape (which this group does not necessarily endorse), the SEC will never have the ability to change the governance of corporations meaningfully.
Another letter of note is from the Shareholder Communications Coalition, which has been around since 2005 and is made up of The Business Roundtable, The National Association of Corporate Directors, The National Investor Relations Institute, The Securities Transfer Association, and The Society of Corporate Secretaries & Governance Professionals. This group essentially argues that moving forward with access would involve putting the cart before the horse, by making such a significant change to director elections without addressing some real underlying systemic problems with the proxy system. Among the issues noted that need to be addressed were empty voting, hidden ownership, over-voting, the lack of competition with proxy administrative services, the enormous (and growing) influence of proxy advisory firms. These are all hopefully issues that the SEC is currently studying as it has undertaken a review of shareholder communications and the proxy system.
This is a road that we have all been down before, and many of the same arguments for and against are playing out all over again. We should know pretty soon whether history is destined to repeat itself.
SEC Settles Naked Shorting Cases
Earlier this month, the SEC announced that it settled enforcement actions for violations of the rules designed to prevent abusive naked short selling. Charged in the cases were two options traders and their broker-dealers, who were alleged to have violated the locate and close-out requirements of Regulation SHO. These cases involved conduct spanning from 2005-2007. No doubt that more such cases are in the works.
As part of its efforts to stamp out abusive short selling practices, the SEC announced plans for a public roundtable on September 30 to discuss securities lending, pre-borrowing, and possible additional short sale disclosures.
The Curious Case of Jaycee James
In his Section16.net blog, Alan Dye notes that last week the SEC initiated a cease and desist proceeding against a guy by the name of Jaycee James, who allegedly filed 83 Forms 3 and 4 and Schedules 13D, relating to 29 different companies, all to report fictitious transactions and holdings (see In re Jaycee James, Rel. No. 34-60529). No fraud is alleged, just reporting violations. What on earth would make someone feel compelled to file fake Section 16 reports? I am not sure if I want to find out.
Alan also recently blogged about the Staff’s latest Section 16 C&DI, noting:
The staff’s update of its Compliance and Disclosure Interpretations on Friday included a new Section 16 interpretation, applicable to reverse stock splits. CDI 117.03 says that Rule 16a-9(a), which exempts from Section 16 “the increase or decrease in the number of securities held as a result of a stock split or stock dividend applying equally to all securities of a class,” exempts the cashing out of an insider’s fractional interest resulting from a reverse stock split, so long as the cash-out feature of the stock split applies equally to all holders of the class. The availability of Rule 16a-9 to exempt the disposition of fractional interests for cash had been uncertain (as discussed on pages 508-509 of the 2008 edition of the Section 16 Treatise and Reporting Guide). The new CDI means that insiders will not need to file a Form 4 to report the disposition of fractional interests in connection with a typical reverse stock split.
If you don’t have access to Section16.net, be sure to check out our “Rest of 2009” rates.
At the risk of saying anything about health care reform (lest I be attacked by an angry Town Hall-roving mob), I had not really considered the connection that may exist between the debate over health care and the debate over executive compensation until I saw these letters sent out last week by Representative Henry Waxman (D-CA) and Representative Bart Stupak (D-MI). Representative Waxman is, of course, the Chairman of the House Committee on Energy and Commerce, and Representative Stupak is the Chairman of that Committee’s Subcommittee on Oversight and Investigations.
The letters request that 52 health insurers provide five years of essentially Summary Compensation Table data for each employee or officer who was compensated more than $500,000 in any one of those years, as well as five years of compensation data for the board of directors. The letters also seek, among other things, information about company-paid outside conferences, retreats or events, company financial performance, documents used by the compensation committee in developing or applying compensation plans, and details about the companies’ health care insurance products. Some of the information must be provided by September 4 and some by September 14.
A number of the insurers are public, while others are not (including, e.g., a number of Blue Cross/Blue Shield systems), but in any event developing the compensation data and the other requested information will likely be quite a chore. The letters from Waxman and Stupak follow a letter from Representative John Dingell (D-MI) and Representative Sander Levin (D-MI) to Blue Cross Blue Shield of Michigan asking about executive compensation and a series of rate hikes.
It is not yet clear how the compensation and other information will be used by the Committee in the course of its deliberations on health care policy, or whether this is just a political move designed to demonize the insurance industry through the perennial hot button issue, compensation. I think that I will keep my thoughts on that topic to myself.
Treasury Responds to TARP Criticisms
Recently, the Treasury released responses to recommendations made in the GAO’s June report on the TARP programs, as well as a handful of recommendations from prior reports. The Treasury’s responses indicate general progress on the development of TARP programs. The Treasury’s Office of Financial Stability has 194 full-time employees with a goal of reaching 225, internal controls have been put into place and it appears that efforts toward increasing the tracking of funds and the transparency with respect to recipients are beginning to pay off. But much still remains a work in progress; Treasury is still in the process of developing a risk assessment procedure for the programs, is continuing to renegotiate existing vendor conflict of interest mitigation plans and is considering ways in which to provide more information about the costs of TARP contracts and agreements. The Treasury will have more recommendations to respond to soon – the GAO is required to issue a report on Treasury’s operation of TARP every 60 days.
Former SEC Commissioner Paul Atkins Joins the Congressional Oversight Panel
Speaking of TARP accountability, it was announced last week that former SEC Commissioner Paul Atkins will join the Congressional Oversight Panel, which was set up to oversee the expenditure of TARP funds. The Chair of the Oversight Panel is Harvard Law Professor Elizabeth Warren. Atkins will fill a slot vacated by former Republican Senator John Sununu,
The SEC announced the appointment of Jim Kroeker as Chief Accountant for the Commission. He has been serving as Acting Chief Accountant since the beginning of the year, and during that time he has been quite busy, focusing on fair value issues, among many others. Before coming to the SEC as Deputy Chief Accountant back in February 2007, Jim had been in Deloitte’s national office. It is nice to see someone serving as “Acting” to get the permanent slot, for a change.
Minding Your HSR Compliance for Equity Compensation Programs
When you mention the Hart-Scott-Rodino Act, it usually evokes images of mergers and acquisitions, but HSR compliance should not be viewed so narrowly. As noted in this O’Melveny & Myers LLP memo, the Federal Trade Commission has long taken the position that the HSR Act is applicable to the acquisition of any voting stock, including an acquisition by an individual. As a result, companies and their officers and directors need to be cognizant of tripping HSR filing and waiting period requirements, and the potential consequences of non-compliance (including significant fines).
The O’Melveny memo notes that these types of events could potentially result in an HSR filing requirement if the value of the transaction exceeds the HSR Act’s jurisdictional thresholds and no exemption applies:
an acquisition of voting stock upon the exercise of a stock option or warrant (except for a true same-day, cashless net exercise);
a grant of restricted stock where the grantee receives the right to vote the securities at the time of grant;
the vesting of restricted stock units;
a purchase of voting stock in an open market transaction;
a purchase of voting stock pursuant to a dividend reinvestment plan; or
a purchase of voting stock pursuant to an employee stock purchase plan.
Some companies reimburse officers and directors for filing and legal fees associated with HSR compliance, and the memo notes that such reimbursement amounts generally get reported as perquisites in the Summary Compensation Table.
New Treasury and SEC Regulations and the ARRA: Executive Compensation Restrictions
We have posted the transcript from our recent CompensationStandards.com webcast: “New Treasury and SEC Regulations and the ARRA: Executive Compensation Restrictions.”
