Archived News and Updates

11/6/08: Ticker symbol reservations

The SEC has approved a plan that establishes a process for reserving, selecting, and allocating securities symbols. The exchanges that list securities and the Financial Industry Regulatory Authority, Inc. (FINRA) must join the plan within 60 days. According to the SEC, "There is a limited supply of securities symbols – particularly one-, two-, and three-character symbols. As the exchanges expand the number of securities listed and compete for new listings, the supply of available symbols has decreased and the need for a fair and transparent process to reserve and select securities symbols has grown." The plan establishes a process for exchanges that list equity securities and for FINRA, which designates symbols for the OTC, to reserve symbols. If an issuer transfers its listing to another exchange, the new exchange would automatically have the right to use the symbol. In addition, a centralized symbol database of securities symbols will be maintained by a third-party processor.

10/28/08: AMEX is now just a credit card

Earlier this month, NYSE Euronext completed its acquisition of the American Stock Exchange. Although for now the listed company rules have not changed, AMEX's name was changed to the catchy "NYSE Alternext US LLC" or, for short, NYSE Alternext US.

10/21/08: Executive compensation observations

The Director of the SEC's Division of Corporation Finance gave an interesting speech today regarding his observations about the second year of disclosure under the SEC's "new" executive compensation rules. In addition to valuable insights as to how public companies can continue to improve their disclosures, he also offered his thoughts as to the effect of the new executive compensation limits under the Troubled Asset Relief Program (TARP) on CD&A disclosures, even those of companies not participating in the TARP. Aside from his comments on TARP and market conditions, he focused on the need for more analysis, disclosure of performance targets and disclosure relating to benchmarking.

The full text of the speech can be found here.

9/15/08: Revisions to Form D

The SEC has provided some helpful guidance on the shift to the new Form D and electronic filing. See:

http://www.sec.gov/info/smallbus/secg/formdguide.htm  and

http://www.sec.gov/divisions/corpfin/formdfiling.htm

If you want to compare the two forms available during the transition period which ends March 28, 2009 to help decide which to use, here are links:

Old (now called "temporary") Form D:  http://www.sec.gov/about/forms/formdtemp.pdf

New Form D:  http://www.sec.gov/about/forms/formd.pdf

After March 28, all issuers must use the new form.

9/2/08: Revisions to Form D

As a reminder, on September 15, new Form D rules go into effect. During a transition period from September 15, 2008 through March 28, 2009, issuers can either file using (1) paper versions of either the current or new Form D or (2) electronically using the new Form D. After March 28, all issuers must file electronically using the new Form D.  For more information, see S&W's advisory from last February SEC Adopts Revisions to Form D or the full SEC release.

8/27/08: Foreign private issuer disclosure changes

The SEC today approved amendments that update Securities Exchange Act filing requirements and enhance disclosure required by foreign private issuers in response to changes in foreign filing requirements, market practices, and other areas of SEC regulation. Most significantly, the rule amendments shorten the deadline for annual reports filed by foreign private issuers from 6 months to 4 months. The rule amendments also enable foreign issuers to test their eligibility to use the special forms and rules available to foreign private issuers once a year, rather than continuously; enhance the disclosures a foreign private issuer provides to investors regarding any changes in and disagreements with its certifying accountant in its annual reports and registration statements; and revise the annual report and registration statement forms used by foreign private issuers to improve certain disclosures provided in these forms.

The full adopting release with all of the final details is expected to be available on the SEC website within the next few days.

8/27/08: PCAOB changes impacting proxies and Audit Committee charters

The SEC has approved Public Company Accounting Oversight Board rule changes relating to auditor independence. Of particular note, the SEC approved PCAOB Rule 3526, which supersedes Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees. While the substantive changes are minimal (mainly adding a documentation requirement on the part of auditors and converting this from a temporary to final rule), there are a couple of practical implications to note:

1. Regulation S-K, Item 407(d)(3) regarding the Audit Committee Report that appears in proxy statements currently refers to ISB Standard No. 1. While the SEC has not yet made a conforming amendment to reflect the new PCAOB rule, it is likely to do so before the next proxy season.

2. As a result of the Audit Committee Report requirement, many public companies include a reference in their Audit Committee charters that notes that the committee shall receive the required communications under ISB Standard No. 1 each year. If the charter cites that standard and does not include a reference to successor standards, it will need to be updated to now refer to the PCAOB rule.

The other approved PCAOB rule addresses when an independent auditor may not provide tax services for persons (or certain family members) who fill financial reporting oversight roles at audit clients.

8/26/08: NYSE eliminates opinion requirement

The SEC has approved a New York Stock Exchange rule change that eliminates the need to provide NYSE with legal opinions in connection with applications for the listing of securities on NYSE. Instead of an opinion addressed to NYSE dealing with validity of the securities, good standing, registration and other matters, NYSE will now require companies to either (1) furnish NYSE with copies of opinions of counsel filed in connection with recent offerings or private placements (though presumably not addressed to or to be relied upon by NYSE) or (2) if no opinions exist, a certificate of good standing from the company's jurisdiction of incorporation. Note that neither Nasdaq nor the American Stock Exchange require opinions of counsel in connection with listings of securities on those exchanges.

8/19/08: Goodbye EDGAR, hello IDEA

SEC Chairman Christopher Cox today unveiled the successor to EDGAR, which will (in theory) give investors far faster and easier access to key financial information about public companies and mutual funds. The new system is called IDEA, short for Interactive Data Electronic Applications. Based on a new architecture, it will at first supplement and then eventually replace the EDGAR system. Currently, most SEC filings are available only in government-prescribed forms through EDGAR. Investors looking for information must sift through one form at a time, and then re-keyboard the information. With IDEA, investors will be able to instantly collate information from thousands of companies and forms, and create reports and analyses on the fly, in any way they choose. As he unveiled the new IDEA platform at a news conference, Chairman Cox announced that the IDEA logo will begin to appear immediately on the SEC’s Web site as the agency transitions to making IDEA the new primary source for all SEC filings. Companies’ interactive data filings are expected to be available through IDEA beginning late this year.

Investors and others who currently use EDGAR will be able to continue doing so for the indefinite future. During the transition to IDEA, investors will be able to take advantage of new interactive, IDEA-like features that will be grafted onto EDGAR in the short run. This will make it possible for investors to tap IDEA’s advanced search capabilities, and to use the information from EDGAR within spreadsheets and analytical software. The EDGAR database also will continue to be available as an archive of company filings for past years.

7/30/08: Expanded Use of Corporate Web sites

The SEC today voted to provide new guidance (for the first time since 2000) to public companies about how to comply with the securities laws while developing their Web sites to serve as an effective means for disseminating important information to investors. Issued in the form of an interpretive release, the SEC's guidance provides helpful information for companies considering providing investors with interactive content on their Web sites, as well as summary information and links to third-party information.

The SEC's guidance is divided into four parts. However, most of the details were not revealed at today's SEC meeting - the full text of the interpretive release has not yet been posted, but will be posted to the SEC Web site "as soon as possible":

• The guidance clarifies how information posted on a company Web site can be considered "public" and provides guidance to help companies comply with public disclosure requirements under Regulation FD. Subject to some conditions, companies will now be able to utilize Web site posting as an exclusive method of disseminating material information in compliance with Reg. FD - previously companies had to issue a press release of file a Form 8-K (though they may nonetheless need press releases to comply with NYSE rules).
• The guidance clarifies the liability framework for certain types of electronic disclosure, including how companies can provide access to historical or archived data without it being considered reissued or republished every time it is accessed. It provides guidance on how companies can link to third party information or Web sites without having to "adopt" that content for liability purposes. It provides guidance on the appropriate use of summary information in the context of the securities laws' antifraud provisions. It also clarifies that the antifraud provisions apply to statements made by the company (or by a person acting on behalf of the company) in blogs and electronic shareholder forums, and companies cannot require investors to waive protections under the federal securities laws as a condition to enter or participate in a blog or electronic shareholder forum.
• The guidance clarifies that information posted on company Web sites would not generally be subject to rules under the Sarbanes-Oxley Act relating to a company's "disclosure controls and procedures."
• The guidance clarifies that information need not satisfy a "printer-friendly" standard, unless other rules explicitly require it, that could restrict creative Web enhancements that incorporate interactive and dynamic design features.

The SEC's interpretive release will be effective upon its publication in the Federal Register.

7/16/08: New Reg. S-K FAQs

The SEC has updated its compliance and disclosure interpretations regarding Regulation S-K. Although the document is lengthy, you can easily see the new interpretations by looking for those marked with "July 3, 2008." There are also several interpretations specific to smaller reporting companies that are worth reviewing to the extent you work with such companies.

Here are a few of the FAQs of particular interest (references are to section in the linked document). As many of these apply only in proxy statements, 10-Ks, or annual reports, it is recommend reviewing these and the other FAQs when preparing any such filings even if not relevant today:

Qualitative and Quantitative Disclosure About Market Risk (Item 305)

Question 112.01 - quarterly updates are not required to qualitative and quantitative disclosure about market risk unless there have been material changes from the 10-K disclosure.

Executive Compensation (Item 402)

Question 118.04 - covers the SEC's view on how to determine when a company may omit performance targets in disclosures about compensation plans

Question 118.05 - clarifies that benchmarking does not include company reviews or consideration of broad-based 3rd party surveys for general purposes

Question 118.06 - clarifies where to put disclosure about compensation consultants (governance section v. CD&A)

Question 119.07 - guidance on disclosure of perks that have no incremental cost or are reimbursed

Question 119.14 - guidance on whether footnotes to the Summary Compensation Table need to cover more than the most recent year

Question 119.15 and 16 - guidance on cross referencing to assumptions underlying the FAS 123R valuation in the Summary Compensation Table.

Question 122.02 - alternative for disclosure of vesting of options, etc. in the Outstanding Equity Awards at Fiscal Year-End Table

240.04 - for investment funds listed as selling security holders, where voting or investment power is controlled by an investment committee, all natural persons of that committee must be identified (even if no single one controls)

240.02 - clarifies when selling stockholders can be added by post-effective amendment v. prospectus supplement

Form S-8

Question 145.01 - clarifies which undertakings to include (and which can be excluded)

Question  146.20 - indicates that the relevant employee benefit plan needs to be filed as an exhibit with the S-8 (note: many practitioners did not historically do this)

Exhibits (Item 601)

246.01 - implies that when filing amended charters and by laws, the amended text should be redlined

6/27/08: Helpful Form 4 development

The SEC has issued a no-action letter allowing multiple open market purchases and sales on a single day to be lumped together in a single line on a Form 4 as long as certain footnote disclosure is included. Until now, each transaction had to be reported on a separate line if the price was different, even by a fraction of a penny. It's not unusual for brokers to execute multiple trades on behalf of an insider at slightly different prices - the no-action letter allows presentation with a single weighted-average price. The full letter can be found here.

6/27/08: Sovereign Wealth Funds

For those of you interested in learning more about "sovereign wealth funds" investing in U.S. companies, RiskMetrics (formerly known as ISS) has just issued this whitepaper with some helpful definitions and trend analysis.

6/20/08: SOX audit report requirement delayed for smaller companies

The SEC announced today that it has approved a one-year extension of the compliance date for smaller public companies to meet the Section 404(b) internal control auditor attestation requirement of the Sarbanes-Oxley Act. With the extension, smaller companies will now be required to provide the attestation reports in their annual reports for fiscal years ending on or after Dec. 15, 2009. Note that management will still need to do a SOX assessment - this just relates to the outside auditor attestation requirement.

6/18/08: SEC issues guidance on 3(a)(10) exemption

The SEC has updated its guidance on Section 3(a)(10) of the Securities Act of 1933, which provides an exemption from registration for securities issued in an exchange, the terms and conditions of which are approved in a fairness hearing (e.g., certain states such as California provide for such a process). The guidance is contained in a revised staff legal bulletin that replaces two prior bulletins and is updated primarily in the area of resales, in light of changes to Rules 144 and 145. The full bulletin can be found here. 

6/10/08: SEC review process

The SEC has put out a good plain English, high-level summary of its process for reviewing filings and for dialogue with the Staff:  http://www.sec.gov/divisions/corpfin/cffilingreview.htm

5/16/08: XBRL - SEC to Require Interactive Data

As widely anticipated, the SEC has proposed requiring public companies to "tag" their financial statements using eXtensible Business Reporting Language, also known as XBRL or interactive data, a  new technology designed to get important information to investors faster, more reliably, and at a lower cost.

XBRL is essentially comprised of computer "tags" similar in function to bar codes used to identify groceries and shipped packages. The interactive data tags uniquely identify individual items in a company's financial statement so they can be easily searched on the Internet, downloaded into spreadsheets, reorganized in databases, and put to any number of other comparative and analytical uses by investors, analysts, and journalists.

Since 2005, companies have voluntarily submitted to the SEC financial information in interactive data format. The SEC's proposed schedule would require companies using U.S. GAAP with a worldwide public float over $5 billion (approximately the 500 largest companies) to make financial disclosures using interactive data for fiscal periods ending in late 2008 (e.g., a calendar year-end company meeting this threshold would need to include the data in its 10-K covering 2008 that is filed in early 2009). The remaining companies using U.S. GAAP would provide this disclosure over the following two years (all large accelerated filers by year 2, the rest by year 3). Companies using International Financial Reporting Standards as issued by the International Accounting Standards Board would provide this disclosure for fiscal periods ending in late 2010. The disclosure would be provided as additional exhibits to annual and quarterly reports and registration statements. Companies also would be required to post this information on their websites.

The required tagged disclosures would include companies' primary financial statements, notes, and financial statement schedules. Initially, companies would tag notes and schedules as blocks of text, and a year later, they would provide tags for the details within the notes and schedules. It is expected that eventually additional data, such as executive compensation and MD&A figures will need to be tagged.

To give the rules some "teeth," the SEC has proposed that failure to include the new tags would result in a filing being considered incomplete and therefore not timely filed for purposes of such forms and rules like short-form registration statements on Form S-3 and Rule 144 (though filing the data would immediately cure the deficiency in all cases).

More information is available here.

 Public comment on the proposed rules are due within 60 days. Due to the tight timeframe for the initial part of the phase-in, it is expected that these rules will be finalized in the fall.

5/8/08: Cross border tender offer proposals

The SEC has proposed rule changes to expand and enhance the utility of cross-border exemptions for business combination transactions.  Many of the rule changes proposed would codify existing interpretive positions and exemptive orders in the cross-border area. In several instances, the SEC requests comment about whether the rule changes being proposed also should apply to tender offers for U.S. companies. In this release, the SEC also addresses certain interpretive issues of concern for U.S. and other offerors engaged in cross-border business combinations. Comments on these proposals are due at the end of June.  

4/3/08: New 8-K FAQs

The SEC has updated and consolidated its 8-K FAQs. These are a great resource for any tricky 8-K questions.

2/15/08: SEC release "Financial Explorer"

The SEC launched today "Financial Explorer" on its web site to help investors quickly and easily analyze the financial results of public companies. Financial Explorer "paints the picture of corporate financial performance" with diagrams and charts, using financial information provided to the SEC as "interactive data" in eXtensible Business Reporting Language (XBRL).  At the click of a mouse, Financial Explorer lets investors automatically generate financial ratios, graphs, and charts depicting important information from financial statements. Information including earnings, expenses, cash flows, assets, and liabilities can be analyzed and compared across competing public companies.  This product adds to the SEC's other XBRL offerings, the Executive Compensation viewer and the Interactive Financial Report viewer, also available at www.sec.gov/xbrl.

2/12/08: Revisions to Form D

SEC amendments to Form D (requiring among other things electronic filing) have now been published (they were approved several weeks ago). The new form and related rules are effective in part starting September 15, 2008, with everything becoming mandatory by March 16, 2009:  http://www.sec.gov/rules/final/2008/33-8891.pdf

1/29/08: Changes for fee procedures

Effective Feb. 4, the SEC is making some changes to its fee payment system. Notably, they have switched from Mellon Bank to US Bank, so if you are making any filing that involves payment of registration or other fees, make sure to update past procedures (presumably the financial printers will have the new information). A description of all of the changes can be found at: http://www.sec.gov/rules/final/2008/33-8885.pdf

12/21/07: New SEC tool to compare executive compensation

The SEC website has launched new internet tool with instant comparisons of executive pay for 500 of the largest American companies.  The "Executive Compensation Reader" is available at http://www.sec.gov/xbrl. This is part of the SEC's initiative to develop interactive data, also called XBRL. By tagging the executive compensation figures in XBRL, the SEC has created a new online tool to help investors more efficiently view Summary Compensation Tables and certain other data in the proxy statements of large companies. The tool allows the user to quickly glimpse the total annual pay as well as dollar amounts for salary, bonus, stock, options and company perks. Users can instantly compare those executive compensation figures with other companies by sorting according to industry or size. It includes direct links to companies' proxy statements, including footnotes and the companies' explanation of their compensation decisions. 

It is widely expected that over the next year or two, interactive compensation and financial data will become more widely utilized by the SEC and companies will likely be required to tag the data in their filings.

12/12/07: Private offering reform

The SEC has approved some more of the changes that will give smaller companies faster and easier access to capital when they need it or market conditions are favorable. (Earlier this month, the SEC approved reforms to Rules 144 and 145 and made small business scaled disclosure more widely available for companies.)..read more 

11/28/07: Shareholder access proposals

The SEC today adopted the amendment referred to below preserving the current SEC policy of allowing companies to omit shareholder proposals relating to bylaw amendments with respect to how directors are nominated. Though this decision is controversial, given the current makeup of the Commission, it was not a surprising short term outcome and the amendment provides greater certainty for the coming proxy season. Chairman Cox has indicated that he intends to keep exploring this issue and we should expect to see it revisited in the future.

In a related matter, the SEC also adopted rules designed to facilitate the use of "electronic shareholder forums". The rules are intended to open up communications among shareholders (until 60 days prior to a meeting or less is certain circumstances) without fear that their opinions in the forums will be considered unlawful proxy solicitations.

More details can be found in the SEC's press releases from today: 

http://www.sec.gov/news/press/2007/2007-247.htm
http://www.sec.gov/news/press/2007/2007-246.htm

11/15/07: Major changes to Rule 144 approved

The SEC today voted to adopt three measures designed to modernize and improve its capital-raising, reporting and disclosure requirements for smaller companies. These changes are summarized below - the full text of the rule releases will take several days to be posted on the SEC website. A few other related proposals relating to Regulation D and expand use of Form S-3 are still under consideration and expected to be approved later in the year. (read more...)

10/15/07: Executive compensation guidance

The SEC has issued a brief report summarizing its review under its new rules of executive compensation disclosures in 350 public companies' proxy statements. The SEC reviewed companies, mostly large, in a variety of industries, not targeting disclosures it necessarily perceived as good or bad. The report summarizes some of the recurring comments it made, with the major themes being that companies need to (1) do a better job of analysis in CD&A and (2) improve their presentation and formatting. To quote the SEC, "First, companies should provide more focused disclosure of how and why they made specific executive compensation decisions. Second, the manner of presentation is important, and companies can use it to provide more direct, specific, clear and understandable executive compensation disclosure."

These themes are echoed in a speech given by the director of the Division of Corporation Finance the day the report was released. Although interestingly the report was released before the comment process was completed for most of the companies reviewed, it is nonetheless vital reading for companies and their advisors as they prepare for the 2008 proxy season.

9/27/07: Correcting EDGAR Filings

The SEC has posted a helpful guide describing the procedures to be undertaken to request an EDGAR filing date adjustment or correction.

7/30/07: Shareholder access proposals

Last week, in an unusual move, the SEC put out two directly opposite proposals relating to shareholders' ability to impact nominations of directors - essentially one would preserve the current system (which was challenged last year by a 2nd Circuit decision) and not give shareholders any new rights and the other would allow 5% or greater stockholders to make proposals to change company bylaws with respect to how directors are nominated. The proposals were both approved 3-2 by the 5 commissioners (the 2 Republicans voted for the status quo; the 2 Democrats voted for increased shareholder rights - Chairman Cox supported both).

Essentially that means the issue is still very much up in the air and likely to provoke continued debate. The SEC has expressed a goal of having a new rule by year end, but it's not clear if they can get there with such differing stances among the commissioners (not to mention investor rights advocates and the business community).

7/27/07: NYSE and NASD to combine regulatory oversight of broker/dealers

The SEC gave approval yesterday to the consolidation of NASD and NYSE member firm regulatory functions into a new entity called the "Financial Industry Regulatory Authority" (FINRA). For more details, see the SEC's press release.

6/22/07: E-proxy rules

Earlier this week, the SEC approved rules to mandate its "notice and access" procedures for proxy materials, rather than making them voluntary. Starting January 1, 2008 for large accelerated filers and January 1, 2009 for all other filers, public companies will need to make their proxy materials available online and send a notice of their availability (for more information see our client advisory on the approval of the voluntary compliance with these rules.

However, a company can still opt to deliver hard copies of the materials as under the old rules, but must nonetheless now post the materials on its website and send certain additional notice materials. Full details are not yet available, but a brief summary can be found at: http://www.sec.gov/news/speech/2007/spch062007rab.htm

6/19/07: Nasdaq rule change - notifications of material news

Nasdaq has also changed its rule for the submission of material news to Nasdaq to require that (except in emergencies) all notifications now must be submitted through Nasdaq's electronic disclosure system and no longer through fax or phone call. For more information, see: http://www.sec.gov/rules/sro/nasdaq/2007/34-55856.pdf.

6/5/07: Nasdaq rule change

Nasdaq has modified its listing requirement regarding related party transactions to now only require review and oversight by the audit committee or independent directors rather than requiring approval of such committee or directors. See: http://www.sec.gov/rules/sro/nasdaq/2007/34-55822.pdf. This is not to suggest that it still isn't a good corporate governance practice to have a committee or independent directors approve or ratify such transactions, but it would no longer be a listing standard violation if it was not done.

Fyi, other Nasdaq changes in the works include requiring annual reports to be posted on websites and announced by press release rather than necessarily having to be mailed to shareholders, revising shareholder approval rules for private placements to clarify how warrant valuations are to be considered in the approval thresholds and revising the listing of additional shares process to give issuers up to 5 days after an offering to notify Nasdaq of the listing of shares.

Nasdaq is also in the process of creating a more user-friendly Nasdaq Marketplace Rulebook and revising its procedures for announcement of material developments to require that Nasdaq be notified in advance electronically (rather than by fax or other methods previously permitted).

Stay tuned...

5/24/07: New Section 16 interpretations

The SEC’s Division of Corporation Finance has posted a new set of interpretations regarding Section 16 of the 1934 Act. These interpretations supersede those found in the Telephone Interpretations Manual and FAQs that related to Section 16. Now everything is in one place. Unfortunately, each interpretation is dated 3/23/07, whether or not there was a change, which will make it difficult to tell what's new. Going forward, only new interpretations will get a new date.

5/17/07: Private offering reform

The SEC has scheduled a meeting for next week to (1) adopt revised guidance on SOX 404 management evaluations and to combine the current requirement for 2 audit opinions on internal controls into 1 and (2) to propose a series of private offering and small company reforms, including making short-form registration statements on Form S-3 more widely available, providing a new exemption from 34 Act registration for private company option grants, revising Reg D by updating the definition of accredited investor and making Form Ds electronic and shortening the Rule 144 holding period and making other changes to Rules 144 and 145.

The full agenda for the meeting is below. Anyone who is interested can listen to a live webcast at www.sec.gov.

OPEN MEETING - WEDNESDAY, MAY 23, 2007 - 9:00 A.M.

The subject matter of the open meeting scheduled for Wednesday, May 23, will be:

1. The Commission will consider whether to adopt interpretive guidance for management regarding its evaluation and assessment of internal control over financial reporting. The Commission will also consider whether to adopt amendments to Exchange Act Rules 13a-15(c) and 15d- 15(c) that would make it clear that an evaluation that complies with the Commission's interpretive guidance would satisfy the annual management evaluation required by those rules. In addition, the Commission will consider whether to adopt amendments to Rules 1- 02(a)(2) and 2-02(f) of Regulation S-X to require the expression of a single opinion directly on the effectiveness of internal control over financial reporting by the auditor in its attestation report. Finally, the Commission will consider whether to adopt amendments to Exchange Act Rule 12b-2 and Rule 1-02 of Regulation S-X to define certain terms.

2. The Commission will consider a number of rule proposals addressing the registration and disclosure requirements for smaller companies, as well as private offerings of securities, including whether:

• to propose amendments to increase the number of companies eligible for the scaled disclosure and reporting requirements for smaller reporting companies;
• to propose amendments to expand the eligibility requirements of Form S-3 and Form F-3 to permit registration of primary offerings by companies with a public float of less than $75 million, subject to restrictions on the amount of securities sold in any one-year period;
• to propose exemptions from the registration requirements of the Securities Exchange Act of 1934 for grants of compensatory employee stock options by non-reporting companies;
• to propose a new Regulation D exemption for offers and sales of securities to a newly defined subset of "accredited investors," as well as to propose revisions to the Regulation D definition of "accredited investor," disqualification provisions, and integration safe harbor and to provide interpretive guidance regarding integration;
• to propose revisions to Form D and mandate electronic filing of Form D; and
• to propose amendments to Rule 144 to revise the holding period for the resale of restricted securities, simplify compliance for non-affiliates, revise the Form 144 filing thresholds, and codify certain staff interpretations, as well as to propose amendments to Rule 145.

3. The Commission will consider whether to adopt rules to implement provisions of the Credit Rating Agency Reform Act of 2006.

5/9/07: Executive compensation speech

John White, Director of the SEC's Division of Corporation Finance gave his analysis of the disclosures he has seen so far in response to the new executive compensation rules. Of particular interest are his observations below on disclosure of (or lack thereof) performance targets and his criticism of the alternative disclosure if such targets are kept confidential.

Performance targets. Our rules are quite clear on this one, and at least at first blush, it seems like they are also quite unpopular among some. Companies do not seem eager to disclose their performance targets as we have set up in our rules. Early reports suggest that less than half of reporting companies are disclosing specific performance targets used in awarding annual bonuses or long-term incentive pay. Of course, some companies may not use performance targets; others may rightly be relying on the confidential treatment exclusion provided under our rules. Others, though, may be failing to make the required disclosures.

The staff has heard an almost unanimous chorus from investors-confirmed privately by many in-house and law firm counsel-that companies are not providing required disclosure about performance targets in some cases. That too many companies are invalidly claiming the confidential information exclusion. In other words, some companies may be incorrectly asserting that they would suffer competitive harm if they provided the required material disclosure about performance targets used for executive compensation purposes. This is obviously something that the staff in Corporation Finance will be taking a very hard look at. Investors have made it very clear that they want this information and that it is quite material to them. I am not interested in suggesting any loosening of the confidential treatment standards. We have great respect for those standards in the Division of Corporation Finance. At the same time, though, public companies need to employ the same respect for the rules as we do, and not try to claim cover from them if the company's facts do not in fact fit within the rules. And as part of our review process in Corporation Finance, the staff will be prepared, as appropriate, to ask companies to justify their use of the exclusion. Companies that are using the exclusion and therefore not disclosing their specific performance targets should be prepared to provide the staff with an open and full explanation of those decisions and those targets.

Alternative disclosure when performance targets may be excluded. I am also hearing what sound like valid concerns about the disclosures that are being provided by companies that are claiming the exclusion for confidential information. If the targets are in fact protected by this exclusion and thus do not need to be disclosed, then the company still must provide investors with a sense of how hard the targets are to achieve or how likely it is they will be met. This is again key information for investors. They want to know whether or not the targets are real targets or are more akin to shadows and are going to result in essentially guaranteed awards. I am not impressed by disclosure that targets "are difficult but possible to achieve" without more. Another complaint I have heard relates to identification of targets simply as "intended to encourage superior performance". Is there any target for which that is not true? Without more, identifying a target simply as "challenging but achievable" or as "designed to promote excellence and motivate management" seems an empty disclosure that I would not think is useful to investors. And again, this is a specific area at which the Corporation Finance staff will take a close look in reviewing this year's proxy disclosures. And I think it's possible we could consider whether it would be appropriate to recommend rulemaking on this one to recalibrate the rules.

4/25/07: ADP Change

ADP has spun out its brokerage services group into a new public company called Broadridge Financial Solutions. Broadridge will now be the entity handling all proxy mailings and related shareholder communications that were formerly done by ADP.

1/30/07: Executive compensation FAQs

The SEC has published some FAQs regarding the new executive compensation rules. The format is a supplement to the Telephone Interpretations Manual that replaces the previous section of that Manual covering Regulation S-K, Item 402.

12/27/06: More executive compensation rule changes

Just when you thought the new SEC rules on executive compensation were starting to become clear, the SEC has snuck in a few more changes that ripple through several of the compensation tables. (read more...)

12/21/06: SEC accounting resource

The SEC staff has released an update to its guide to Current Accounting and Disclosure Issues in the Division of Corporation Finance. This is a good resource to consult when questions on recent rules arise: http://www.sec.gov/divisions/corpfin/cfacctdisclosureissues.pdf.

12/18/06: More SOX 404 relief

On Friday, the SEC approved the two extensions, giving smaller companies an additional year before having to file an audit report on their internal controls, and giving new public companies of any size a transition period before having to comply with both the internal control management report and audit requirements.

The SEC has provided a useful chart showing the various compliance dates for public companies at the end of this press release: http://www.sec.gov/news/press/2006/2006-210.htm.

12/13/06: December 13 SEC meeting

The SEC, after a 7 hour meeting, approved all of its agenda items. In addition to the items announced last week, the SEC added at the last minute a proposal to revise Regulation S-X to eliminate the required auditors attestation of management's assessment of internal control over financial reporting. Under current rules, management annually reports on internal control effectiveness and the auditors attest to management's assessment, as well as perform a separate audit of internal control. The proposal would only require the auditors to separately audit internal control, thereby reducing some time, costs and confusion.

Next week the PCAOB will propose revisions to auditing standard no. 2, the standard that governs audits of internal control over financial reporting.

In addition, in connection with the new rules that were finalized to allow companies to deliver proxy statements and annual reports electronically instead of in paper form (to be effective in July 2007), the SEC proposed mandating this "notice and access" model rather than making it optional. Also, in response to comments, various safeguards were built in to the final rules to ensure that there is adequate time for investors to access the electronic materials. S&W will be putting out a client advisory about these rules over the next few weeks.

For the five SEC press releases describing all of today's actions, see: http://www.sec.gov/news/press.shtml#fourthq

12/7/06: December 13 SEC meeting

The SEC put out its "Sunshine notice" regarding its meeting next week. In addition to the foreign private issuer deregistration reproposal announced earlier in the day, the SEC will also consider (1) proposing additional guidance to assist management in its SOX 404 evaluation (and likely creating some kind of compliance safe harbor if the guidance is followed), (2) finalizing rules allowing for, and possibly mandating, electronic delivery of proxy statements and annual reports in lieu of paper mailing, (3) changes to exempt banks form the definitions of broker and dealer, (4) changing the definition of accredited investor in the hedge fund context and (5) re-opening the comment period for investment company independent director proposals.

Noticeably absent from the announcement were (1) proposals to revise 14a-8 to give shareholders greater access to proxy statements, (2) the so-called "Katie Couric" rule that would require additional compensation disclosure for up to 3 individuals that are not executive officers and (3) approval of an extension of the SOX 404 audit report requirement for smaller companies and for IPOs. It's unclear what the status of these is...stay tuned.

12/6/06: Foreign private issuer deregistration

The SEC was scheduled to approve rules next week designed to make it easier for foreign private issuers to deregister their securities in the U.S. Today, the SEC announced instead that they will repropose the rule with some changes, with a goal to finalize the changes in the first quarter of 2007. According to the SEC's press release, the staff intends to recommend deregistration thresholds based solely on trading volume. The original proposal had used thresholds based primarily on the percentage of U.S. holders, as well as trading volume. The SEC believes that the new proposal will provide a clear, consistent, easy-to-apply, and fair standard pursuant to which foreign registrants may withdraw from the U.S. capital markets. Reproposal is necessary because basing the threshold solely on trading volume was not addressed fully in the SEC's original December 2005 proposal and request for comment.

11/28/06: NYSE and NASD to combine regulatory oversight of broker/dealers

The NASD and NYSE issued a joint press release today announcing the signing of a letter of intent to consolidate their member regulation operations into a new SRO that will be the private sector regulator for all securities brokers and dealers doing business with the public in the United States.

10/31/06: Changes to real time disclosure of executive compensation - one week warning!

As a reminder, new 8-K rules relating to reporting of executive compensation take effect one week from today on Tuesday, November 7. As under current rules, it is important that disclosure controls and procedures be designed to pick up any change to executive or director compensation in order to determine if either an 8-K is required or an exhibit filing needs to be made with the next 10-Q or 10-K.

10/27/06: Broker non-votes

The New York Stock Exchange officially proposed rules earlier this week that would eliminate discretionary voting by brokers on the election of directors. Director elections would become a non-routine matters, making it harder to elect nominees where there are majority vote requirements. As you may be aware, there is an increasing trend by companies to move from plurality voting to majority voting for director elections - companies considering such a change should keep in mind the potential difficulties posed by the NYSE proposal. If approved by the SEC, the NYSE rule would take effect in the beginning of 2008 - in other words, it will not have any direct impact, other than perhaps for planning purposes, on the 2007 proxy season.

10/19/06: New tender offer rules

Yesterday, the SEC adopted final rules relating to tender offers that had first been proposed last December. The rules change the SEC's "best price" rule that requires that all shareholders are paid the same price in a tender offer. The changes, which were made necessary by conflicting court interpretations, make clear that compensation for services that might be paid to a shareholder doesn't count as part of the price paid for his shares.

As amended, the tender offer best-price rules clarify that the consideration paid to any security holder for securities tendered in a tender offer is the highest consideration paid to any other security holder for securities tendered in the offer. To insure that investors are protected and the fundamental purpose of the rule is upheld, it also exempts compensatory arrangements from the rule so long as specific substantive standards are satisfied, and includes a safe harbor that hinges upon approval of independent members of the board of directors.

The full text of the final rules is expected to be posted on the SEC's website within the next few days.

9/26/06: Edgar upgrades

Over the coming months, the SEC will be overhauling and updating the EDGAR system. For more information, see the SEC's press release.

9/5/06: NYSE annual reporting changes

The SEC has approved a revision to New York Stock Exchange rules that changes NYSE's annual financial statement distribution requirement to simply require a company's 10-K or 20-F to be made available on or by a link through its website rather than by mailing. (read more...)

8/18/06: Stock performance graph

Although you'll hear much more about the new executive compensation rules in the months to come, one somewhat buried change that won't get much attention but that will impact the logistics of annual reporting is the SEC's decision to not only retain the stock performance graph, but to move it from the proxy statement to the annual report to shareholders (the glossy one, NOT the 10-K).

8/9/06: More SOX relief

The SEC today issued two releases to grant smaller public companies and many foreign private issuers further relief from compliance with Section 404 of the Sarbanes-Oxley Act of 2002. (read more...)

7/12/06: SOX and COSO working on 404 guidance

For more information, click here.

5/17/06: SOX 404 relief?

The SEC announced today a series of actions designed to improve the "implementation" of the internal control requirements under Section 404 of Sarbanes-Oxley. (read more...)

4/28/06: PCAOB proposals re: tax services

It was pointed out to me that this could tangentially impact audit committee pre-approval policies. For example, although these rules do not impose any new duties on audit committees, they do add some prohibitions and requirements on auditors - if there is a list of prohibited services in the audit committee's pre-approval policies, they may want to add the new services or acknowledge the auditors new duties connected to pre-approval of tax services.

4/25/06: SEC to issue effectiveness order electronically

At long last, the SEC has announced that it will issue effectiveness orders on registration statements electronically, rather than mailing the orders as is currently the SEC's practice, often several months after the fact. On May 22, 2006, the staffs of the Divisions of Corporation Finance and Investment Management will begin to use the EDGAR system to issue notifications of effectiveness for Securities Act registration statements and post-effective amendments, other than those that become effective automatically by law (e.g., WKSI s-3S, all S-8s et al). These notifications will be posted to the EDGAR system the morning after a filing is determined to be effective. The Divisions will no longer prepare and mail paper effectiveness orders associated with these filings. Registrants will continue to be notified promptly by telephone that their registration statements or post-effective amendments are effective. After May 22, 2006, the SEC's website will also present a list of filings declared effective on the previous business day. The effectiveness notices will be distributed as an EDGAR form type called "EFFECT." The public will now be able to search for a company's filings and be able to see when the staff declared a particular Securities Act registration statement effective.  

4/21/06: PCAOB proposals re: tax services

The SEC has approved the Public Company Accounting Oversight rules referenced in the emails below, which are summarized in the approving order found here. The rules include general rules with respect to auditors' ethics and independence, and more specific rules that include restrictions on tax services that a registered public accounting firm may provide to its audit clients relating to certain confidential tax transactions or aggressive tax positions and a prohibition on registered public accounting firms providing tax services to any person who fills a "financial reporting oversight role" (using an SEC definition) at an audit client (or an immediate family member of such an individual). Work in process on confidential transactions and aggressive positions that would violate these rules must be completed within 60 days. Services to individuals currently in process that would be prohibited could continue to be performed as long as they are completed on or before October 31, 2006 (there is also a transition period for newly hired or promoted individuals to come into compliance). In addition, under the new rules, auditors must provide written documentation containing certain proscribed information to audit committees regarding any proposed tax services (with transition periods for existing pre-approved services).

4/21/06: PCAOB proposals re: tax services

Please note that the definition of "financial reporting oversight role" is fairly broad. Financial reporting oversight role means a role in which a person is in a position to or does exercise influence over the contents of the financial statements or anyone who prepares them, such as when the person is a member of the board of directors or similar management or governing body, chief executive officer, president, chief financial officer, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer, or any equivalent position.

4/20/06: Option expensing delayed again

Just a reminder: FAS 123R (relating to, inter alia, option expensing) is now effective for calendar year end companies. 10-Qs for the first quarter, due in May, will need to reflect the impact of FAS 123R not only in the financial statements, but also in MD&A (see our website for a summary of some of the MD&A changes).

1/17/06: SEC proposes new rules on executive compensation

The SEC today proposed rules that would amend disclosure requirements for executive and director compensation, related party transactions, director independence and other corporate governance matters, and security ownership of officers and directors. The proposed rules would affect disclosure in proxy statements, annual reports and registration statements. The proposals would require most of this disclosure to be provided in plain English. The proposals also would modify the current reporting requirements of Form 8-K regarding compensation arrangements.

1. Executive and Director Compensation

The proposals would refine the currently required tabular disclosure and combine it with improved narrative disclosure to elicit clearer and more complete disclosure of compensation of the principal executive officer, principal financial officer, the three other highest paid executive officers and the directors.

New company disclosure in the form of a Compensation Discussion and Analysis (akin to MD&A) would address the objectives and implementation of executive compensation programs - focusing on the most important factors underlying each company's compensation policies and decisions. Apparently this would replace the compensation committee report required under existing proxy rules.

Following this new section, executive compensation disclosure would be organized into three broad categories: compensation over the last three years; holdings of outstanding equity-related interests received as compensation that are the source of future gains; and retirement plans and other post-employment payments and benefits.

• A reorganized Summary Compensation Table would be the principal vehicle for showing three-year compensation and would include additional information.
  • A new column would report total compensation.
  • A dollar value will be shown for all stock-based awards, including stock and stock options, measured at grant date fair value, computed pursuant to FAS 123R, to provide a more complete picture of compensation and facilitate reporting total compensation.
  • The "All Other Compensation" column would include the aggregate increase in actuarial value of pension plans accrued during the year and all earnings on deferred compensation that is not tax-qualified.
  • The threshold for disclosing perquisites would be reduced to $10,000 and interpretive guidance is provided for determining what is a perquisite.
  • Two supplemental tables would report Grants of Performance-Based Awards and Grants of All Other Equity Awards.  
• Disclosure regarding outstanding equity interests would include
  • the Outstanding Equity Awards at Fiscal Year-End Table, which would show outstanding awards representing potential amounts that may be received in the future; and
  • the Option Exercises and Stock Vested Table, which would show amounts realized on equity compensation during the last year.
• Retirement plan and post-employment disclosure would include
  • the Retirement Plan Potential Annual Payments and Benefits Table, which would disclose annual benefits payable to each named executive officer;
  • the Nonqualified Defined Contribution and Other Deferred Compensation Plans Table, which would disclose year-end balance, and executive contributions, company contributions, earnings and withdrawals for the year; and
  • disclosure of payments and benefits (including perquisites) payable on termination or change in control, including quantification of these potential payments and benefits.
• A Director Compensation Table, similar to the Summary Compensation Table, and related narrative would disclose director compensation for the last year.

2. Related Person Transactions, Director Independence and Other Corporate Governance Matters

The proposals would update, clarify, and slightly expand the disclosure provisions regarding related person transactions. Principal changes would include a disclosure requirement regarding policies and procedures for approving related party transactions, a slight expansion of the categories of related persons and a change in the threshold for disclosure from $60,000 to $120,000. The requirement to disclose these transactions would also be made more principles-based, and would require disclosure if the company is a participant in a transaction in which a related person has a direct or indirect material interest.

A proposed new item (Item 407 of Regulations S-K and S-B) would require

• disclosure of whether each director and director nominee is independent;
• a description of any relationships not otherwise disclosed that were considered when determining whether each director and director nominee is independent; and
• disclosure of any audit, nominating and compensation committee members who are not independent.

Proposed Item 407 also would consolidate corporate governance related disclosure requirements currently set forth in a number of places in the proxy rules and Regulations S-K or S-B. This would include disclosure regarding board meetings and committees, and specific disclosure about nominating and audit committees. Proposed Item 407 would also require similar disclosure regarding compensation committees and a narrative description of their procedures for determining executive and director compensation.

3. Security Ownership of Officers and Directors

The proposals would require disclosure of the number of shares pledged by management.

4. Form 8-K

The proposals would modify the disclosure requirements in Form 8-K to capture some employment arrangements and material amendments thereto only for named executive officers. The proposals would also consolidate all Form 8-K disclosure regarding employment arrangements under a single item.

Comments on the proposed rules are due within 60 days of publication in the Federal Register (which will probably be next week). These proposals are expected to generate a significant amount of comments and not expected to be finalized in term for the 2006 proxy season. The full text of the detailed release concerning these items will be posted to the SEC web site within the next few days.

1/5/06: SEC policy on financial penalties

For those of you who work on, or have clients involved with, SEC enforcement matters, the new SEC policy statement regarding its use of financial penalties, published yesterday, may be of interest: http://www.sec.gov/news/press/2006-4.htm  

12/22/05: Upcoming SEC proposals

As part of the SEC rule release regarding new 10-K and 10-Q deadlines (http://www.sec.gov/rules/final/33-8644.pdf), please note that an additional new check-the-box item was added to the covers of Forms 10-K and 10-Q (non-calendar year fiscal year end companies should particularly note the 10-Q change) to indicate whether or not the filer is an accelerated filer, "large accelerated filer" (a new category) or non-accelerated filer.  

12/14/05: SEC deadlines extended

The SEC voted today to revise 10-K and 10-Q deadlines. For all filers with greater than $75 million public float, the deadlines this year will remain at 75 days after year end for 10-Ks and 40 days after quarter end for 10-Qs. For "large accelerated filers" - those with greater than $700 million public float - the 10-K deadline will drop to 60 days NEXT year, not this year as originally contemplated. The 10-Q deadline will not further accelerate next year for any issuers.

The public float will continue to be measured at the end of the year looking back to the end of the most recent second fiscal quarter.  

12/5/05: Upcoming SEC proposals

Next week, the SEC will propose rules (1) making it easier for foreign private issuers to deregister from US reporting; (2) finalizing the phase-ins for accelerated 10-K and 10-Q reporting deadlines and (3) clarifying that the "best price rule" in tender offers does not apply to consideration offered and paid in connection with target employment and severance compensation. Here is the full announcement.

While 1 and 3 will be proposals, number 2 will likely provide for final rules that will directly and immediately impact upcoming 10-Ks and 10-Qs.  

12/1/05: 33 Act Reform FAQs

As a reminder, the 33 Act reform rules are now effective. Just in time for the December 1 effective date, the SEC released additional FAQs.  

11/29/05: SEC proposes electronic delivery of proxies

The SEC today voted to propose for public comment rules that would allow companies and other persons to use the Internet to satisfy proxy material delivery requirements. Current interpretations require affirmative shareholder consent for electronic delivery and currently this process is used only on a limited basis.

Under the proposed rules, a company could satisfy its obligation to furnish proxy materials to shareholders through a "notice and access" model. The company would post its proxy materials on an Internet Web site (other than EDGAR) and would send a "Notice of Electronic Proxy Materials" at least 30 days before the date of meeting.

The notice (likely to be a postcard) would have to contain certain information, including a legend advising shareholders of: (1) the date, time, and location of the meeting; (2) the electronic availability of the proxy materials at a specified Web site address; and (3) a toll-free phone number and e-mail address that shareholders may use to request copies of the proxy materials; and a clear and impartial description of the matters to be considered at the meeting along with the company?s recommendation regarding those matters. Under the proposal, the proxy card would have to be accompanied by, and delivered through the same medium (paper or electronic) as, either the notice or the proxy statement.

Persons (other than the company) that are soliciting proxies would be able to rely on the proposed "notice and access" model in substantially the same manner as the company, with appropriate changes in the information required in the notice.

A press release describing the proposal is at: www.sec.gov/news/press/2005-166.htm. The full text of the proposal will be available on the SEC's website in a few days. These proposals are not likely to be in effect for the 2006 proxy season other than possibly for companies with non-calendar year fiscal years.  

11/22/05: Executive Compensation Bill

FYI, attached is Barney Frank's proposed "Protection Against Executive Compensation Abuse Act", which would require increased proxy disclosures about executive officers' total compensation and policies for recapturing pay that is not within short- and long-term performance targets. The bill would also require clear disclosure on company websites regarding compensation and shareholder approval of certain executive compensation plans and severance arrangements.

Current speculation is that the SEC will propose rule changes to executive compensation disclosure rules in the near future that will take priority over this bill. (attachment)  

11/21/05: SEC fees to decrease

SEC registration fees are scheduled to go down soon. Congress has passed the appropriations bill and the President is expected to sign, so make sure you check before calculating and/or wiring any fees: http://www.sec.gov/news/press/2005-161.htm  

10/26/05: Small businesses and SOX 404

The SEC has announced the publication for comment by COSO (a standard setting organization) of a new framework under SOX 404 designed for smaller public companies (and presumably their budgets). See the announcement at: www.sec.gov/news/press/2005-153.htm. The COSO proposal (200+ pages) can be found at www.coso.org.

10/7/05: NYSE Survey

NYSE conducted an interesting survey of over 100 listed-company CEOs. Their views on a variety of topics, including compliance and governance, can be found here.  

9/21/05: SEC Deadlines to be Extended

The SEC voted today to do the following:

1. Non-accelerated filers and foreign private issuers: Extend the SOX 404 internal control rule compliance date for non-accelerated filers and smaller foreign private issuers until the first fiscal year ending on or after 7/15/07, rather than 7/15/06. Note that foreign private issuers with above a $75 million public float will have to comply for their fiscal years ending on or after 7/15/06.

2. Accelerated filers: Propose changing the 10-K and 10-Q deadlines for accelerated filers. Accelerated filers with between $75 million and $700 million would continue to have deadlines of 75 days for 10-Ks and 40 days for 10-Qs. A new category of "large accelerated filers," those with public floats of $700 million or more, would have 10-K due dates of 60 days (as was previously contemplated), but continue to have 10-Q due dates of 40 days, not 35 days as was previously supposed to have been the case next year. These proposals are subject to a short public comment period. Non-accelerated filers and foreign private issuers are not impacted by these proposals.

The public float will continue to be measured at the end of the year looking back to the end of the most recent second fiscal quarter.  

9/16/05: Section 16 Rule Proposals

The rule proposals listed below were adopted yesterday, substantially as proposed.

For those of you who work on public M&A deals, the first part is of note, and for those of you who work on proxy statements, the second part is of note.
For those of you who are interested in the interplay between a federal court and a federal agency, the first part is of note.

The SEC today proposed amendments to Rules 16b-3 and 16b-7 under the Securities Exchange Act of 1934. These rules exempt from the short-swing profit recovery provisions of Section 16(b), respectively, "Transactions between an issuer and its officers or directors," and "Mergers, reclassifications, and consolidations." The proposed amendments are intended to clarify the exemptive scope of these rules in light of a recent decision from the 3rd Circuit (which did not agree with the SEC's amicus brief). Essentially, the SEC takes a broader view of these exemptions than the Court did.

In the same release, the SEC also proposed to amend Item 405 of Regulations S-K and S-B to eliminate a presumption that certain Section 16 filings received by a company after their filing deadlines could be reported in the proxy statement as having been filed on time.

There will be a 45 day comment period. The proposing release can be found here.

9/15/05: 33 Act Reform FAQs

The SEC has issued 14 FAQs regarding its Securities Act reforms that take effect on December 1. These relate to some transition questions relating to new undertakings, automatic shelf registration, other shelf issues and effective dates.  

9/2/05: SEC FD Suit Dismissed

For those of you who deal with Reg FD issues, this case (the SEC lost in the first court challenge to the regulation) may be of interest.

7/29/05: PCAOB proposals re: tax services

The Public Company Accounting Oversight Board adopted proposed ethics and independence rules for registered audit firms concerning independence, tax services and contingent fees. Among other things, the rules would further restrict which tax services a company's auditors could perform for the company or its executives and still be considered independent. For more information about the proposal, see the PCAOB's website.

They must still be formally approved by the SEC.  

7/11/05: Nasdaq Proposal RE: FPIs

FYI, Nasdaq has proposed to require foreign private issuers to publish 6-month financials in a press release and furnish them on a 6-K (in addition to the existing annual reporting rules). For most issuers, this is not a change to existing practice. Here's the full proposal.  

6/29/05: SEC to approve significant overhaul to public offering process

As anticipated, the Securities Act reforms were just approved, with some minor modifications from the proposals. The final rules will be published in a few days, followed by a transition period before they become effective. Although these changes will impact all public companies, there will likely be some particularly significant benefits and changes for public companies with market caps over $700 million that utilize shelf registration.  

6/22/05: Section 16 Rule Proposals

The SEC today proposed amendments to Rules 16b-3 and 16b-7 under the Securities Exchange Act of 1934. These rules exempt from the short-swing profit recovery provisions of Section 16(b), respectively, "Transactions between an issuer and its officers or directors," and "Mergers, reclassifications, and consolidations." The proposed amendments are intended to clarify the exemptive scope of these rules in light of a recent decision from the 3rd Circuit (which did not agree with the SEC's amicus brief). Essentially, the SEC takes a broader view of these exemptions than the Court did.

In the same release, the SEC also proposed to amend Item 405 of Regulations S-K and S-B to eliminate a presumption that certain Section 16 filings received by a company after their filing deadlines could be reported in the proxy statement as having been filed on time.

There will be a 45 day comment period. The proposing release can be found here.  

6/16/05: Off-balance sheet arrangement study released

Yesterday, the SEC Staff submitted to the President and Congress a report on off-balance sheet arrangements, special purpose entities and related issues. The report was prepared pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002. The staff report includes an analysis of the filings of issuers as well as an analysis of pertinent U.S. GAAP and SEC disclosure rules. The report describes the staff's study, details its findings, and provides recommendations.

The report covers a range of topics with potential off-balance sheet implications, including consolidation issues, transfers of financial assets with continuing involvement, retirement arrangements, contractual obligations, leases, contingent liabilities and derivatives, as well as a discussion of special purpose entities.

The report identifies several goals for those involved in the financial reporting community, including efforts to

• discourage transactions and transaction structures motivated primarily and largely by accounting and reporting considerations, rather than economics;
• expand the use of objectives-oriented standards;
• improve the consistency and relevance of disclosures; and
• focus financial reporting on communication with investors, rather than just compliance with rules.

The report also provides recommendations for certain changes in accounting and reporting requirements, including

• The staff recommends the accounting guidance for defined-benefit pension plans and other post-retirement benefit plans be reconsidered. The trusts that administer these plans are currently exempt from consolidation by the issuers that sponsor them, effectively resulting in the netting of assets and liabilities in the balance sheet. In addition, issuers have the option to delay recognition of certain gains and losses related to the retirement obligations and the assets used to fund these obligations.
• The staff recommends that the accounting guidance for leases be reconsidered. The current accounting for leases takes an "all or nothing" approach to recognizing leases on the balance sheet. This results in a clustering of lease arrangements such that their terms approach, but do not cross, the "bright lines" in the accounting guidance that would require a liability to be recognized. As a consequence, arrangements with similar economic outcomes are accounted for very differently.
• The staff recommends the continued exploration of the feasibility of reporting all financial instruments at fair
  value.
• The staff recommends that the Financial Accounting Standards Board continue its work on the accounting guidance that determines whether an issuer would consolidate other entities-including SPEs-in which the issuer has an ownership or other interest.
• The staff believes that, in general, certain disclosures in the filings of issuers could be better organized and integrated.

The full text of the report and recommendations can be found on the SEC's website.  

5/10/05: FD Reminder

The SEC telephone interpretation below has been the subject of discussion lately as companies reevaluate their FD practices in light of recent enforcement actions. Nothing new here - we pass it along as a reminder of the SEC's position on the points covered:

If an issuer wants to make public disclosure of material nonpublic information under Regulation FD by means of a conference call, what information must the issuer provide in the notice and how far in advance should notice be given?

An adequate advance notice under Regulation FD must include the date, time, and call-in information for the conference call. Issuers also should consider the following non-exclusive factors in determining what constitutes adequate advance notice of a conference call:

Timing: Public notice should be provided a reasonable period of time ahead of the conference call. For example, for a quarterly earnings announcement that the issuer makes on a regular basis, notice of several days would be reasonable. We recognize, however, that the period of notice may be shorter when unexpected events occur and the information is critical or time sensitive.

Availability: If a transcript or re-play of the conference call will be available after it has occurred, for instance via the issuer's website, we encourage issuers to indicate in the notice how, and for how long, such a record will be available to the public.  

5/9/05: SEC Staff to Publicly Release Comment Letters and Responses

Update: The SEC announced today that on May 12, 2005, it will begin the process of publicly releasing comment letters and response letters relating to disclosure filings made after Aug. 1, 2004, and reviewed by the Division of Corporation Finance and the Division of Investment Management. Comment letters and response letters relating to reviewed disclosure filings will begin to be released individually on a filing-by-filing basis through the EDGAR system at www.sec.gov. The process will commence with some of the oldest eligible filings, but as it continues, letters will be released no earlier than 45 days after the review of the disclosure filing is complete.

As a reminder, when responding to comment letters, consider whether it is appropriate to seek confidential treatment for any particular responses or portions thereof.  

3/30/05: Potential liability for reps and warranties

For those of you working on M&A transactions for public companies, the SEC has raised the stakes with respect to the accuracy of reps and warranties. In a recent settlement with Titan Corporation relating to violations of the Foreign Corrupt Practices Act, the SEC not only discussed the violations themselves, but cited a plain vanilla representation in the relevant merger agreement as possible grounds for a 10b-5 claim for publication of false or misleading material disclosures regarding a material contractual provision.

The representation in question was a simple rep that to the company's knowledge no action had been taken in violation of the FCPA. Because the merger agreement was attached as an exhibit to an SEC filing and the merger agreement and particular representation were also described in a filed proxy statement, the SEC believed that this public disclosure required the company to consider whether additional disclosure was necessary in order to put the information contained in, or otherwise incorporated into, that publication into context so that the information was not misleading. It did not matter that the merger agreement was not prepared as a public disclosure document and that the shareholders of the company were not beneficiaries of the FCPA representation.

Please see the SEC's litigation release and report of investigation discussing these issues for further information.  

3/29/05: Option expensing guidance

The SEC today released Staff Accounting Bulletin No. 107 (SAB 107), which provides SEC interpretations regarding the interaction between Statement of Financial Accounting Standards No. 123 (revised 2004), "Share Based Payment" (SFAS 123R), which relates to option expensing, and SEC rules and regulations. In particular, SAB 107 provides guidance related to: 1) share-based payment transactions with nonemployees; 2) the transition from nonpublic to public entity status; 3) valuation methods (including assumptions such as expected volatility and expected term); 4) the accounting for certain redeemable financial instruments issued under share-based payment arrangements; 5) the classification of compensation expense; 6) non-GAAP financial measures; 7) first-time adoption of SFAS 123R in an interim period; 8) capitalization of compensation cost related to share-based payment arrangements; 9) the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123R; 10) the modification of employee share options prior to adoption of SFAS 123R; and 11) disclosures in Management's Discussion and Analysis subsequent to adoption of Statement 123R.

The full text of SAB 107 can be found here.  

3/25/05: Significant Reg FD case

The SEC has settled its first case under Regulation FD in which the alleged violation involved reaffirming existing guidance. Prior Reg FD cases have involved previously undisclosed material information. This case reminds issuers that even reaffirming existing public information to a selective audience can be material. Note also the SEC cited a lack of cooperation by the issuer.

More details can be found in the SEC press release, which links to the administrative proceedings and a litigation release.  

3/3/05: SOX 404 delay for small and foreign companies

The SEC has further extended the compliance deadline for non-accelerated filers and foreign private issuers for the rules relating to internal control over financial reporting (so-called "Sarbanes-Oxley 404"). The new deadline takes effect for the first fiscal year of such a company ending on or after July 15, 2006. In other words, for a calendar fiscal year company, the 10-K or 20-F to be filed in 2007 that relates to 2006 will need to contain the internal control report and related audit report for 2006.

An SEC press release with further details can be found here.  

12/20/04: SEC publishes FAQs on auditor independence

The Office of the Chief Accountant of the SEC has issued new Frequently Asked Questions (and answers!) regarding the application of the SEC's rule on auditor independence. Sub-topics include audit partner rotation, prohibited and non-audit services, audit committee pre-approval, audit committee communications, fee disclosures, cooling off periods and broker-dealer and investment advisers. (Note that a fair amount of these were previously issued - the dates for each question are indicated.)

The full text can be found here.  

12/14/04: PCAOB proposals re: tax services

The Public Company Accounting Oversight Board today proposed ethics and independence rules for registered audit firms concerning independence, tax services and contingent fees. Among other things, the proposed rules would further restrict which tax services a company's auditors could perform for the company or its executives and still be considered independent. For more information about the proposal, see the PCAOB's press release.  

11/30/04: Internal Control Reporting SEC Relief

The SEC has just issued an exemptive order allowing accelerated filers to file a 10-K without management's report on internal control over financial reporting or the auditor's report on the same as long as they meet certain conditions. If the conditions are met, the company will be deemed to be in compliance with applicable 34 Act rules. The rest of the 10-K must be filed on time.

The 45 day postponement will apply to accelerated filers with a public float of less than $700 million as of the end of the firm's second fiscal quarter in 2004.

The required internal control report and the related auditor's report are due to the SEC within 45 days following the due date for the 10-K. The format is to be a 10-K amendment filing. For issuers with December 31 fiscal year ends, the amendment would be required to be filed, Monday, May 2, 2005.

If the conditions are met, an S-3 eligible company cannot use S-3 until the 10-K is complete but will not be considered to have a late filing after the amendment is filed (assuming it is within the 45 days).

Cick here for more information on the other conditions to rely on this extension.  

11/23/04: 8-K FAQs

The SEC has issued 30 frequently asked questions (and answers!) relating to the expanded disclosure now required in various items of Current Reports on Form 8-K.

The FAQ can be found here. 

11/17/04: 10-K acceleration delayed - is that an oxymoron?

The SEC today approved amendments to postpone, for one year, the final phase-in period for acceleration of periodic report deadlines that apply to "accelerated filers." The primary purpose of the postponement is to allow additional time and opportunity for accelerated filers and their auditors to focus their efforts on complying with new requirements regarding internal control over financial reporting that were mandated by Section 404 of the Sarbanes-Oxley Act of 2002.

Under the amended rules, for an additional year the deadline for accelerated filers will remain at 75 days after year end for annual reports (March 16, 2005 for calendar year companies) and at 40 days after quarter end for quarterly reports. The accelerated filing phase-in will resume for reports filed for fiscal years ending on or after Dec. 15, 2005, when an accelerated filer will have to file its annual report within 60 days after year end and file its quarterly reports within 35 days after quarter end.

The full text of the release describing the proposal has been posted on the SEC website.  

11/14/04: NYSE governance rules updated; Annual reporting pointers

The SEC today approved some tweaks to the New York Stock Exchange corporate governance rules applicable to listed companies, mainly to the independence tests for directors (particularly with respect to relationships between directors or family members and the listed company's auditors) and to clarify some other matters on which the NYSE had received repeated questions. These changes will require corresponding changes to this year's D&O questionnaires.

Note there is a minor change in the duties of the audit committee to be listed in the committee charter that requires them to meet to review and discuss (rather than just discuss) annual and quarterly financial statements and MD&A. You may want to check to make sure listed companies' audit committee charters are broad enough to cover this.

Note also that the rules were changed to require disclosure in the proxy, rather than the 10-K, of the availability of key committee charters and corporate governance guidelines, as well as codes of ethics.

As a reminder, the CEO's annual certification regarding NYSE's corporate governance standards and any CEO/CFO certifications filed with the SEC (906 certifications are furnished, but 302 certifications are filed) must be disclosed in the annual report to shareholders. This rule was largely ignored last year since it was not effective for most issuers at the time of mailing of the annual report.

Here are the final rules.

In addition, here is a black-line showing the changes from last November's rules. Note that after this black-line, NYSE changed the transition period for 303A.02(b)(iii) to the first annual meeting after June 30, 2005.

If the independence of any director changes as a result of NYSE's rule changes, NYSE must file an interim written affirmation with NYSE.  

10/28/04: RE: PCAOB approves standard for audits of internal control

For those of you working on annual reporting for accelerated filers, please see especially questions 21 and 22 in the SEC's FAQ linked to below. Question 21 notes that accountants' consents to incorporation of their reports into 33 Act filings will need to also cover the new internal control audit report.

Question 22 notes that the SEC is encouraging, and plans to propose a rule requiring, that financial statements contained in or that accompany a proxy statement (e.g., in the annual report to shareholders) should also be accompanied by management's report on internal control over financial reporting and the auditors' related report.

SEC FAQ, PCAOB FAQ (pdf)  

10/27/04: SEC approves hedge fund adviser registration and proposes significant overhaul to public offering process

Hedge Fund Advisers

As expected, by a 3-2 vote, the SEC yesterday approved rules that will require hedge fund advisers meeting certain criteria to register with the SEC under the Investment Advisers Act of 1940.

Securities Offering Reform

In addition, the SEC unanimously proposed a series of modifications relating to registered securities offerings, including:

• allowing more communications by issuers during the registration process (i.e., easing restrictions on "gun jumping" during quiet periods), as long as they are filed;
  clarifying when potential disclosure liability should be assessed;
• giving the largest issuers ("well-known seasoned issuers") automatic access to the markets (i.e., no need for a formal shelf takedown for each offering);
• clarifying what information may be omitted from a base prospectus in a shelf registration statement;
• permitting immediate take-downs from shelf registration statements (i.e., no SEC review) and permitting supplements rather than amendments for changes to plans of distribution and selling shareholders;
• allowing some incorporation by reference into Form S-1;
• creating an "access = delivery" model for prospectus delivery and allowing hyperlinks in communications to prospectuses;
• requiring risk factors in 10-Ks; and
• requiring disclosure of certain unaddressed SEC staff comments.

For more details on each of these items, see the SEC's press release.

The text of the rules and proposals themselves (expected to be several hundred pages!) have not yet been posted.  

10/15/04: Option expensing delay; New IPO rules proposed

Option Expensing Delayed

As you may have heard, the FASB has delayed the implementation of its controversial rule regarding expensing employee stock options until June 15, 2005. Here's a short article summarizing the FASB's decision.

IPO Amendments Proposed

In other news, this week the SEC proposed amendments to Regulation M that would prohibit certain market activities that undermine the integrity and fairness of the offering process, particularly with respect to the allocation of IPOs. The amendments would also enhance the transparency of underwriters? aftermarket activities. (Reg. M governs the activities of underwriters, issuers, selling security holders, and others in connection with offerings of securities. Reg. M is designed to prohibit activities that could artificially influence the market for the offered security, including for example, supporting the IPO price by creating the perception of scarcity of IPO stock or creating the perception of aftermarket demand.)

The proposed amendments would:

• Lengthen the "restricted period" for IPOs beyond the current 5-day period. The restricted period is the time period during which distribution participants must refrain from activity that could stimulate the market for the security in distribution. Under the proposal, the restricted period for an IPO generally would begin when the issuer reaches an understanding with an underwriter to proceed with a distribution.
• Require syndicate covering bids, indicating that the underwriter is buying shares to cover its short position, to be publicly disclosed to the market, similar to what is required for stabilizing bids under the current Rule.
• Prohibit the use of penalty bids, which also can function as an undisclosed form of stabilization. Penalty bids occur when an underwriter reclaims a selling concession from a syndicate member if the offering security is immediately sold by the initial purchaser.
• Expressly prohibit certain IPO abuses that occurred in the late 1990?s and in other "hot issue" periods, including conditioning or "tying" an allocation of shares on an agreement by the customer to buy shares in another less desirable ("cold") offering, or to pay excessive trading commissions on unrelated securities transactions.
• Make certain other changes relating to average daily trading volume rules and thresholds.

The full text of the detailed release concerning this proposal will be posted to the SEC web site within the next few days.  

10/12/04: PCAOB approves standard for audits of internal control

The SEC and PCAOB FAQs on internal control over financial reporting have both been updated:

SEC FAQ, PCAOB FAQ (pdf)  

9/28/04: Update

The SEC today proposed rules (see www.sec.gov/rules/proposed/33-8496.htm) to establish a voluntary program for reporting financial information on EDGAR using eXtensible Business Reporting Language (XBRL). The SEC also issued a related concept release, all as part of its initiative to assess the benefits of tagged data and its potential for improving the timeliness, accuracy and analysis of financial disclosure in SEC filings. Tagging provides greater context to data through standard definitions that turn text-based information, such as EDGAR filings, into documents that can be retrieved, searched and analyzed through automated means. Data tags describe information such as items included in financial statements. This enables investors and other marketplace participants to analyze data from different sources and allows for the automatic exchange of financial information across various software platforms, including web services.

The voluntary program would allow registrants to file supplemental financial information using XBRL data in an exhibit to specified EDGAR filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940.

The concept release (www.sec.gov/rules/concept/33-8497.htm) seeks public comment on the benefits of tagging data to improve reporting quality and efficiency; the implications of tagging data for filers, investors, the SEC and other market participants; and the adequacy and efficacy of XBRL as a format for reporting financial information.  

9/23/04: Update

The SEC's Division of Corporation Finance has issued another staff legal bulletin (SLB 14B) providing additional guidance to proponents of shareholder proposals under Rule 14a-8 and the companies that receive them. Of note, the SEC staff complains about how overbearing the shareholder proposal no-action letter process has become and states that they will essentially be allowing more supporting statements that they used to often allow companies to exclude if companies objected. The bulletin can be found at: www.sec.gov/interps/legal/cfslb14b.htm.  

9/20/04: Update

It looks like on October 18 the SEC will be able to begin posting comment letters and responses. The SEC's EDGAR contractor has sent a notice to all EDGAR document disseminators that technical changes for EDGAR Release 8.9 are scheduled to go into production Monday, October 18, 2004. Release 8.9 will permit the SEC to disseminate EDGAR Cover Letters and Correspondence documents submitted as non-public attachments to registrant filings. The new Release will also permit the agency to publicly disseminate its Correspondence sent to registrants.

This material has always been reachable under the Freedom of Information Act, but the Agency announced in June of this year that it planned to take this step in order to make the material
available to a wider audience.  

9/8/04: Update

Nasdaq recently updated its on-line Staff Interpretative Letters: www.nasdaq.com/about/StaffInterpretativeLetters2004.pdf

These are a useful resource (similar in nature to the SEC's telephone interpretations manual) for those who have questions from time to time about the application of Nasdaq rules (including, among other topics, interpretations relating to shareholder approval rule, the new governance requirements and foreign private issuer exemptions).  

9/7/04: Update

When the new 8-K amendments became effective, certain conforming changes to the 10-Q (and 10-K) rules also became effective. Portions of the disclosures called for in these items are no longer required in quarterly and annual reports because they will be more promptly reported on Form 8-K. Here are the 10-Q changes:

• revised the heading for Item 2 in Part II-Other Information;
• removed Items 2(a), 2(b) and 6(b);
• redesignated paragraphs (c), (d) and (e) in Item 2 as paragraphs (a), (b) and (c);
• revised newly redesignated paragraph (a) in Item 2;
• revised the Instructions to Item 3;
• revised Item 5;
• removed the words "and Reports on Form 8-K (?249.308 of this chapter)" from the heading of Item 6; and
• removed the paragraph (a) designation in Item 6.

For those who want to get a jump start on annual reporting, here are the 10-K changes:

• revised paragraph (a) of Item 5, Market for Registrant's Common Equity and Related Stockholder Matters to require disclosure only of unregistered sales of equity securities not previously disclosed on Form 8-K;
• revised Item 9, Changes in and Disagreements With Accountants on Accounting and Financial Disclosure to require disclosure only of matters required by Item 304(b) of Regulation S-K;
• added Item 9A, Other Information;
• revised the heading of Item 15 to read "Exhibits and Financial Statement Schedules;"
• deleted paragraph (b) of Item 15, Exhibits, Financial Statement Schedules, and Reports on Form 8-K; and
• redesignated paragraphs (c) and (d) in Item 15 as paragraphs (b) and (c).  

8/25/04: Update

The SEC has proposed to postpone for one year the final phase-in period for acceleration of the due dates of quarterly and annual reports required to be filed under the Securities Exchange Act of 1934. This phase-in period applies to certain reporting companies known as "accelerated filers". These companies must have a public float of at least $75 million, that have been subject to the Exchange Act's reporting requirements for at least 12 calendar months, that previously have filed at least one annual report, and that are not eligible to file their quarterly and annual reports on Forms 10-QSB and 10-KSB.  

8/17/04: Update

The New York Stock Exchange has proposed various clarifying amendments to its November 2003 corporate governance rules. (Note: NYSE also published FAQs in January and February). Most of the changes are in response to additional questions NYSE has received. The linked document below contains a brief explanation of the proposed changes, as well as a helpful black-line of the existing rules showing what the changes would be.

www.nyse.com/pdfs/proposed_section303A_amendments.pdf

It is not clear when these would be approved by the SEC, but a best guess is that they'll get approved in close to the current form sometime in mid-fall.  

7/26/04: Update

When preparing a shelf registration statement that will have a combined prospectus that "carries forward" the unused amount from a prior registration statement (or using a combined prospectus for any other reason) under Rule 429, the old registration statement does not go away. Rather the combined prospectus relates to both the old and new ones (it is unclear when exactly the old one gets "used up", if at all). Therefore, when filing the base prospectus or any prospectus supplement after effectiveness, you should make sure the EDGAR version references 2 registration statement numbers in the upper right hand corner of the applicable prospectus or supplement.

7/19/04: Update

There was an open question under SEC rules as to whether filings made between filing and the effective date of a Form S-3 would be incorporated by reference or whether a pre-effective amendment was required to add the incorporated material specifically. In a telephone interpretation, the SEC confirmed that as long as certain language providing for the incorporation of filings made prior to the effectiveness of the registration statement is included, no pre-effective amendments are necessary. However, note that this language must be deleted when the base prospectus is first used. If a final base if filed right after effectiveness, it is easy enough to delete the phrase at that time and not have to worry about it, but often there are no other changes and so a final base is never filed. It is therefore critical that when doing a takedown you check the base prospectus to make sure the interim language no longer appears.  

6/24/04: Update

The staff of the SEC today announced that it will being making publicly available comment letters and filer responses relating to disclosure filings reviewed by the Division of Corporation Finance and the Division of Investment Management.

Disclosure filings made with the SEC are in certain cases selected for review by staff. For many years, the Division of Corporation Finance and the Division of Investment Management have provided filers with comments on filings where they believe the filing could be improved or enhanced. Staff review of a filing may involve several rounds of comments from the staff and a similar number of responses from the filer. Upon resolution of all issues relating to a filing review, the staff advises the filer that its review is complete. The SEC currently releases staff comment letters and responses to these comment letters only in response to a Freedom of Information Act request after the staff review is complete.

In recent months, an increasing number of SEC comment letters and issuer responses to them have been released publicly through the FOIA process, but only to those persons who make FOIA requests for them. Notably, a commercial third party service has been obtaining many such comment letters and responses and posting them on its fee-based website. The SEC staff has decided that it is appropriate to expand the transparency of the comment process so that this information is available to a broader audience, free of charge. Public access to this correspondence will no longer require a FOIA request. This change in policy will begin with letters and responses relating to filings made after August 1, 2004, though the earliest release of the information will be at least 45 days after the staff has completed a filing review.

Many issuers are concerned that plaintiff's lawyers will seize upon these letters as roadmaps as an indication of what the SEC views as problematic about the particular issuer. Issuers should carefully consider for each response whether they want to seek confidential treatment (it is not permissible to merely request that all responses be kept confidential) and if so, adhere to the technical rules to obtain such treatment. SEC comments, as opposed to responses, cannot be kept confidential.

The staff has further indicated that it will ask companies whose filings are reviewed to represent in writing that they will not use the SEC's comment process as a defense in any securities related litigation against them. 

6/24/04: SEC Staff to Publicly Release Comment Letters and Responses

The staff of the SEC today announced that it will be making publicly available comment letters and filer responses relating to disclosure filings reviewed by the Division of Corporation Finance and the Division of Investment Management.

Disclosure filings made with the SEC are in certain cases selected for review by staff. For many years, the Division of Corporation Finance and the Division of Investment Management have provided filers with comments on filings where they believe the filing could be improved or enhanced. Staff review of a filing may involve several rounds of comments from the staff and a similar number of responses from the filer. Upon resolution of all issues relating to a filing review, the staff advises the filer that its review is complete. The SEC currently releases staff comment letters and responses to these comment letters only in response to a Freedom of Information Act request after the staff review is complete.

In recent months, an increasing number of SEC comment letters and issuer responses to them have been released publicly through the FOIA process, but only to those persons who make FOIA requests for them. Notably, a commercial third party service has been obtaining many such comment letters and responses and posting them on its fee-based website. The SEC staff has decided that it is appropriate to expand the transparency of the comment process so that this information is available to a broader audience, free of charge. Public access to this correspondence will no longer require a FOIA request. This change in policy will begin with letters and responses relating to filings made after August 1, 2004, though the earliest release of the information will be at least 45 days after the staff has completed a filing review.

Many issuers are concerned that plaintiff's lawyers will seize upon these letters as roadmaps as an indication of what the SEC views as problematic about the particular issuer. Issuers should carefully consider for each response whether they want to seek confidential treatment (it is not permissible to merely request that all responses be kept confidential) and if so, adhere to the technical rules to obtain such treatment. SEC comments, as opposed to responses, cannot be kept confidential.

The staff has further indicated that it will ask companies whose filings are reviewed to represent in writing that they will not use the SEC's comment process as a defense in any securities related litigation against them.