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July 2007

Published by RR Donnelley
Editorial Content by LegalWorks
Blake A. Bell, Editor in Chief

In This Issue:

SEC I: SEC Expands Interactive Data Voluntary Program to Include Mutual Fund Information
SEC II: SEC Votes to Adopt Antifraud Rule Under Investment Advisers Act
SEC III: SEC Releases Issues Proposing Release Entitled "Smaller Reporting Company Regulatory Relief and Simplification"
SEC IV: SEC Releases Text of Proposed Rule "Exemption of Compensatory Employee Stock Options From Registration Under Section 12(g) of the Exchange Act
SEC V: Commission Issues Proposing Release on Eliminating Reconciliation Requirement for IFRS Financial Statements and Solicits Comment
PCAOB: Board Proposes New Ethics and Independence Rule Concerning Communications with Audit Committees and Amendment to its Existing Tax Services Rule
Credit Rating Agencies: Seven Credit Rating Agencies Apply for Registration as Statistical Rating Organizations
FSA: UK's FSA Announces Results of Its Thematic Review of Controls Over Inside Information Relating to Public Takeovers
PRACTICAL GUIDANCE: Courtesy of RealCorporateLawyer.com
COMINGS AND GOINGS: Who's Doing and Saying What and Where?

SEC I: SEC Expands Interactive Data Voluntary Program to Include Mutual Fund Information

U.S. Securities and Exchange Commission, SEC Expands Interactive Data Voluntary Program to Include Mutual Fund Information , News Release 2007-134 (July 12, 2007).
U.S. Securities and Exchange Commission, Final Rule: Extension of Interactive Data Voluntary Reporting Program on the EDGAR System to Include Mutual Fund Risk / Return Summary Information , Release Nos. 33-8823, IC-27884 (July 11, 2007).
U.S. Securities and Exchange Commission, Speech by SEC Commissioner: Remarks at the SEC Open Meeting - Extension of Interactive Data Voluntary Reporting Program on the EDGAR System to Include Mutual Fund Risk / Return Summary Information (June 20, 2007).
U.S. Securities and Exchange Commission Webcast Archive: Chairman's Statement on Extending Interactive Data Voluntary Reporting Program to Mutual Fund Risk / Return Summary (June 20, 2007) (WindowsMedia Format).

During its June 20 open meeting, the Commission voted to adopt amendments to expand its interactive data voluntary reporting program to permit mutual funds to submit as exhibits to their registration statements supplemental tagged information contained in the risk / return summary section of prospectuses. The risk / return summary section of mutual fund prospectuses typically contains key mutual fund information such as investment objectives, strategies, risks and costs.

On July 12, published final rule amendments to enable mutual funds to submit their risk / return summary information from prospectuses using interactive data under the Commission's voluntary program. According to the Commission:

"The submission of tagged risk/return summary information will be supplemental and will not replace the required official versions of the information. Any mutual fund submitting tagged risk/return summary information will be required to include this information as an amendment to a filing on Form N-1A, the registration form for mutual funds. Volunteers can begin submitting tagged risk/return summary information on Aug. 20, 2007."

The new rule amendments authorize mutual funds to submit appropriate tagged information using a taxonomy developed by the Investment Company Institute. That taxonomy, available for review by clicking here , was recently recognized as an acknowledged eXtensible Business Reporting Language (XBRL) taxonomy by XBRL International.

SEC II: SEC Votes To Adopt Antifraud Rule Under Investment Advisers Act

U.S. Securities and Exchange Commission, SEC Votes to Adopt Antifraud Rule Under Investment Advisers Act , News Release 2007-133 (July 11, 2007).
U.S. Securities and Exchange Commission, Archived Video Webcast of Chairman's Statement (Windows Media).
U.S. Securities and Exchange Commission, Remarks of Commissioner Paul S. Atkins at the SEC Open Meeting Regarding An Antifraud Rule for Advisers to Pooled Investment Vehicles (July 11, 2007).

On July 11, the Securities and Exchange Commission voted unanimously to adopt a new antifraud rule under the Investment Advisers Act that it says will clarify its "ability to bring enforcement actions under the Advisers Act". The rule will apply to investment advisers of hedge funds, private equity funds, venture capital funds, and mutual funds.

According to the Commission, the new rule:

"will make it a fraudulent, deceptive, or manipulative act, practice, or course of business for an investment adviser to a pooled investment vehicle to make false or misleading statements to, or otherwise to defraud, investors or prospective investors in that pool. The rule will apply to all investment advisers to pooled investment vehicles, regardless of whether the adviser is registered under the Advisers Act. Under the new rule, a pooled investment vehicle will include any investment company and any company that would be an investment company but for the exclusions in Sections 3(c)(1) or 3(c)(7) of the Investment Company Act."

As of this writing the text of the new rule has not been posted to the Commission's Web site. It will become effective thirty days after its publication in the Federal Register.

RealCorporateLawyer.com is pleased to provide access to law firm memo guidance on this development. See :

Alston + Bird LLP, Securities Law Advisory: SEC Unanimously Adopts Pooled Investment Vehicle Antifraud Rule (July 12, 2007).

SEC III: SEC Issues Proposing Release Entitled "Smaller Reporting Company Regulation Relief and Simplification"

U.S. Securities & Exchange Commission, Smaller Reporting Company Regulatory Relief and Simplification, Release Nos. 33-3819, 34-56013, 39-2447 (July 5, 2007).
U.S. Securities & Exchange Commission Archived Webcast: Chairman's Statement on Acceptance from Foreign Private Issuers of Financials Prepared in Accordance with IFR Standards without Reconciliation to GAAP (June 20, 2007) (WindowsMedia format).

During its June 20 open meeting, the SEC voted to propose rules amendments intended to "modernize" small company capital capital-raising and disclosure requirements. On July 5, the Commission issued the text of its proposed amendments

The 180-page release outlines proposed rule amendments that will extend the Commission's current program for optional disclosure and reporting requirements for smaller companies to a larger group of companies. As described by the Commission:

"The proposals would allow companies with a public float of less than $75 million to qualify for the smaller company requirements, up from $25 million for most companies today. The proposals also would combine for most purposes the 'small business issues' and 'non-accelerated filer' categories of smaller companies into a single category of 'smaller reporting companies.' In addition, the proposals would maintain the current disclosure requirements for smaller companies contained in Regulation S-B, but integrate them into Regulation S-K."

In connection with its proposal, the Commission announced that it also is soliciting suggestions for additional ways that it could "better scale" its disclosure and reporting requirements to the needs of smaller reporting companies and their investors.

Comments on the proposal must be received by the Commission on or before September 17.

RealCorporateLawyer.com is pleased to provide access to law firm memo guidance on this development. See:

SEC IV: SEC Releases Text of Proposed Rule "Exemption of Compensatory Employee Stock Options From Registration Under Exchange Act"

U.S. Securities and Exchange Commission, Exemption of Compensatory Employee Stock Options From Registration Under Section 12(g) of the Securities Exchange Act of 1934 , Release No. 34-56010 (July 5, 2007).

On July 5, the Commission released the text of a proposal to recognize two exemptions from the registration requirements under the Exchange Act for compensatory employee stock options. The 62-page proposing release provides for a first exemption that would be available to issuers that are not required to file periodic reports under the Exchange Act. According to the Commission, this proposed exemption "would apply only to the issuer's compensatory employee stock options and would not extend to the class of securities underlying those options.

The second exemption proposed in the release would be available to issuers required to file reports because they have registered the class of securities underlying the compensatory employee stock options under Exchange Act Section 12.

According to the proposing release, the Commission must receive comments from interested parties on or before September 10.

SEC V: Commission Issues Proposing Release on Eliminating Reconciliation Requirement for IFRS Financial Statements and Solicits Comment

U.S. Securities & Exchange Commission, SEC Soliciting Public Comment on Eliminating Reconciliation Requirement for IFRS Financial Statements , News Release 2007-128 (July 3, 2007).
U.S. Securities & Exchange Commission, Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards Without Reconciliation to U.S. GAAP , Release Nos. 33-8818, 34-55998 (July 2, 2007).
U.S. Securities & Exchange Commission, Staff Report: Staff Observations in the Review of IFRS Financial Statements (July 2, 2007).
U.S. Securities & Exchange Commission, Staff Comments on Annual Reports Containing Financial Statements Prepared for the First Time on the Basis of International Financial Reporting Standards (July 2, 2007).
U.S. Securities & Exchange Commission Archived Webcast: Chairman's Statement on Acceptance from Foreign Private Issuers of Financials Prepared in Accordance with IFR Standards without Reconciliation to GAAP (June 20, 2007) (WindowsMedia format).

As noted in the June Issue of RealCorporateLawyer eZine, during its June 20 open meeting, the SEC voted to propose amendments to Form 20-F, Rules 3-10 and 4-01 of Regulation S-X, Forms F-4 and S-4, and Rule 701 under the Securities Act, to accept financial statements prepared in accordance with International Financial Reporting Standards as published by the International Accounting Standards Board without reconciliation to generally accepted accounting principles as used in the United States when contained in the filings of foreign private issuers with the Commission.

On July 2 the Commission released the text of its proposing release. Interestingly, the following day the Commission issued a special announcement soliciting public comment on the proposal and issued a report noting "general observations" about the application of IFRS based on staff reviews of annual reports from more than 100 foreign private issuers containing financial statements prepared for the first time using IFRS.

The Commission also announced on July 3 that it has launched a new Web page that consolidates SEC staff correspondence on the completed filing reviews as well as company responses to the comment letters.

According to the Commission, its proposed amendments will: (1) apply to foreign private issuers that file financial statements that comply with the English language version of IFRS as published by the IASB; and (2) allow those issuers to file those financial statements in their annual filings and registration statements without reconciliation to U.S. GAAP.

Comments on the proposal are expected to be heavy and must be received by the Commission on or before September 24.

PCAOB I: Board Proposes New Ethics and Independence Rule Concerning Communications with Audit Committees and an Amendment to its Existing Tax Services Rule

Public Company Accounting Oversight Board, Board Proposes New Ethics and Independence Rule Concerning Communications with Audit Committees and an Amendment to its Existing Tax Services Rule and Adjusts Implementation Schedule for Tax Services Rule, News Release (July 24, 2007).
Public Company Accounting Oversight Board, Proposed Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence; Proposed Amendment to Rule 3523, Tax Services for Persons in Financial Reporting Oversight Roles; Implementation Schedule for Rule 3523, PCAOB Release No. 2007-008 (July 24, 2007).
Public Company Accounting Oversight Board, Rulemaking Docket 017: Ethics and Independence Rules Concerning Independence, Tax Services and Contingent Fees (July 24, 2007).

On July 24, the Public Company Accounting Oversight Board proposed a new ethics and independence rule concerning communications with audit committees and an amendment to its existing tax services rule. It also adjusted the implementation schedule for the tax services rule.

The new ethics and independence rule is Rule 3526 "Communication with Audit Committees Concerning Independence." It will supersede the Board's interim independence requirement (Independence Standards Board Standard No. 1: Independence Discussions with Audit Committees) and two related interpretations. The Board also proposed an amendment to Rule 3523 "Tax Services for Persons in Financial Reporting Oversight Roles," the Board proposes to amend Rule 3523 so that it will not apply to tax services provided on or before April 30, 2008 when such services are provided during the audit period and are completed before the professional engagement period begins.

The proposed new Rule 3526 is more complex. In the broadest sense, it will require disclosure of all relationships that may reasonably be thought to bear on independence whether those relationships existed during the period under audit or during earlier audits. The release specifies a general standard to be applied in this regard:

"In determining what relationships may reasonably be thought to bear on independence, the accounting firm would need to consider, in addition to whether the firm provided any specifically prohibited services or maintained any specifically prohibited relationships, the SEC's general standard on auditor independence. Under that standard, an accountant is not independent if 'the accountant is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the accountant is not, capable of exercising objective and impartial judgment on all issues encompassed within the accountant's engagement."

Credit Rating Agencies: Seven Credit Rating Agencies Apply for Registration as Statistical Rating Organizations

U.S. Securities and Exchange Commission, Credit Rating Agencies Apply for Registration as Nationally Recognized Statistical Rating Organizations, News Release 2007-124 (June 28, 2007).
U.S. Securities and Exchange Commission, Oversight of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organization, Release No. 34-55857 (June 5, 2007).

On June 5, the Commission released the text of its final rule regarding "Oversight of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organizations". The rule implements provisions of the Rating Agency Reform Act of 2006 enacted on September 29, 2006. The Commission's rule prescribed the process for credit rating agencies to apply for registration as required under the legislation.

On June 28, the Commission announced that seven credit rating agencies previously identified as nationally recognized statistical rating organizations (NRSROs) had applied to be registered with the Commission. Consequently, they may continue to represent themselves or act as NRSROs during Commission consideration of their applications.

The firms are:

A.M. Best Company, Inc.
DBRS
Fitch, Inc.
Japan Credit Rating Agency, Ltd.
Moody's Investors Service
Rating and Investment Information, Inc.
Standard and Poor's Ratings Services

FSA: U.K.'s FSA Announces Results of its Thematic Review of Controls Over Inside Information Relating to Public Takeovers

Financial Services Authority, FSA Market Watch, Issue No. 21, Thematic Review of Controls Over Inside Information Relating to Public Takeovers (July 2007).

The Markets Division of the U.K.'s Financial Services Authority has released the results of its thematic review of controls over inside information relating to public takeovers. The FSA began a review in the middle of 2006 to consider the controls over inside information relating to public takeovers. Based on its review, the FSA concluded that there are eight main areas that require improvement: (1) firms may be too complacent that their own internal procedures were already robust; (2) few firms have formulated policies setting out their thoughts on when it would be appropriate to consider some form of internal review following a leakage of information on a deal where they were insiders; (3) firms should apply more rigor in permitting large numbers of insiders to know about a deal; (4) firms could improve their Information Technology controls to limit access to inside information; (5) some non-regulated, non-professional firms had limited training on market abuse and insider dealing and, in some instances, train only professionals but not support staff; (6) over-reliance on confidentiality agreements with third parties while failing to assess whether the third parties had necessary controls in place to keep the information confidential; (7) most non-regulated / non-professional firms do not monitor personal account dealings by employees; and (8) over-reliance on "code words" to refer to projects despite the fact that such code names can be relatively easy to interpret and sometimes can be poorly chosen.

RealCorporateLawyer.com is pleased to provide access to law firm memo guidance on this development. See:

Wachtell, Lipton, Rosen & Katz, Financial Services Authority Examines Controls Governing Inside Information. (July 9, 2007)

PRACTICAL GUIDANCE: Courtesy of RealCorporateLawyer.com

RealCorporateLawyer.com provides its readers with free access to a very large collection of law firm memoranda providing practical guidance on current hot topics. Readers are encouraged to visit the frequently-updated "Emerging Legal Issues" area of the home page for such current memoranda, as well as the Expert Analysis: SEC Reform Portal section containing hundreds of other such memoranda. Recent additions include:

Also, don't forget that RR Donnelley's highly acclaimed Executive Compensation Handbook has been newly-revised and reflects the Commission's executive compensation rules announced on December 22, 2006. Additionally, a copy of the Presentation given during the RR Donnelley Executive Compensation Webcast on January 25, 2007 is available for free download by clicking here .

COMINGS AND GOINGS: Who's Doing and Saying What and Where?

On July 19, the SEC announced that Chester Spatt , its Chief Economist and Director of the Office of Economic Analysis, "will leave the agency to return to academia at the end of July." See:

U.S. Securities and Exchange Commission, Chief Economist Chester Spatt to Leave SEC, News Release 2007-136 (Jul. 19, 2007).

The Commission also announced on July 10 that Roaslind R. Tyson has been appointed as Acting Regional Director of the SEC's Los Angeles Regional Office effective upon the imminent departure of Randall R. Lee who is "returning to the private sector". See:

U.S. Securities and Exchange Commission, Rosalind Tyson Named Acting Regional Director of Los Angeles Regional Office, News Release 2007-132 (July 10, 2007).

The Commission announced on July 3 that it has selected Cheryl Linthicum as the Academic Accounting Fellow for a one-year term beginning in August 2007. She is the Clear Channel Worldwide Faculty Fellow and an Associate Professor of Accounting at the University of Texas at San Antonio. See:

U.S. Securities and Exchange Commission, Cheryl Linthicum Named Academic Accounting Fellow for SEC Division of Corporation Finance , News Release 2007-129 (July 3, 2007).

On July 2 the Commission announced that founding Public Company Accounting Oversight Board member Daniel L. Goelzer has been reappointed to the Board to serve a second five-year term. See:

U.S. Securities and Exchange Commission, PCAOB Incumbent Daniel Goelzer Reappointed to Second Term, News Release 2007-126 (July 2, 2007).

What Are the Commissioners and Commission Staffers Saying?

On July 18, SEC Chairman Christopher Cox spoke in Los Angeles regarding " Integrity in the Municipal Market ". Commissioner Paul S. Atkins delivered Remarks at the July 11 SEC Open Meeting regarding " An Antifraud Rule for Advisers to Pooled Investment Vehicles. " During the same open meeting, Commissioner Roel C. Campos also delivered remarks regarding " Antifraud Rule for Advisers To Pooled Investment Vehicles ". On July 6, Commissioner Campos also delivered " Remarks at the International Corporate Governance Network ". Commissioner Annette L. Nazareth delivered " Remarks Before the SIFMA Risk Management Conference " on June 27, 2007.

Commission Staffers were not quite as busy with speaking engagements as usual. On June 26, the SEC's Director of the Division of Enforcement, Linda Chatman Thomsen , delivered " Remarks before theLaw School Directors' College 2007 ". John W. White , Director of the SEC's Division of Corporation Finance delivered " Remarks Before the NAVA Compliance and Regulatory Affairs Conference " on June 25. He also gave a " Slide Presentation " during his remarks

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