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August 2007 Published by RR Donnelley Editorial Content by LegalWorks Blake A. Bell, Editor in Chief In This Issue:
SEC I: Chairman of SEC's Advisory Committee on Improvements to Financial Reporting Releases Paper for Public Comment
On August 21, the Commission released a "Discussion Paper" Chairman of the Advisory Committee, Robert Pozen. The paper proposes the creation of five subcommittees: (1) Substantive Complexity; (2) Standard Setting Process; (3) Audit Process and Compliance; (4) Delivering Financial Information; and (5) International Coordination. The paper proposes that the Substantive Complexity Subcommittee will study the causes and impact of complexity on financial accounting and reporting standards including principles-based vs. rules-based standards; inclusion within standards of exceptions, bright lines and safe harbors; and the concerns of fair value measurement attributes and related earnings volatility. The paper further proposes that the Standard Setting Subcommittee will consider U.S. GAAP hierarchy; characteristics of the FASB; the FASB standard setting process; interpretive guidance from the EITF, SEC and others; the use of cost-benefit analysis in standard setting; and xisting standards. As for the Audit Process and Compliance Subcommittee, the paper proposes that it will study the process of regulating compliance with the accounting and reporting standards and other environmental factors that drive unnecessary complexity. Among the issue this subcommittee will consider are financial restatements; use of judgment; the PCAOB; the SEC's Divisions of Corporation Finance and Enforcement; audit firms; and sustainability of the audit profession. The Delivering Financial Information Subcommittee, according to the proposal, will study the current system for delivering financial information to investors and assessing that information. It will consider tiering of information; tagging of information; press releases and Web site disclosures; and legal issues. Finally, the paper proposes that the International Coordination Subcommittee will consider whether the growing use of international accounting standards has an impact on the relevant issues relating to complexity of U.S. accounting standards and the usefulness of the U.S. financial reporting system. Accordingly, this subcommittee will consider the standard setting approach and differences in regulation between U.S. and non-U.S. standards. 
SEC II: Reports Indicate that Luis Aguilar Is at Top of the List to Replace SEC Commissioner Roel Campos
Luis Aguilar has served as an SEC staff attorney in the Commission's Atlanta regional office and as general counsel at Invesco. Most recently he practiced securities law at the Atlanta firm McKenna Long & Aldridge. The same report notes that rumors are floating that Commissioner Annette Nazareth plans to retire before 2008. One possible name that is being "floated by several sources" as a replacement for her in the event that she retires is James Cox, a securities law professor at Duke University Law School.
SEC III: SEC Adopts Updated EDGAR Filer Manual
The Manual also has been revised to incorporate changes in support of several recently-adopted final rules including those involving: (1) termination of a foreign private issuer's registration of a class of securities under Section 12(g) and duty to file reports under Section 13(a) or 15(d) of the Exchange Act; (2) the electronic filing of Transfer Agent forms TA-1, TA-2 and TA-W; and (3) the accelerated filer definition under the Exchange Act. Other revisions have been made to allow an issuer to indicate whether it is subject to reporting obligations after terminating registration of a class of equity securities under the Exchange Act and to remove references to submission types N-14AE and N-14AE/A for the filing of Form N-14 from "Table 3-5: Investment Company Submission Types Accepted by EDGAR" of the Filer Manual.
SEC IV: SEC Issues Concept Release on Allowing U.S. Issuers to Prepare Financial Statements in Accordance with IFRS
"Almost 100 countries now either require or allow the use of IFRS for the preparation of financial statements by listed companies, and other countries are moving to do the same. This recent movement to IFRS outside the United States has resulted in an increase, from a relative few in 2005 to approximately 110 in 2006, of filings with the Commission of foreign private issuers that represent in the footnotes to their financial statements that their financial statements comply with IFRS as published by the IASB. The Commission expects to see this number continue to increase in the future, particularly pursuant to Canada's announced move to IFRS, as there currently are approximately 500 foreign private issuers from Canada. This movement to IFRS also has begun to affect U.S. issuers, in particular those with a significant global footprint. For instance, certain U.S. issuers may compete for capital globally in industry sectors in which a critical mass of non-U.S. companies report under IFRS. Also, U.S. issuers with subsidiaries located in jurisdictions that have moved to IFRS may prepare those subsidiaries' financial statements in IFRS for purposes of local regulatory or statutory filings." (Footnotes Omitted). An important issue seems to be that the Commission's recent proposal to accept from foreign private issuers financial statements prepared in accordance with IFRS without a U.S. GAAP reconciliation "raises the question of whether the Commission also should accept financial statements prepared in accordance with IFRS as published by the IASB from U.S. issuers." This and other related issues prompted the Commission to issue its concept release with 35 questions on issues that it would like to have addressed in public comments. In addition, the Commission includes in the concept release a request for "general comments" regarding "the benefits and costs relating to investors, issuers and other market participants of the possibility of accepting financial statements from U.S. issuers prepared in accordance with IFRS". Comments must be submitted on or before November 13, 2007.
SEC V: Commission Issues Final Rule Regarding Short Selling in Connection with a Public Offering
The Commission received 13 comment letters from a wide variety of commenters. In response to the comments, the Commission "refined" its amendments to Rule 105 in several ways "including limiting its application to equity offerings, and adding a 'bona fide purchase provision' that allows a restricted period short seller to participate in an offering. The amended rule also includes new exceptions concerning separate accounts and investment companies. The exception for separate accounts allows a person to purchase the offered securities transactions for each account are made separately and without any coordination of trading or cooperation among or between the accounts. The exception for certain investment companies allows an investment company to participate in an offering if an affiliated investment company or any series of such investment company sold short during the restricted period.
Additionally, the release proposes to change the definition of "accredited investor" in Regulation D to include the additional new category. The current definition provides that a person who fits, or who the issuer reasonably believes fits, any of eight categories at the time of sale is an accredited investor. Additionally, according to the SEC: "The revisions we propose to the Rule 501(a) 'accredited investor' qualification standards would affect Rules 504 through 506 and to the extent that the standards to qualify as a 'large accredited investor' are based on the standards to qualify as an 'accredited investor,' Rule 507. We believe our proposed revisions of the qualification standards for accredited investors will result in those standards, together with the substantive provisions of the exemptions in Regulation D, better determining who meets the requirements for reliance on the exemptions. Our proposed revisions would:
Finally, the proposal suggests amendments to shorten the timing required by the integration safe harbor in Regulation D. Comments must be received by the Commission on or before October 9, 2007. RealCorporateLawyer.com is pleased to provide access to detailed law firm memo guidance on this development. See:
SEC VII: SEC Issues Text of Final Rule Prohibiting Fraud by Advisers to Certain Pooled Investment Vehicles
To address this uncertainty, the new rule, which becomes effective on September 10, 2007, prohibits advisers to pooled investment vehicles from making false or misleading statements to, or otherwise defrauding, investors or prospective investors in those pooled vehicles. RealCorporateLawyer.com is pleased to provide access to detailed law firm memo guidance on this development. See :
SEC VIII: SEC Issues Final Rule - Shareholder Choice Regarding Proxy Materials
This final rule, in effect, supplements one issued by the Commission earlier this year. See U.S. Securities and Exchange Commission, Internet Availability of Proxy Materials, Release Nos. 34-55146, IC-27671 (Jan. 22, 2007). That rule permits issuers and those who solicit proxies to deliver proxy materials by posting them on the Web instead of sending paper copies. RealCorporateLawyer.com is pleased to provide access to detailed law firm memo guidance on this development. See:
SEC IX: Commission Issues Competing Proposals on Shareholder Access to Company Proxy Statements for Director Nominations
The second proposal (Release No. 34-56160) would permit one or more shareholders holding at least 5% of the company's voting shares to include in the company's proxy materials the shareholder's proposal to amend company bylaws to require procedures to allow shareholders to nominate board nominees. Comments on both proposals must be received by the Commission on or before October 2. RealCorporateLawyer.com is pleased to provide access to detailed law firm memo guidance on this development. See:
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:
COMINGS AND GOINGS: Who's Doing and Saying What and Where? On August 22, the SEC's Office of the Chief Accountant announced that it has selected three professional accounting fellows for two-year terms beginning this fall: Adam Brown (senior manager in BDO Seidman LLP's National SEC Department in Dallas), Robert G. Fox III (senior manager in Grant Thornton LLP's Professional Standards Group in Charlotte) and Brett A. Williams (senior manager in PricewaterhouseCoopers LLP's National Office in Florham Park, N.J.). See U.S. Securities and Exchange Commission, Office of the Chief Accountant Selects Three Professional Accounting Fellows, News Release 2007-168 (Aug. 22, 2007). Also on August 22, FINRA announced that Julie Bauer has been named its Vice President for Government Relations. She previously had a 17-year career with the Chicago Board of Trade where, for the last five years, she served as Vice President for Government Relations and headed CBOT's Washington, D.C. office. See Financial Industry Regulatory Authority, Julie Bauer Named to FINRA Government Relations Post (Aug. 22, 2007). The Commission announced on August 9 that Commissioner Roel C. Campos will leave shortly "to return to the private sector". He is serving his second term and was appointed by President George W. Bush and confirmed by the Senate in August 2002. See U.S. Securities and Exchange Commission, Commissioner Campos to Leave SEC, News Release 2007-163 (Aug. 9, 2007). On August 6, the SEC announced that Martin P. Dunn, Deputy Director of the Division of Corporation Finance, will leave the agency at the end of August to join O'Melveny & Myers LLP as a partner in its Washington, D.C. office. See U.S. Securities and Exchange Commission, Division of Corporation Finance Deputy Director Marty Dunn to Leave SEC, News Release 2007-159 (Aug. 6, 2007). On August 2, FINRA announced its interim Board of Governors to serve until the annual meeting where board elections will be held. The Interim Board of Governors members are: John Bachman , LaRae Bakerink , Brian Kovack , John Simmers , Charles Bowsher , James Burton , Sir Brian Corby , William Heyman , Joel Seligman , Richard Brueckner , Robert J. McCann , Thomas Russo , John Dolan , Dr. Shirley Ann Jackson , Ellyn Brown , Richard Pechter , Mark Sargent , Kurt P. Stocker , Harvey Goldschmid , Jack Brennan and W. Dennis Ferguson . FINRA also announced that three individuals have been nominated to run for the Board's three Small Firm seats at the Board's Annual Meeting. They are: Robert Muh , G. Donald Steel and Duncan Williams . See Financial Industry Regulatory Authority, FINRA Announces Interim Board of Governors to Serve Until Annual Meeting for Board Elections (Aug. 2, 2007). Also on August 2, NYSE Euronext announced that John W. Schmidlin has joined the NYSE Regulation, Inc. Board of Directors. He previously served as Chief Information Officer of JPMorgan Chase. See NYSE Euronext, John W. Schmidlin Joins NYSE Regulation Board of Directors (Aug. 2, 2007). On August 1, the PCAOB announced that Ray Schmidt has informed the Board that he is resigning from his position as Chief Information Officer of the Board. He had served in that capacity since the founding of the PCAOB. Marc Stewart , Deputy Director in the Office of Information Technology will act as interim CIO until a permanent CIO is appointed. See Public Company Accounting Oversight Board, Chief Information Officer Ray Schmidt to Leave the PCAOB (Aug. 1, 2007). SEC Chairman Christopher Cox announced on July 31 the appointment of the members of the Advisory Committee on Improvements to Financial Reporting. The members include: Denny Beresford , Susan Bies , J. Michael Cook , Jeffrey J. Diermeier , Scott C. Evans , Linda Griggs , Joseph A. Grundfest , Greg Jonas , Christopher Liddell , William H. Mann, III , G. Edward McClammy , Edward E. Nusbaum , James H. Quigley , Robert C. Pozen , David Sidwell , Peter J. Wallison , Thomas Weatherford . Chairman Cox also announced the names of five individuals who will serve as "official observers" of the advisory committee. They include Robert Herz (Chairman of FASB), Charles Holm (Associate Director and Chief Accountant Banking Supervision and Regulation, Federal Reserve Board), Phil Laskawy (Chairman of Trustees, International Accounting Standards Committee Foundation), Mark Olson (Chairman of PCAOB) and Kristen E. Jaconi (Senior Policy Advisor to the Under Secretary for Domestic Finance, U.S. Department of the Treasury). See U.S. Securities and Exchange Commission, SEC Chairman Cox Announces Members of Advisory Committee on Improvements to Financial Reporting, News Release 2007-154 (Jul. 31, 2007). Also on July 31, the SEC Chairman announced that Kristin J. Kaepplein , Vice President for Global Compliance Operations at Goldman Sachs, will join the Commission as Director of an expanded Office of Investor Education and Advocacy. See U.S. Securities and Exchange Commission, SEC Chairman Cox Appoints Kristin J. Kaepplein Director of the Office of Investor Education and Advocacy; Announces Expansion of the Office, News Release 2007-153 (Jul. 31, 2007). The Commission named Dr. James A. Overdahl its Chief Economist on July 26. Dr. Overdahl had served as Chief Economist of the Commodity Futures Trading Commission since 2002. See U.S. Securities and Exchange Commission, James Overdahl Named SEC Chief Economist to Head Office of Economic Analysis, News Release 2007-150 (Jul. 26, 2007). What Are the Commissioners and Commission Staffers Saying? On August 2, SEC Chairman Christopher Cox spoke in Washington, D.C., delivering "Welcoming Remarks to the Advisory Committee on Improvements to Financial Reporting". Also on August 2, Commissioner Paul S. Atkins delivered "Remarks Before the Federal Reserve Bank of Chicago Seventh Annual Private Equity Conference". On July 25, Chairman Cox and several Commissioners delivered remarks during the SEC open meeting. Commission Paul S. Atkins delivered a "Statement before the Open Meeting Regarding Shareholder Proposals". Chairman Cox delivered "Opening Remarks at the SEC Open Meeting". Commissioner Roel C. Campos delivered "Remarks at the SEC Open Meeting: Approval of Auditing Standard #5 and Significant Deficiency". Commissioner Campos also delivered "Remarks at the Open Meeting: Concept Release on Allowing U.S. Issuers to Use IFRS". Commission Staffers also have been busy speakers. On August 14, the Director of the SEC's Division of Corporation Finance, John W. White, spoke in San Francisco regarding "Corporation Finance in 2007 -- An Interim Report". The Commissioner's Chief Accountant, Conrad W. Hewitt, delivered "Opening Remarks Before the Initial Meeting of the SEC Advisory Committee on Improvements to Financial Reporting" on August 2. A number of staffers also spoke during the Commission's July 25 open meeting. Katrina Kimpel, a Professional Accounting Fellow, delivered "Opening Remarks at the SEC Open Meeting". Lilian C. Brown, a Senior Special Counsel in the Division of Corporation Finance, also delivered "Opening Remarks at the SEC Open Meeting". Likewise, John W. White delivered "Opening Remarks at the SEC Open Meeting". Chief Accountant Conrad Hewitt also delivered "Opening Remarks at the SEC Open Meeting". Finally, Zoe-Vonna Palmrose, Deputy Chief Accountant, delivered "Opening Remarks at the SEC Open Meeting".
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©2008 RR Donnelley This free E.Zine is provided for informational purposes only and does not constitute legal advice. RR Donnelley & Sons Company is not engaged in rendering legal or other professional services. Publication on this E.Zine is not intended to create, and the information contained hereon does not constitute, an attorney-client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent professional counsel. The RR Donnelley Financial Services Group provides a range of solutions to address all of your business communications needs. We offer financial printing services to the capital and investments markets, as well as judgment-based outsourcing and real estate services. Through our integrated global network, we file more than 50,000 documents annually with the SEC and produce many of the critical documents for regulatory compliance and financial transactions. Our BPO services leverage an on-site/offshore delivery model, leading subject matter experts and state-of-the-art, global operations to assume functions of our clients' business. We add value through highly personalized and around-the-clock service, single-source solutions, Venue virtual data rooms, worldwide regulatory and industry expertise, and insight that comes from over 140 years of experience and achievement. For more information, visit us at www.financial.rrd.com or www.RealCorporateLawyer.com , a reference resource site for corporate and securities lawyers.
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