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July 2008

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

In This Issue:

SEC I: SEC Issues Guidance on Use of Corporate Web Sites for Disclosures to Investors
SEC II: SEC Advisory Committee on Improvements to Financial Reporting Delivers Final Report to Commission
SEC III: SEC Reopens Comment Period on Proposal to Improve Mutual Fund Disclosure
SEC IV: SEC Proposes Guidance for Fund Boards on Oversight of Investment Adviser Trading of Portfolio Securities and Use of Soft Dollars
SEC V: SEC Issues, then Amends, Dramatic Emergency Order to Curb Naked Short-Selling
SEC VI: SEC Says Examinations Uncovered Shortcomings in Credit Rating Practices and Disclosure to Investors
PRACTICAL GUIDANCE: Courtesy of RealCorporateLawyer.com
COMINGS AND GOINGS: Who's Doing and Saying What and Where?

SEC I: SEC Issues Guidance on Use of Corporate Web Sites for Disclosures to Investors

U.S. Securities and Exchange Commission, SEC Provides Guidance to Open Up Use of Corporate Web Sites for Disclosures to Investors, News Release 2008-158 (July 30, 2008).
U.S. Securities and Exchange Commission, Commission Guidance on the Use of Company Web Sites, Release Nos. 34-58288, IC-28351 (Aug. 1, 2008).
Statement of SEC Chairman at Open Meeting on the Use of Company Web Sites (July 30, 2008).
Statement of Kim McManus, Special Counsel in Division of Corporation Finance: Commission Guidance on the Use of Company Web Sites (July 30, 200).

During its open meeting on July 30, the Commission voted unanimously to issue an interpretive release providing guidance on the use of corporate Web sites for disclosures to investors. In broad terms, 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.
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.
Addresses how companies can link to third party information or Web sites without having to "adopt" that content for liability purposes.
Clarifies the "appropriate" use of summary information in the context of the securities laws' antifraud provisions.
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 that 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.
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."
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.

SEC II: SEC Advisory Committee on Improvements to Financial Reporting Delivers Final Report to Commission

U.S. Securities and Exchange Commission, SEC Advisory Committee Makes Recommendations to Improve Financial Reporting for Investors, News Release 2008-166 (Aug. 1, 2008).
SEC Advisory Committee on Improvements to Financial Reporting, Final Report of the Advisory Committee on Improvements to Financial Reporting to the United States Securities and Exchange Commission (Aug. 1, 2008).

On August 1, the SEC Advisory Committee on Improvements to Financial Reporting delivered its final report to the Commission. The report contains 25 broad recommendations intended to make financial disclosures more useful and understandable to investors. The report addresses five principal issues.

Increasing the Usefulness of Information in SEC Filings - The report finds that many individual investors find company filings with the SEC to be overly complex and detailed. Thus the Committee recommends the inclusion of a short executive summary at the beginning of a company's annual report that would describe concisely the main aspects of its business and its key performance metrics.

Enhancing the Accounting Standards-Setting Process - The report calls for more investor participation in accounting standard setting by increasing investor representation on the FASB and Financial Accounting Foundation.

Improving the Substantive Design of New Standards - The report notes that the underlying objectives of certain accounting standards are sometimes obscured by dense language, detailed rules, and numerous exemptions. The report recommends a different approach to the substantive design of standards. It calls for improved rules on "off-balance sheet" accounting and fewer situations where alternative accounting standards exist for the same transaction. The report further recommends that companies provide better disclosure to investors about what portion of their earnings constitutes cash or accrued income based on historic cost accounting and what portion represents unrealized gains or losses based on fair value estimates.

Delineating Authoritative Interpretive Guidance - To reduce the proliferation of U.S. GAAP, the report supports FASB's efforts to complete the codification of all authoritative accounting literature into one document. The Committee said that others such as audit firms may still publish their views on accounting issues, but they should be labeled as non-authoritative. Additionally, the report calls for a clearer delineation of functions on interpreting accounting standards � with the FASB taking the lead on broad issues and the SEC on registrant-specific issues.

Clarifying Guidance on Financial Restatements and Accounting Judgments - The report recommends increased correction of accounting errors and more disclosures about those corrections to investors. However, the report also warns that the correction of every accounting error should not automatically result in a lengthy process of restating financial statements for several prior years. During the "dark period" during restatements when companies generally cease filing current financial reports, companies usually do not provide investors with much information. Thus, the Committee said it believes that restatements of prior years should be undertaken for the correction of accounting errors that are material to current investors.

SEC III: SEC Reopens Comment Period on Proposal to Improve Mutual Fund Disclosure

U.S. Securities and Exchange Commission, Commission Reopens Comment Period on Proposal to Improve Mutual Fund Disclosure, News Release 2008-163 (July 31, 2008).
U.S. Securities and Exchange Commission, Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies, Release Nos. 33-8949, IC-28346 (July 31, 2008).
Contractor's Report on Focus Group Testing of Mutual Fund Summary Prospectus
Transcripts of Focus Group Testing of Mutual Fund Summary Prospectus
ABC Balanced Fund Prospectus Example
Hypothetical Summary Prospectus
Portfolio Holdings Disclosure Examples
Sample Risk-Return Summary: 3-Fund Example
Sample Risk-Return Summary: 12-Fund Example
Excerpt from Contractor's Report on Investor Telephone Survey

Last November, the SEC proposed rule amendments intended to require mutual fund disclosure documents to provide investors with a "concise, plain English summary of key facts about a mutual fund". At the time, the Commission proposed a form of "prototype summary prospectus".

Since its original proposal, the Commission retained an outside contractor to conduct focus group testing and a telephone survey regarding the proposed form of summary prospectus and related documents. On July 31, 2008, the Commission announced that it has reopened the comment period for the proposed rule amendments to provide the public with an opportunity to comment on the rule amendments in the context of the results of the focus group testing and a telephone survey.

Comments are now due by August 29.

SEC IV: SEC Proposes Guidance for Fund Boards on Oversight of Investment Adviser Trading of Portfolio Securities and Use of Soft Dollars

U.S. Securities and Exchange Commission, SEC Proposes Guidance for Fund Boards in Oversight of Investment Adviser Trading of Portfolio Securities, Use of Soft Dollars, News Release 2008-160 (July 30, 2008).
U.S. Securities and Exchange Commission, Commission Guidance Regarding the Duties and Responsibilities of Investment Company Boards of Directors with Respect to Investment Adviser Portfolio Trading, Release Nos. 34-58264, IC-28345, IA-2763 (July 30, 2008).

During its July 30 open meeting, the Commission voted to propose guidance for the benefit of members of the boards of directors of investment companies regarding their investor protection responsibilities in overseeing advisers who trade fund portfolio securities and use so-called "soft dollars". The Commission is concerned, of course, with possible conflicts of interest between the fund and its investment adviser that may include the use of soft dollars � which represent the assets of investors � to purchase research and other brokerage services as part of their obligation to seek best execution when it trades a fund�s securities.

The proposed guidance does not impose any new requirements on fund directors or investment advisers. Rather, it proposes what the Commission describes as "a flexible framework for directors to use in their oversight of an adviser�s trading activities". Specifically, the guidance suggests information for a fund board to request from an investment adviser in order to determine whether the adviser is managing any conflicts and using fund assets in the best interests of the fund.

SEC V: SEC Issues, then Amends, Dramatic Emergency Order to Curb Naked Short-Selling

U.S. Securities and Exchange Commission, Emergency Order Pursuant to Section 12(k)(2) of the Securities Exchange Act of 1934 Taking Temporary Action to Respond to Market Developments, Exchange Act Release 58166 (July 15, 2008).
U.S. Securities and Exchange Commission, SEC Enhances Investor Protections Against Naked Short Selling, News Release 2008-143 (July 15, 2008).
U.S. Securities and Exchange Commission, SEC Division of Trading and Markets: Guidance Regarding the Commission's Emergency Order Concerning Short Selling (July 15, 2008).
U.S. Securities and Exchange Commission, Amendment to Emergency Order Pursuant to Section 12(k)(2) of the Securities Exchange Act of 1934 Taking Temporary Action to Respond to Market Developments, Exchange Act Release No. 58190 (July 18, 2008).
U.S. Securities and Exchange Commission, Order Extending Emergency Order Pursuant to Section 12(k)(2) of the Securities Exchange Act of 1934 Taking Temporary Action to Respond to Market Developments, Exchange Act Release No. 58248 (July 29, 2008).

On July 15, the SEC issued an unprecedented and dramatic temporary emergency order to curb so-called naked short-selling in the stocks of Fannie Mae, Freddie Mac and 17 other financial institutions. The action was prompted by widespread perceptions that false rumors combined with bets against stocks of banks and brokerage firms might be making the nation's financial crisis worse.

The order was immediately the subject of wide-ranging criticism with many contending that it added an unnecessary layer of bureaucratic scrutiny to otherwise legitimate short-selling transactions. Additionally, within a matter of days the Commission was forced to amend the order to exclude bona fide market makers from its scope to permit such market makers to facilitate customer orders in a fast-moving market without delays that would be required by complying with the borrow and arrangement-to-borrow requirements of the order.

By separate order issued on July 29, the Commission extended the temporary order until August 12, 2008.

SEC VI:: SEC Says Examinations Uncovered Shortcomings in Credit Rating Practices and Disclosure to Investors

U.S. Securities and Exchange Commission, SEC Examinations Find Shortcomings in Credit Rating Agencies' Practices and Disclosure to Investors, News Release 2008-135 (July 8, 2008).
Archived Video Webcast of Credit Rating Agency Reform News Conference (July 8, 2008) (WindowsMedia Format).
U.S. Securities and Exchange Commission, The Summary Report of Issues Identified in the Commission Staff's Examinations of Select Credit Rating Agencies (July 8, 2008).

On July 8, the SEC unveiled the results of a series of examinations conducted during the last ten months looking into three major credit ratings agencies: Fitch Ratings Ltd., Moody's Investor Services Inc. and Standard & Poor's Ratings Services. According to the Commission, examinations by SEC staffers uncovered "significant weaknesses in ratings practices and the need for remedial action by the firms to provide meaningful ratings and the necessary levels of disclosure to investors."

The examinations determined that none of the rating agencies had specific, comprehensive written procedures for rating residential mortgage-backed securities and collateralized debt obligations. Additionally, significant aspects of the rating process were not always disclosed or even documented by the firms, and conflicts of interest were not always managed appropriately according to the Commission.

According to the Commission, the examinations found:

There was a substantial increase in the number and in the complexity of RMBS and CDO deals since 2002, and some of the rating agencies appear to have struggled with the growth.
Significant aspects of the ratings process were not always disclosed.
Policies and procedures for rating RMBS and CDOs can be better documented.
The rating agencies are implementing new practices with respect to the information provided to them.
The rating agencies did not always document significant steps in the ratings process - including the rationale for deviations from their models and for rating committee actions and decisions - and they did not always document significant participants in the ratings process.
The surveillance processes used by the rating agencies appear to have been less robust than the processes used for initial ratings.
Issues were identified in the management of conflicts of interest and improvements can be made.
The rating agencies' internal audit processes varied significantly.

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. Recent additions include:

Financial Weekly Digest(08/01/08)
From: Katten Muchin Rosenman LLP
Delaware Supreme Court Reaffirms Director-Centric Corporate Governance, dated July 17, 2008.(07/17/08)
From: Wachtell Lipton Rosen & Katz
Whole Foods Reversed in Decision That May Have Significant Adverse Consequences for Future Mergers (07/31/08)
From: Wachtell Lipton Rosen & Katz
Delaware Supreme Court Affirms Dismissal of Shareholder Lawsuit Against Directors of a Financial Firm Accused of Valuing Assets Improperly (07/17/08)
From: Wachtell Lipton Rosen & Katz
"Disclosure Implications of Fair Value Accounting and the Subprime Mortgage Crisis" (07/30/08)
From: Covington & Burling LLP
SEC Issues Emergency Order to Deter Uncovered Short Sales in Certain Financial Institutions (07/17/08)
From: Morgan Lewis
SEC and DOL Agree to Cooperate in Examinations (07/30/08)
From: Morgan Lewis
SEC Proposes Amendments to Money Market Fund Rule July 2008
From: Morrison & Foerster
A Short Summary of Short Selling Regulations (07/30/08)
From: Morrison & Foerster
SEC Bars Naked Short Sales of Major Financial Firms; More is Needed, dated July 16, 2008.(07/16/08)
From: Wachtell Lipton Rosen & Katz
Cross-Border M&A - Checklist for Successful Acquisitions in the U.S. (07/30/08)
From: Wachtell Lipton Rosen & Katz
Dashed Hopes: the FDIC Final Policy Statement on Covered Bonds (07/16/08)
From: Morrison & Foerster
FDIC Board Approves Final Covered Bond Policy Statement (07/28/08)
From: Thacher Proffitt & Wood LLP
Department of Justice Announces Key Changes to the Principles of Federal Prosecution of Business Organizations (07/15/08)
From: Morgan Lewis
Treasury Announces Best Practices for Covered Bonds (07/29/08)
From: Morrison & Foerster
SEC Proposes to Revise Registration Statement Eligibility Requirements and Various Securities Act Rules to Eliminate Reliance on Credit Ratings (07/14/08)
From: Mayer Brown
Securities Law Advisory (07/28/08)
From: Alston & Bird
SEC Takes a First Step to Address Manipulative Rumor-Mongering; More Aggressive Action Still Needed (07/14/08)
From: Wachtell Lipton
Recent DOJ FCPA Opinions Provide Guidance on Preacquisition Due Diligence and Promotional Expenses (07/28/08)
From: Morgan Lewis
SLEW Newsletter Summer 2008
From: Morrison & Foerster
How the Proposed Changes to FAS 5 Would Impact Disclosures by Public Companies (07/28/08)
From: Mayer Brown
Financial Weekly Digest (07/11/08)
From: Katten Muchin Rosenman LLP
New FASB Accounting Rules on Convertible Debt (07/28/08)
From: Morrison & Foerster
SEC Proposes Broader Access by Foreign Broker-Dealers to U.S. Investors (07/08/08)
From: Morrison & Foerster
SEC Exam Staff Issues Second ComplianceAlert (07/25/08)
From: Morgan Lewis
DOJ Seeks To Avoid Legislation By Adopting Revised Policies on Corporate Prosecutions (07/10/08)
From: Morrison & Foerster
Corporate and Financial Weekly Digest (07/25/08)
From: Katten Muchin Rosenman LLP
SEC Grants No-Action Relief for Those Seeking to Aggregate Transaction Reporting under Section 16(a)
From: Morrison & Foerster
Corporate Governance Ratings Debunked (07/24/08)
From: Wachtell Lipton Rosen & Katz
Heightened Derivatives and Trading Disclosure for UK Equity Markets
From: Morrison & Foerster
Corporate Governance Update: Delaware Decision Highlights Need for Director Protection (07/24/08)
From: Wachtell Lipton Rosen & Katz
FSA Proposes Extension of UK Major Shareholder Notification Requirements to Equity Contracts for Differences (including Equity Swaps and other Equity Derivatives)
From: Morgan Lewis
SEC Staff Confirms that Hedge Fund Solicitors Are Not Subject to the Cash Solicitation Rule (07/22/08)
From: Morgan Lewis
De-Coupling of Ownership, Economic and Voting Power in Public Companies - The UK's Financial Services Authority (FSA) Moves Decisively to Close the Gap (07/03/08)
From: Wachtell, Lipton, Rosen & Katz
If it Quacks Like a Duck: Financial Instruments with Characteristics of Equity--Still Equity for FASB? (07/22/08)
From: Morrison & Foerster
SEC Proposes Reforms Relating to Credit Rating Agencies (07/02/08)
From: Morrison & Foerster
Market�s Dramatic Response to Naked Short Sale Restrictions Underscores Need for Additional SEC Action (07/21/08)
From: Wachtell Lipton Rosen & Katz
SEC Proposes Rule That Would Require Equity Index Annuities to Be Registered Securities (07/01/08)
From: Morgan Lewis

Also, don�t forget that RR Donnelley offers a selection of reference publications of interest to corporate counsel.

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

On August 1, Troy A. Paredes was sworn in as a Commissioner of the Securities and Exchange Commission. He previously taught in the area of securities regulation and corporate law as a Professor at Washington University School of Law in St. Louis, Missouri. See U.S. Securities and Exchange Commission, Troy Paredes Sworn in as SEC Commissioner, News Release 2008-167 (Aug. 1, 2008). On July 31, the Commission announced that Deputy Chief Accountant for Professional Practice Dr. Zoe-Vonna Palmrose will return to the University of Southern California as a Professor of Accounting after two years of service at the SEC. See U.S. Securities and Exchange Commission, Zoe-Vonna Palmrose to Return to USC Professorship, Completing SEC Service as Deputy Chief Accountant, News Release 2008-162 (July 31, 2008). Luis A. Aguilar was sworn in as a Commissioner of the Securities and Exchange Commission on July 31. He previously was a partner in the Atlanta office of the law firm McKenna Long & Aldridge LLP. See U.S. Securities and Exchange Commission, Luis A. Aguilar Sworn in as SEC Commissioner, News Release 2008-161 (July 31, 2008). On July 29, the Commission named William M. Schulz as Director of the agency's Office of Legislative and Intergovernmental Affairs. He previously served as a Counsel and Senior Advisor to the Chairman. See U.S. Securities and Exchange Commission, William Schulz Named Director of Legislative and Intergovernmental Affairs, News Release 2008-153 (July 29, 2008). The Commission also announced on July 29 that Jonathan Burks, its previous Director of Legislative and Intergovernmental Affairs, is leaving the Commission to pursue graduate studies at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University. See U.S. Securities and Exchange Commission, Jonathan Burks, Director of Legislative and Intergovernmental Affairs, to Complete SEC Service and Pursue Graduate Studies, News Release 2008-152 (July 29, 2008). On July 14, the Commission announced that Meredith Mitchell has been named Deputy General Counsel for Legal Policy and Administrative Practice. She previously served as the Commission's Principal Associate General Counsel. See U.S. Securities and Exchange Commission, Meredith Mitchell Named SEC Deputy General Counsel, News Release 2008-142 (July 14, 2008). Also on July 14, the Commission named Greg Burton of Brigham Young University as an Academic Accounting Fellow for a one-year term. See U.S. Securities and Exchange Commission, Greg Burton Named Corporation Finance Division Academic Accounting Fellow, News Release 2008-141 (July 14, 2008). The SEC also named Wayne Strumpfer to lead the investor education unit within the Commission's recently-expanded Office of Investor Education and Advocacy. He worked most recently at the California Department of Corporations. See U.S. Securities and Exchange Commission, Wayne Strumpfer Named to Head Investor Education Unit, News Release 2008-139 (July 11, 2008). On July 9, Elisse B. Walter was sworn in as a Commissioner of the Securities and Exchange Commission. She previously served on the SEC staff in the Office of the General Counsel and the Division of Corporation Finance. See U.S. Securities and Exchange Commission, Elisse B. Walter Sworn in as SEC Commissioner, News Release 2008-137 (July 9, 2008). The Commission announced on July 3 that Dr. Stewart Mayhew has been promoted to Deputy Chief Economist in the SEC's Office of Economic Analysis. See U.S. Securities and Exchange Commission, Stewart Mayhew Named Deputy Chief Economist, News Release 2008-132 (July 3, 2008). On July 2, the Commission announced that Jacob H. Stillman, the SEC's Solicitor, has been selected to receive the Federal Bar Association's 48th Annual Justice Tom C. Clark Award for Outstanding Government Attorney. See U.S. Securities and Exchange Commission, SEC's Jacob Stillman Earns Prestigious Award for Outstanding Government Attorneys, News Release 2008-131 (July 2, 2008).

On July 30, SEC Chairman Christopher Cox delivered a "Statement at Open Meeting on Guidance to Fund Boards Regarding Investment Adviser Trading and Fund Portfolio Securities and Use of Soft Dollars". During the same meeting, the Chairman delivered two additional statements: (1) "Statement at Open Meeting on Municipal Securities Disclosure"; and (2) "Statement at Open Meeting on the Use of Company Web Sites". Chairman Cox also authored an Op-Ed piece published in the Wall Street Journal on July 24: "What the SEC Really Did on Short Selling". On July 22, SEC Commissioner Paul S. Atkins spoke in Washington, D.C. regarding "Shareholder Rights, the 2008 Proxy Season, and the Impact of Shareholder Activism". Chairman Cox authored another Op-Ed piece published in the July 18 issue of Investor's Business Daily: "Naked Short Selling is One Problem a Slumping Market Shouldn't Have". Commissioner Atkins also delivered "Remarks Before the Exchequer Club of Washington, D.C." on July 16. Additionally, SEC Chairman Cox delivered a "Statement at News Conference Announcing Release of Examination Report on Credit Rating Agencies" on July 8, 2008).

Commission Staffers were not as busy in July. On July 30, the Commission's Special Counsel in the Division of Corporation Finance, Kim McManus, spoke at the SEC open meeting regarding "Commission Guidance on the Use of Company Web Sites".

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