Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

Five federal agencies have taken a second stab at a  proposed rule to establish margin requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The rule is proposed by the Federal Reserve Board, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, and the Office of the Comptroller of the Currency.

The rule proposal applies to swap provider counterparties that are regulated by the agencies and are referred to as “covered swap entities.”  The initial April 2011 proposal was controversial because in the view of the banking regulators the Dodd-Frank Act  required the regulators to adopt rules for covered swap entities imposing margin requirements on all non-cleared swaps. According to the bank regulators, the Dodd-Frank Act, by its terms, did not exclude a swap with a counterparty that is a commercial end user, or in regulatory-speak, “nonfinancial end user,” from the margin requirements.

The bank regulators didn’t think the initial proposal was all that onerous because the 2011 proposal permitted a covered swap entity to adopt, where appropriate, thresholds below which the covered swap entity would not be required to collect initial or variation margin from nonfinancial end users.

The new proposal takes a different approach to nonfinancial end users than the 2011 proposal. Like the 2011 proposal, the new proposal follows the statutory framework and proposes a risk-based approach to imposing margin requirements. Unlike the 2011 proposal, the new proposal does not require that the covered swap entity determine a specific, numerical threshold for each nonfinancial end user counterparty. In addition the new proposed rule does not require a covered swap entity to collect initial margin and variation margin from nonfinancial end users as a matter of course, but instead requires it to collect initial and variation margin at such times and in such forms and amounts (if any) as the covered swap entity determines would appropriately address the credit risk posed by swaps entered into with “other counterparties.”

The term “nonfinancial end user,” although used in the text explaining the new proposal, is not defined in or used in the text of the proposed rule. For the most part, nonfinancial end users are basically those that are not “financial end users” and are treated as “other counterparties” in the proposal.

The proposal’s definition of “financial end user” takes a different approach than the 2011 proposal, which was based on the definition of a “financial entity” that is ineligible for the exemption from mandatory clearing requirements of the Dodd-Frank Act. In order to provide certainty and clarity to counterparties as to whether  they would be financial end users for purposes of the proposal, the financial end user definition provides a list of entities that would be financial end users as well as a list of entities excluded from the definition. This approach would mean that covered swap entities would not need to make a determination regarding whether their counterparties are predominantly engaged in activities that are financial in nature, as defined in section 4(k) of the Bank Holding Company Act of 1956, as amended.  In contrast to the 2011 proposal, the banking regulators now are proposing to rely, to the greatest extent possible, on the counterparty’s legal status as a regulated financial entity.

Some commentators have noted that that the proposal is unclear whether treasury subsidiaries of commercial end users will or will not be considered financial end users under the proposal.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

Many hedge funds have been reluctant to use general solicitation to offer securities because of the possibility it would be inconsistent from exemptions related to CPO (commodity pool operator) regulations administered by the CFTC.  More specifically:

  • CFTC Regulation 4.7 provides relief from certain disclosure, periodic and annual reporting, and recordkeeping requirements. Regulation 4.7(b) provides a CPO may claim exemptive relief if it is a registered CPO who offers or sells participations in a pool solely to qualified eligible persons in an offering which qualifies for exemption from the registration requirements of the Securities Act pursuant to Securities Act section 4(2) (now section 4(a)(2), as amended by the JOBS Act) or pursuant to Regulation S.
  • CFTC Regulation 4.13(a)(3) provides a registration exemption for CPOs who operate pools meeting the conditions enumerated in the regulation, including interests in each pool for which the CPO claims the exemption be exempt from registration under the 33 Act and offered and sold without marketing to the public in the United States.

Obviously, hedge fund sponsors were concerned that use of general solicitation to place securities would be inconsistent with the requirement to comply with the Section 4(a)(2) exemption or the CFTC restriction on marketing to the public.

In a no-action letter the CFTC confirmed its view that the  use of general solicitation would not permit reliance on the foregoing exemptions but then granted no-action relief that permits the use of general solicitation if the conditions of the no action letter are complied with.  The conditions are:

  • The issuer musty comply with the requirements of Rule 506(c) regarding general solicitation or resellers must comply with related Rule 144A requirements.
  • The relief is not self-executing. A notice filing must be made with the CFTC that contains the information specified in the no-action letter and is filed in the manner specified.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The Dodd-Frank Act amended the Securities Act of 1933 and the Securities Exchange Act of 1934  to include “security-based swaps” in the definition of “security” for purposes of those statutes.  As a result, “security-based swaps” are subject to the provisions of the Securities Act and the Exchange Act and the rules and regulations thereunder applicable to securities. The Securities Act requires that any offer and sale of a security must either be registered under the Securities Act or be made pursuant to an exemption from registration.  As a result, counterparties entering into security-based swap transactions need either to rely on an available exemption from the registration requirements of the Securities Act or register such transactions. The Dodd-Frank Act amended the Securities Act to require that security-based swap transactions involving persons who are not eligible contract participants must be registered under the Securities Act.

As a result of the foregoing, the SEC has proposed a rule under the Securities Act of 1933 to provide that certain communications involving security-based swaps that may be purchased only by eligible contract participants will not be deemed for purposes of Section 5 of the Securities Act to constitute offers of such security-based swaps or any guarantees of such security-based swaps that are securities.

Under the proposed rule, the publication or distribution of price quotes relating to security-based swaps that may be purchased only by persons who are eligible contract participants and are traded or processed on or through a facility that either is registered as a national securities exchange or as a security-based swap execution facility, or is exempt from registration as a security-based swap execution facility pursuant to a rule, regulation, or order of the Commission, would not be deemed to constitute an offer, an offer to sell, or a solicitation of an offer to buy or purchase such security-based swaps or any guarantees of such security-based swaps that are securities for purposes of Section 5 of the Securities Act.

The proposed rule would not otherwise affect the provisions of any exemptions from the registration requirements of the Securities Act. As a result, market participants would still need to make a determination as to whether an exemption from the registration provisions of the Securities Act is available with respect to a security-based swap transaction, including whether such transaction complies with any applicable conditions of the exemption. Because the proposed rule relates solely to the treatment of certain communications involving price quotes as offers for purposes of Section 5 of the Securities Act, the proposed rule does not limit in any way the scope or applicability of the antifraud or other provisions of the federal securities laws, including Section 17(a) of the Securities Act, relating to both oral and written material misstatements and omissions in the offer and sale of securities, including security-based swaps.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The good news is the Commerce Department published a list of ”all known conflict mineral processing facilities worldwide” as required by section 1502(d)(3)(C) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The list includes all known processing facilities that process the minerals tin, tantalum, tungsten, or gold.

The bad news is the list does not indicate whether a specific facility processes minerals that are used to finance conflict in the Democratic Republic of the Congo or an adjoining country.  Like many U.S. public companies, the Commerce Department does not have the ability to distinguish such facilities.

The list published by the Commerce Department appears to comply with the referenced specific provision of the Dodd-Frank Act, although as we have noted the list was published late.  And the Commerce Department’s work isn’t done.  The Dodd-Frank Act indicates, among other things, the list needs to be published annually.

But the provision of the Dodd-Frank Act that requires this list is entitled “Report on Private Sector Auditing” and it looks like Commerce hasn’t begun to tackle that responsibility.  Annually, beginning 30 months after passage of the Dodd-Frank Act, Commerce is required to submit a report to Congressional subcommittees that includes :

  • An assessment of the accuracy of the independent private sector audits and other due diligence processes described under the conflict minerals provisions.
  • Recommendations for the processes used to carry out such audits, including ways to (i) improve the accuracy of such audits and (ii) establish standards of best practices.

I know only one or two or a very few issuers submitted private sector audits with the first round of required conflict minerals filing.  Perhaps Commerce has concluded it’s not worth the effort to make the evaluations or maybe the evaluation is underway.  Since the standards for the audits have been published, Commerce certainty could provide recommendations as to the processes used to carry out the audits and establish standards of best practices.

Other interesting information included in the Commerce Department report includes:

  • There are artisanal miners that process small amounts of materials and are known to be employed in eastern Congo. Because these producers of metals are “off the grid,” it is very difficult to trace exactly where these small amounts of materials are smelted.
  • There is also evidence of guerilla smelting operations throughout Africa that create makeshift smelters which produce an intermediary product of tantalum, tungsten and tin, and then ship the product overseas to scrap yards and informal metal traders and exchanges. The materials are often transshipped to another country and then flaked or shaved prior to being sent to a smelter.
  • Commerce noted that gold purchased through the Shanghai Gold Exchange (SGE) accounts for 15-20 percent of all the gold used for commercial purposes. It is also recognized that the vast majority of the gold sold worldwide is comingled at the SGE. The SGE has not released, nor does it keep, records of where its gold is sourced. Therefore, any material that is purchased through the SGE is untraceable to a smelter, refiner, or processor of origin.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

It was predictable someone would submit a phony whistleblower claim, and I suppose it was predictable there would be a fight over an actual award, like co-workers diving for a share of proceeds from an office pool lottery ticket.

In a case filed in the United States District Court for the Northern District of Illinois, Eastern Division, the plaintiff claims three persons collaborated to develop evidence for a whistleblower claim. The three allegedly planned to make the whistleblower submission in the name of a jointly owned entity. After reading Rule 21F-2, which states only natural persons, and not entities, may be whistleblowers, the three allegedly changed their plans and determined that the defendant would submit the claim and the three would share in the proceeds. The SEC ultimately awarded the defendant $14.7 million. The defendant allegedly reneged on the promise to share the award. The defendant allegedly settled with one of the other two, and the third commenced the action.

The defendant has filed a motion for a more definite statement, or in the alternative a motion to dismiss. The defendant claims the complaint “is an unintelligible assortment of confusing statements” and that the action is like the “claims of co-workers who are trying to claim a portion of a co-workers lottery winnings because they work together.”

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The SEC has denied an institution manager a confidential treatment request related to Form 13F because the request had only conclusory allegations. According to the SEC:

  • The applicant’s argument that the Commission should grant confidential treatment in “every” circumstance where doing so is in the public interest overlooks the prerequisite for confidential treatment that Congress established in section 13(f).
  • Subjective allegations that disclosure might harm the applicant’s clients would undo the entire regime calling for public availability of information about the investment activity of institutional managers.
  • Generalized statements about potential post-disclosure movements in the market price of a reportable security, without data and analysis, are insufficient.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

The Office of the Comptroller of the Currency, or OCC, has adopted guidelines, issued as an appendix to its safety and soundness standards regulations, establishing minimum standards for the design and implementation of a risk governance framework (Framework) for large insured national banks, insured Federal savings associations, and insured Federal branches of foreign banks (banks) with average total consolidated assets of $50 billion or more and minimum standards for a board of directors in overseeing the Framework’s design and implementation (final Guidelines). The standards contained in the final Guidelines are enforceable by the terms of a Federal statute that authorizes the OCC to prescribe operational and managerial standards for national banks and Federal savings associations.

The final Guidelines consist of three sections:

  • Section I provides an introduction to the Guidelines, explains the scope of the Guidelines, and defines key terms used throughout the Guidelines.
  • Section II sets forth the minimum standards for the design and implementation of a covered bank’s Framework.
  • Section III provides the minimum standards for the board of directors’ oversight of the Framework.

Set forth below are some highlights on Section III of the Guidelines.

Effective Risk Governance Framework

Concern was expressed with respect Section III of the draft guidelines about use of the terms “duty” and “ensure.” The OCC did not intend to impose managerial responsibilities on the board of directors, or suggest that the board must guarantee results under the Framework. Accordingly, consistent with commenter suggestions, the final Guidelines provide that the board of directors should require management to establish and implement an effective Framework that meets the minimum standards described in the Guidelines. The OCC believes that this revision aligns the board of directors’ responsibilities under this paragraph with their traditional strategic and oversight role.

Provide Active Oversight of Management

Paragraph B. of section III of the proposed Guidelines provided that the board of  directors should actively oversee the bank’s risk-taking activities and hold management accountable for adhering to the Framework. The proposed Guidelines also provided that the board of directors should question, challenge, and, when necessary, oppose management’s proposed actions that could cause the bank’s risk profile to exceed its risk appetite or threaten the bank’s safety and soundness.

Commenters expressed concern that these provisions would promote confrontation between the board of directors and bank management at board meetings. Some commenters argued that this would deter open and candid dialogue between the board of directors and bank management, and that emphasizing board opposition will detract from determining how active the board is in overseeing management actions.

Some commenters also argued that the board of directors’ oversight of management should not be characterized as “active” because it implies that board members are implementing and assuming management functions.

The final Guidelines continue to provide that a covered bank’s board of directors should actively oversee the covered bank’s risk-taking activities and hold management accountable for adhering to the Framework. The OCC believes that it is important for the board of directors to understand a covered bank’s risk-taking activities and to be engaged in providing oversight to these activities. The final Guidelines clarify that the board of directors provides active oversight by relying on risk assessments and reports prepared by independent risk management and internal audit. Therefore, the final Guidelines do not contemplate that the board of directors will assume managerial responsibilities in providing active oversight of management—instead, the board is permitted to rely on independent risk management and internal audit to meet its responsibilities under this paragraph.

The final Guidelines continue to articulate the OCC’s expectation that the board of directors should provide a credible challenge to management. The OCC believes that a board of directors will be able to provide this challenge if its members have a comprehensive understanding of the covered bank’s risk-taking activities.

The OCC believes that the capacity to dedicate sufficient time and energy in reviewing information and developing an understanding of the key issues related to a covered bank’s risk-taking activities is a critical prerequisite to being an effective director. Informed directors are well-positioned to engage in substantive discussions with management wherein the board of directors provides approval to management, requests guidance to clarify areas of uncertainty, and prudently questions the propriety of strategic initiatives. Therefore, the final Guidelines continue to provide that the board of directors, in reliance on information it receives from independent risk management and internal audit, should question, challenge, and when necessary, oppose recommendations and decisions made by management that could cause the covered bank’s risk profile to exceed its risk appetite or jeopardize the safety and soundness of the covered bank.

The OCC does not intend this standard to become a compliance exercise for the covered bank, or lead to scripted meetings between the board of directors and management. Instead, the OCC intends to assess compliance with this standard primarily by engaging OCC examiners in frequent conversations with directors. Likewise, the OCC does not expect the board of directors to evidence opposition to management during each board meeting. Instead, the OCC emphasizes that the board of directors should oppose management’s recommendations and decisions only when necessary.

Other

Section III of the Guidelines also provide:

  • A director should exercise sound, independent judgment.
  • Covered banks must have at least two independent board members.
  • Certain training of directors is required.
  • The bank’s board of directors should conduct an annual self-assessment that includes an evaluation of the board’s effectiveness in meeting the standards provided in section III of the Guidelines.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

As might have been expected, some will go to great lengths to claim they are entitled to a whistleblower reward based on suspect evidence.  An example is this Commission order denying a whistleblower award to one person, while making an award to another.

In the example noted, the claimant submitted a form claiming entitlement to a whistleblower reward and asserting he or she provided over 200 files with thousands of accounts, linked associates, mortgage documents, deeds, death certificates, announcements, tax documents, and offshore accounts and business associates around the world, but did not reference any specific tip or complaint.

A search of the SEC’s Tips, Complaint and Referral (“TCR”) system—an electronic database which records and stores information received from whistleblowers and others about potential securities law violations—did not reveal any tips from the claimant  relating to the relevant proceeding.  In addition, the Enforcement staff members who handled the matter confirmed that they received no information from the claimant before, during or after the investigation or enforcement action.

As a result, a preliminary determination was issued denying the claim.

Most would have given up, but this claimant contested the preliminary determination.  The claimant submitted additional documentation such as four annual reports of two organizations in Florida; a report published by a hospital foundation; several public news stories about Israeli agents in Australia, a couple who pled guilty to money laundering in 2000, a merger between two banks, and the presidential pardon of Marc Rich.  The claimant again failed to identify any specific tip or complaint with respect to the relevant action.

The SEC denied the claim for several reasons, including:

  • It could not see how the information could have led to the successful enforcement of the relevant action given the absence of any relevant factual connections between the information and the action.
  • The claimant failed to explain how any of the information that  he or she provided either caused the staff to open the investigation (or a new line of inquiry in the investigation) that resulted in successful prosecution of the action, or significantly contributed to the success of the action.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

 

Generally accepted accounting principles, or GAAP, presumes continuation of a reporting entity as a going concern as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. This presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting.

Even if an entity’s liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but disclosures should be made.

While the topic is addressed by auditing standards, currently, there is no guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The Financial Accounting Standards Board, or FASB, believes that the lack of guidance in GAAP and the differing views about when there is substantial doubt about an entity’s ability to continue as a going concern, there is diversity in whether, when, and how an entity discloses the relevant conditions and events in its footnotes. As a result, FASB has issued guidance in this area.

Evaluation Under the New Guidance

The new guidance provides that in connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable).

Under the guidance, management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued).

Mitigating Circumstances Under the New Guidance

When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating effect of management’s plans should be considered only to the extent that

  • it is probable that the plans will be effectively implemented and, if so,
  • it is probable that the plans will mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

Disclosures Under the New Guidance

If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables users of the financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the footnotes):

  • Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans)
  • Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
  • Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.

If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements to understand all of the following:

  • Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern
  • Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
  • Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.

The SEC, the perceived loser in the conflicts minerals case at the time, filed a petition for an en banc rehearing on May 29, 2014.  NAM, the perceived winner at the time, stayed silent.  After these many months, with public companies looking for clarity on their future obligations, the DC Court of Appeals has ordered NAM to file a response to the petition for an en banc rehearing.

According to the Court of Appeals, the SEC shouldn’t bother with a reply to NAM’s response absent a court order.

So it looks like it’s going nowhere fast.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 75 largest firms in the U.S., Stinson Leonard Street has more than 520 attorneys and offices in 14 cities, including Minneapolis, Mankato and St. Cloud, Minn.; Kansas City, St. Louis and Jefferson City, Mo.; Phoenix, Ariz.; Denver, Colo.; Washington, D.C.; Decatur, Ill.; Wichita and Overland Park, Kan.; Omaha, Neb.; and Bismarck, N.D.

The views expressed herein are the views of the blogger and not those of Stinson Leonard Street or any client.