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

Andrew Ceresney, SEC Co-Director of the Division of Enforcement, recently gave a talk on financial reporting and accounting fraud.  Mr. Ceresney reviewed statistics showing declines in restatements and accounting fraud cases.  He noted this could be attributable to reforms introduced by Sarbanes-Oxley.  He expressed his doubts about whether there has been a drop in actual fraud in financial reporting as may be indicated by the numbers of investigations and cases that have been filed.  He stated “Our view is that we will not know whether there has been an overall reduction in accounting fraud until we devote the resources to find out, which is what we are doing.”

According to Mr. Ceresney, what the SEC needed was a small group of people focused on case generation – on exploring proactive initiatives that would generate new accounting fraud investigations for staff in the Division to pursue.  As a result, the Division created the Financial Reporting and Auditing Task Force. 

To fulfill its mandate and find promising investigations, the Task Force plans to launch various initiatives.  These may include closely monitoring high-risk companies to identify potential misconduct, analyzing performance trends by industry, reviewing class action and other filings related to alleged fraudulent financial reporting, tapping into academic work on accounting and auditing fraud, and conducting street sweeps in particular industries and accounting areas. 

The Task Force will also utilize recently developed technologies such as the SEC’s Accounting Quality Model and related tools, which uses data analytics to assess the degree to which a company’s financial statement appears anomalous.  With this tool, Mr. Ceresney believes the SEC can better compare performance among firms and detect outliers that suggest possible fraud.

As for specific areas of focus, Mr. Ceresney anticipates that the Task Force and the SEC investigative staff will continue to cover a wide variety of issues.  For example:

  • The SEC is very interested in the manner in which management and auditors make decisions with respect to reserves.
  • Revenue recognition issues will remain a staple of the SEC’s financial fraud caseload.
  • The SEC will continue its focus on audit committees, which Mr. Ceresney believes serve as a sort of gatekeeper for audit quality.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

Today, the CFTC Division of Market Oversight published a response to frequently asked questions regarding commodity options, including reporting obligations with respect to trade options. The response clarified a few important issues and reiterated others. Below are some of the highlights, with numbers corresponding to those in the CFTC’s response.

3. As a refresher, to qualify as a trade option (which are subject to lower regulatory burdens than other options or swaps), a commodity option must involve a physical commodity and meet three conditions: (1) the option is offered by either an “eligible contract participant” (generally speaking, a financially sophisticated entity) or a commercial participant (a producer, processor, commercial user of, or merchant handling, the underlying physical commodity); (2) the option is offered to a commercial participant; and (3) the option is intended to be physically settled so that, if exercised, the option would result in the sale of an exempt or agricultural commodity for immediate or deferred shipment or delivery.

6. Under the CFTC’s Trade Option No-Action Letter, Non-Swap Dealer/Major Swap Participants (Non-SD/MSPs) are effectively exempt from ever having to report trade options on a transaction-by-transaction basis pursuant to Part 45 of the CFTC’s swap reporting rules, provided that they: (1) report all unreported trade options (i.e., those trade options in which both counterparties are Non-SD/MSPs) through an annual Form TO filing; and (2) notify DMO, through an email to TOreportingrelief@cftc.gov, no later than 30 days after entering into trade options having an aggregate notional value in excess of $1 billion in any calendar year. The practical effect of this will likely be that trade options in which at least one counterparty is an SD/MSP will be reported by the reporting SD/MSP pursuant to Part 45, while trade options in which both counterparties are Non-SD/MSPs will be reported by both counterparties on Form TO.

8. Form TO, the form for reporting otherwise unreported trade options, is to be completed and submitted via the Commission’s web-based submission form at https://forms.cftc.gov/_layouts/TradeOptions/TradeOptions.aspx. The form must be filed no later than March 1 for the prior calendar year (e.g., March 1, 2014 for calendar year 2013).

9. The Form TO reporting requirement is triggered by entering into unreported trade options during the calendar year. However, the value reported on the form is the value of options exercised during the calendar year.

13. The first Form TO filing, covering calendar year 2013, should include only unreported trade options entered into on or after April 10, 2013. Options and swaps entered into prior to that date are considered “historical,” and reporting of historical trade options was not contemplated by the CFTC’s regulations.

16. Trade options are subject to the Part 151 position limits requirements (which requirements have been vacated by court decision, appeal pending). However, position limits do not apply to qualifying hedge positions and, further, apply only to swaps or futures contracts linked to one of 28 referenced contracts (with respect to energy contracts, NYMEX’s Henry Hub Natural Gas, Light Sweet Crude Oil, NY Harbor Gasoline Blendstock, and NY Harbor Heating Oil contracts).

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

The Financial Stability Oversight Council, or FSOC, decided to study the activities of asset management firms to better inform its analysis of whether—and how—to consider such firms for enhanced prudential standards and supervision under Section 113 of the Dodd-Frank Act.  FSOC asked the Office of Financial Research, or OFR, in collaboration with FSOC members, to provide data and analysis to inform this consideration. OFR has published a study that responds to that request by analyzing industry activities, describing the factors that make the industry and individual firms vulnerable to financial shocks, and considering the channels through which the industry could transmit risks across financial markets.

The study describes, among other things:

  • the key factors that make the asset management industry vulnerable to shocks: (1) “reaching for yield” and herding behaviors; (2) redemption risk in collective investment vehicles; (3) leverage, which can amplify asset price movements and increase the potential for fire sales; and (4) firms as sources of risk; and
  • the key channels through which shocks can be transmitted: exposures across funds and firms and the impacts of fire sales.

The SEC is soliciting public feedback on the study.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

[Note:  Updates follow the table below.]

 

At this time, there are relatively few new items that need to be considered for the upcoming proxy and 10-K season.  Those involved with the SEC reporting process may want to review our publication “A Lawyer’s Guide to Proposed Lease Accounting Rules” and proposed changes to the auditor’s report, as well as this interactive checklist.

Item Status
Proxy Statements
1.  Update officer and director questionnaires.
  • Both the NYSE and NASDAQ have adopted rules for compensation committees of listed companies that require additional considerations when determining the independence of listed directors.  Smaller reporting companies are exempt.  The requirements are effective for the earlier of the first annual meeting after January 15, 2014, or October 14, 2014.  Questionnaires should be updated to solicit appropriate information.  Perhaps even more importantly, boards should also be prepared to implement this provision.
 Effective.  See our thoughts on necessary updates here.
  • The SEC has adopted final rules related to “Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings.”  We would recommend all public companies, and especially those who plan to rely on Regulation D for private placements, to incorporate appropriate provisions into their questionnaires.  We also recommend that the questionnaire be completed by potential directors, potential executive officers and any other officer that may participate in a Regulation D offering.
 Effective.  See possible updates here.
2.  Verify the Right Compensation Committee Charter is Included or Referenced in the Proxy Statement.  In connection with the NYSE and NASDAQ adoption of the rules for listed company compensation committees referenced above, most listed companies were required to amend their compensation committee charters by July 1, 2013. We recommend listed companies verify the correct charter is provided or referenced in response to Regulation S-K Item 407(e)(2) and Instruction 2 thereto. Effective.
3.  NASDAQ Listed Companies Will Have to Certify Compliance With the New Compensation Committee Rules.  NASDAQ Rule 5605(d)(6) requires NASDAQ listed companies to certify compliance with Rule 5605(d) no later than 30 days following the final implementation deadline applicable to the issuer.  The deadline is the earlier of the first annual meeting after January 15, 2014, or October 14, 2014.  We understand NASDAQ will provide a form for the certification. Effective.
4.  Revise Reference to Communications with Audit Committees in Audit Committee Report.  Item 407(d)(3)(i) of Regulation S-K(B) currently requires the audit committee to state whether “[t]he audit committee has discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards , Vol. 1. AU section 380), 1 as adopted by the Public Company Accounting Oversight Board in Rule 3200T.”  On December 17, 2012, the SEC issued an order granting approval of proposed Rules on Auditing Standard No. 16, Communications with Audit Committees, and Related and Transitional Amendments to PCAOB Standards.  The existing reference to AS 61 in the audit committee report should be replaced with the reference to AS 16.  Effective.  While Item 407 has not been amended, you can see the SEC order approving the rule change here.
While there is nothing new on the say-on-pay rules, the following provisions are included because issuers are on different cycles. N/A
5.  Say-on-pay advisory vote: Whether issuers are required to include a say-on-pay advisory vote depends on what frequency the Board adopted in prior years after considering the shareholder advisory vote on frequency.  If a say-on-pay vote is included: Effective
  • Rule 14a-21(a):  Resolution for an advisory vote on compensation of named executive officers as disclosed pursuant to Item 402 of Regulation S-K.
 Effective
  • Item 24 of Schedule 14A:  Required disclosure that advisory votes under 14A-21 are included pursuant to Section 14A of the Exchange Act and the general effect of each such vote.

 

 Effective
  • Rule 14a-21(c):  Optional disclosure on golden parachutes to avoid subsequent vote or disclosures in connection with certain M&A transactions.  See SK Item 402(t) for disclosure requirements.

 

 Effective
6.  Other say-on-pay disclosures where a prior vote was held: Effective
  • S-K Item 402(b)(1)(vii):  Disclose in the CD&A the extent to which previous shareholder say-on-pay votes has been considered.
 Effective
  • Item 24 of Schedule 14A:  Disclose current frequency of shareholder advisory votes on executive compensation and when the next shareholder advisory vote will occur.

 

 Effective
7.  Say-on-pay frequency vote Effective
  • Rule 14a-21(b):  A frequency vote must be held every six calendar years.  For most issuers the next frequency vote will be for the 2017 proxy season.  For smaller reporting companies it is likely the next vote would be for the 2019 proxy season.
 Effective
  • Rule 14a-21(b): Resolution on advisory vote as to whether say-on-pay vote shall be held every one, two or three years.

 

 Effective
  • Rule 14a-4(b)(3):  Form of proxy—must offer choice between 1, 2 or 3 years or abstain.

 

 Effective
  • Form 8-K:  Item 5.07 of Form 8-K requires an 8-K filing within 150 days after any meeting including a frequency vote.
 Effective
 
Form SD
1.   Conflict Minerals:  Final rules require certain companies to disclose their use of conflict minerals if those minerals are “necessary to the functionality or production of a product” manufactured by those companies.  Issuers must comply with the final rule for the calendar year beginning January 1, 2013 with the first reports due May 31, 2014. Effective.  The court rejected a challenge to the rules which is being appealed.
2.  Resource Extraction Issuers: The court vacated the resource extraction rules and the SEC did not appeal.  The SEC is expected to propose new rules. Awaiting SEC action.
 
Awaiting Further Action
1.   Pay for performance disclosures (Section 953 of the Dodd-FrankAct)

  • Demonstrate relationship between compensation actually paid and the financial performance of the issuer
 No proposed rules have been published.  The SEC no longer publishes a proposed rulemaking time frame. The SEC may believe the current CD&A rules meet this Dodd-Frank requirement.
2.   Pay disparity ratio (Section 953 of the Dodd-FrankAct)

  • Annual compensation of CEO
  • Median total compensation of all employees other than the CEO
  • Ratio of median total compensation to CEO compensation
 The SEC has published proposed rules which are not expected to be effective for most issuers in 2014.
3.   Clawback requirements  (Section 954 of the Dodd-FrankAct)

  • Disclosure of policy on incentive-based compensation based on financial information
  • Clawback in the event of an accounting restatement
 No proposed rules have been published.  The SEC no longer publishes a proposed rulemaking time frame.
4.   Disclosure of hedging policy (Section 955 of the Dodd-FrankAct)

  • Disclose whether directors or employees are permitted to hedge company securities
 No proposed rules have been published. The SEC no longer publishes a proposed rulemaking time frame.

Updates from original post

  •  A proposed form of updates to D&O questionnaires for the Rule 506 “bad actor” provisions can be found here.
  • Review new ISS policies.  This year’s updates relate principally to board responsiveness to shareholder proposals and tweaking the way the say-on-pay screen for pay-for-performance works.
  • Prepare to transition to the new COSO framework for evaluating internal control over financial reporting.  During the transition period companies should disclose which version of the COSO framework they are using.
  • Note that the NYSE amended its quorum requirement and proxy statement descriptions should be updated accordingly. The NYSE amended Section 312.07 of the Listed Company Manual to remove the requirement that the total votes cast on any proposal requiring shareholder approval under NYSE rules must represent over 50% in interest of all securities entitled to vote on the proposal.

Check dodd-frank.com frequently for updates on the JOBS Act, the Dodd-FrankAct and other important securities law matters.

In a recent speech, SEC Chair Mary Jo White spoke to the types of cases where admissions of wrongdoing might be appropriate.  According to Chair White, candidates potentially requiring admissions include:

  • Cases where a large number of investors have been harmed or the conduct was otherwise egregious.
  • Cases where the conduct posed a significant risk to the market or investors.
  • Cases where admissions would aid investors deciding whether to deal with a particular party in the future.
  • Cases where reciting unambiguous facts would send an important message to the market about a particular case.

As to enforcement priorities, Chair White noted the SEC has limited resources and needs more to do a more effective job policing markets and protecting investors.  But the SEC  needs to have a presence everywhere and be perceived to be everywhere bringing enforcement actions against violators in every market participant category and in every market strata. Chair White named the following areas:

  •  Protecting investors from misconduct by investment advisers at hedge funds, private equity funds, and mutual funds.
  •  Financial statement and accounting fraud.
  •   Insider trading cases. 
  •   Fraud in connection with microcap securities where abuses have unfortunately increased with the use of social media.

Chair White also noted the SEC also must be prepared to bring actions in the new markets and regulatory regimes that follow from the new rules mandated by the Dodd-Frank and JOBS Acts.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

 

It began with announcements like this from AngelList.  For just $99 plus $25 per investment, wefunder will let you create a create a “beautiful profile” and send updates to followers, and provide free investment contracts, accredited investor verification, an escrow account and an electronic signature service.  SecondMarket is offering a similar solution. Heck, you can even invest in flying cars. You can find a pretty good summary of the madness here.

The SEC issued an investor alert on general solicitation and another one on the definition of accredited investors. The SEC even has a page where you can voluntarily upload your general solicitation. We’re not sure why anyone would want to do this, unless you’re trying to earn a good citizen award, and if you saw a slimy scheme and want to make a whistleblower tip and collect a reward, this is the wrong page.  In addition, the SEC issued a  Small Business Compliance Guide entitled “Disqualification of Felons and Other “Bad Actors.”  Hat tip to Broc Romanek of TheCorporateCounsel.net for pointing all this out.

For other information on Regulation D and general solicitation, see JOBS Act and Other Securities Law Essentials for Growing Companies.

Check jobs-act-info.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

The SEC has issued its final municipal advisor rules.  At over 700 pages, it’s a bit long to summarize and hit all of the high points.  One of the things we are most interested in is people being inadvertently trapped by the municipal advisor rules, so this blog will focus on that.

Advice

You are not a municipal advisor if you do not offer “advice.”  Rule 15Ba1-1(d)(1)(ii) provides that advice excludes, among other things, the provision of general information that does not involve a recommendation regarding municipal financial products or the issuance of municipal securities, including with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues.

For example, the SEC believes that advice does not include provision of the following general information:

  • Information of a factual nature without subjective assumptions, opinions, or views;
  • Information that is not particularized to a specific municipal entity or type of municipal entity;
  • Information that is widely disseminated for use by the public, clients, or market participants other than municipal entities or obligated persons; or
  • General information in the nature of educational materials.

The SEC believes that educational materials constitute general information if the content is limited to instructional or explanatory information, such as materials that describe the general nature of financial products or strategies, do not include past or projected performance figures (including annualized rate of return), do not include a recommendation to purchase or sell any product or utilize any particular strategy, and to the extent additional disclosure is available about a product (such as a prospectus), the materials contain information about how to obtain such additional information.

Conversely, the definition of advice under Rule 15Ba1-1(d)(1)(ii), as adopted, does not exclude information that involves a recommendation regarding municipal financial products or the issuance of municipal securities. Further and more precisely, the Commission believes that, for purposes of the municipal advisor definition, advice includes, without limitation, a recommendation that is particularized to the specific needs, objectives, or circumstances of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities, including with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues, based on all the facts and circumstances.

Whether a recommendation has been made is an objective rather than a subjective inquiry.  An important factor in this inquiry is whether, considering its content, context and manner of presentation, the information communicated to the municipal entity or obligated person reasonably would be viewed as a suggestion that the municipal entity or obligated person take action or refrain from taking action regarding municipal financial products or the issuance of municipal securities.

According to the SEC, while the determination of whether a person provides advice depends on all the relevant facts and circumstances, the more individually tailored the information to a specific municipal entity or obligated person or a targeted group of municipal entities or obligated persons that share common characteristics, such as school districts or hospitals, with respect to municipal financial products or the issuance of municipal securities, the more likely it will be a recommendation that constitutes advice under the municipal advisor definition, which would require registration as a municipal advisor, absent the application of an exemption or exclusion from registration.   For example, whether information describing municipal financial product alternatives constitutes advice under the municipal advisor definition generally depends on how individually tailored the information is to a particular municipal entity, obligated person, or targeted group of municipal entities or obligated persons that share common characteristics, as well as the content, context, and manner of presentation of the information communicated.

Board Members

In the proposed rules there was considerable controversy surrounding what board members were excluded from the definition of municipal advisors.  This appears to have been resolved.  The final rule provides  that  all members of a municipal entity’s governing body, its advisory boards and its committees, as well as persons serving in a similar official capacity with respect to a municipal entity, to the extent they are acting within the scope of their official capacity, are not municipal advisors. Specifically, Rule 15Ba1-1(d)(3)(ii) exempts from the definition of municipal advisor “[a]ny person serving as a member of a governing body, an advisory board, or a committee of, or acting in a similar official capacity with respect to, or as an official of, a municipal entity or obligated person to the extent that such person is acting within the scope of such person’s official capacity.”

The SEC stated in the adopting release that the exemption in Rule 15Ba1-1(d)(3)(ii) would extend to all designees or public officials or members of a municipal entity’s governing body, to the extent such designation is made pursuant to existing rules of the municipal entity for designating or delegating authority.

Independent Advisors

Rule 15Ba1- 1(d)(3)(vi) exempts from the municipal advisor definition any person engaging in municipal advisory activities in a circumstance in which a municipal entity or obligated person is otherwise represented by an independent registered municipal advisor with respect to the same aspects of a municipal financial product or an issuance of municipal securities, provided that  certain requirements are met.  It would be nice if practice developed so that municipalities engaged their own independent advisors so that transactional partners do not inadvertently get trapped by the rules.

Engineers

According to the release, energy services and solar energy companies had concerns as to whether they were municipal advisors.  In the final release the SEC stated it considered the issues raised by commenters on the proposal and adopted its interpretation of the statutory engineering exclusion, substantially as proposed, to provide that engineers are excluded from the definition of municipal advisor “to the extent that the engineer is providing engineering advice,” with modifications and clarifications regarding the scope of its interpretation of the statutory exclusion in response to public comment.  In general, the SEC stated it believes activities within the scope of the engineering exclusion may include feasibility studies, cash flow analyses, and similar activities; provided that the engineering exclusion does not cover activities in which an engineer provides advice to a municipal entity or obligated person regarding municipal financial products or the issuance of municipal securities.

The SEC believes that the exclusion covers an engineer’s provision of certain information to its client regarding a project schedule and anticipated funding requirements of the project. The SEC further believes that the provision of engineering feasibility studies that include certain types of projections, such as projections of output capacity, utility project rates, project market demand, or project revenues that are based on considerations involving engineering aspects of a project are within the scope of the engineering exception.

For example, the adopting release states an engineer who provides funding schedules and cash flow models that anticipate the need for funding at certain junctures in a project or engineering feasibility studies based on analysis of engineering aspects of the project will fall within the SEC’s interpretation of the statutory engineering exclusion from the municipal advisor definition.  Absent other facts and circumstances which indicate that an engineer is providing advice to a municipal entity or obligated person regarding the issuance of municipal securities, an engineer’s use of assumptions provided by a municipal entity or obligated person regarding interest rates or debt levels in preparing an engineering feasibility study or cash flow analysis alone will not result in municipal advisory activity.

With respect to services related to cash flow analysis, a municipal entity might seek input from an engineering company about whether a project could be accomplished with estimated available funding, including the timing of such funding.  Engineers that provide input about the anticipated funding requirements of a project would not be engaging in a municipal advisory activity.  Thus, an engineer could advise a municipal entity about whether a project could be safely or reliably completed with the available funds and provide engineering advice about other alternative projects, cost estimates, or funding schedules without engaging in municipal advisory activity.

Engineering companies may also provide advice to their clients regarding financing of products and services delivered to such clients. As noted above, the SEC clarified that provision of general information that does not involve a recommendation regarding municipal financial products or the issuance of municipal securities (including general information with respect to financing options) would not be municipal advisory activity.  Note however that the SEC stated that depending on all the facts and circumstances, the provision of information describing financing alternatives that may meet the needs of a municipal entity or obligated person may be considered a recommendation with respect to municipal financial products or the issuance of municipal securities that would be municipal advisory activity.

Introductions by engineering companies to financing sources was also addressed in the adopting release. The SEC stated it does not believe it is necessary or appropriate to provide a separate exemption for engineers engaging in introductions. The release notes that introductions provided by engineers would be subject to the same analysis as any other “solicitation of a municipal entity or obligated person.” According to the SEC,  if an introduction does not result in direct or indirect compensation to the engineer, the introduction will not constitute a solicitation and the engineer will not be required to register as a municipal advisor.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

The SEC has charged the adviser to a New York-based hedge fund with breaching his fiduciary duty by engineering an undisclosed principal transaction in which he had a financial conflict of interest.

The SEC alleges that Shadron L. Stastney, a partner at investment advisory firm Vicis Capital LLC, traded as a principal when he authorized the client hedge fund to pay approximately $7.5 million to purchase a basket of illiquid securities from a personal friend and outside business partner hired by the firm as a managing director.  Stastney required his friend to divest these personal securities holdings as he came on board at the firm because they overlapped with securities in which the hedge fund also was invested.  Stastney failed to tell the client hedge fund or any other partners and management at the firm that he had a financial stake in some of the same securities sold into the fund.  Stastney personally benefited and received a portion of the proceeds from the sale, and therefore was trading as a principal in the transaction.

Stastney agreed to pay more than $2.9 million to settle the SEC’s charges.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

The SEC has proposed rules related to pay ratio disclosures required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  It works like this:

Make sure you have to do this.  Emerging growth companies, smaller reporting companies, foreign private issuers and issuers under the Canadian Multijurisdictional Disclosure System need not bother with this as the proposed rules say they are not covered.

Find the employee in the middle:  The Dodd-Frank Act requires the ratio to be calculated on the median employee, not average pay.  To do this:

  • A registrant may employ a methodology that uses reasonable estimates to identify the median
  • In determining the employees from which the median is identified, a registrant may use its employee population or statistical sampling or other reasonable methods
  • A registrant may identify the median employee using (A) annual total compensation or (B) any other compensation measure that is consistently applied to all employees included in the calculation, such as amounts derived from the registrant’s payroll or tax records.

Calculate the annual total compensation of the employee in the middle: The middle employee’s compensation must then be calculated in accordance with Item 402(c)(2)(x) of Regulation S-K.  We all know this is hard to do for NEO’s because of the precision required, but the SEC gives some slack for the purpose of the pay ratio disclosure.  The proposed rules say registrants may use reasonable estimates to calculate the annual total compensation or any elements of total compensation for employees other than the principal executive officer, or PEO.

Calculate the annual total compensation of the PEO. You need to do this anyway, and we know it’s not simple, but at least it’s not an extra step.

Calculate the Ratio:  The proposed pay ratio disclosure requirements specify that the ratio must be expressed as a ratio in which the median of the annual total compensation of all employees is equal to one, or, alternatively, expressed narratively in terms of the multiple that the PEO total compensation amount bears to the median of the annual total compensation amount. For example, if the median of the annual total compensation of all employees of a registrant is $45,790,39 and the annual total compensation of a registrant’s PEO is $12,260,000,40 then the pay ratio disclosed would be “1 to 268” (which could also be expressed narratively as “the PEO’s annual total compensation is 268 times that of the median of the annual total compensation of all employees”).

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

A law firm has submitted a rule making petition to the SEC to amend the rule governing the conflict minerals disclosure on Form SD to permit, for a temporary period, an alternative disclosure. The petition states  “based upon our experience over a broad range of registrants in a cross-section of industries, at this point in time we are unaware of any registrant with a significant number of products that include conflict minerals that has the ability to comply completely with the conflict minerals rules.”

The alternative disclosure and proposed rule changes are:

  • A one-year deferral for filing Form SD would be available to any registrant that, commencing with its first Exchange Act periodic report due on or after October 1, 2013, provides in that and subsequent periodic reports until it first files a report on Form SD, detailed status reports on the actions taken to-date and currently anticipated to be taken in order to yield compliance.
  • A two-year deferral would be available with respect to coverage of foreign operations where the registrant complies with the requirements for the one-year deferral and thereafter continues to provide detailed status reports on foreign implementation consistent in scope with the status reports filed during the first year. For clarity, foreign implementation would not need to be covered in the status reports during the first year.
  • The status reports would be furnished under Exhibit 99.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.