Federal Securities Lawyer & Attorney : Porter Wright Law Firm : Securities Exchange Law : Serving Ohio, Washington DC, Florida

According to Institutional Shareholder Services, Valero Energy has become the fifth company this year to have investors support an annual advisory vote on executive compensation. Investors at Ingersoll-Rand, Motorola, Blockbuster, and Verizon Communications have also approved, by a majority or more, so-called “say on pay” advisory votes.

ISS reports that in 2006, seven similar resolutions went to a vote and averaged 40% support. Two bills are currently in Congress (one in the Senate and one in the House) that would require every publicly traded company to allow for an annual advisory vote on executive compensation. The House Bill passed in April. See previous posts about Say on Pay issues here, here, and here.

• Print
• Comments
• Trackbacks

Our latest Securities Law Alert provides an update on why issuers and executives need to carefully review insider trading compliance programs and Rule 10b5-1 trading plans.

• Print
• Comments
• Trackbacks

Nasdaq announced earlier this week that it will consider selling its 31% interest in the London Stock Exchange, but most likely not to a single purchaser. The sale would end Nasdaq’s 18 month-long attempt to buy the LSE, a goal that has been continuously opposed by the LSE’s management.

Investors bent on competitive global trading (or at least competitive Euro-American trading) will have to continue to wait for the world’s second trans-Atlantic stock exchange following NYSE Group Inc.’s $14 billion purchase of Paris-based Euronext NV in April. But maybe the wait won’t be too long. Some commentators suggest Nasdaq wants to sell its LSE stake in order to outbid Borse Dubai, owner of two Dubai stock exchanges, for Sweden’s OMX market. The current bid is close to $4 billion.

• Print
• Comments
• Trackbacks

On July 17, 2007, the Securities and Exchange Commission created the Advisory Committee on Improvements to Financial Reporting. The overall purpose of the Advisory Committee is to review and analyze the U.S. financial reporting system to provide recommendations regarding reducing needless complexity and how the system could become more useful to investors. 

Now, the Advisory Committee is seeking comments on its discussion paper, which outlines various issues that it proposes to consider. The outline includes the following five key areas of consideration: 

1. The causes and effect of complexity on financial accounting and reporting standards;
2. The standard setting process, which includes GAAP, the characteristics of the Financial Accounting Standards Board and the Board selection process, interpretive guidance by the Emerging Issues Task Force, the SEC and others, and possible changes to the cost-benefit analysis practices of various organizations;
3. The existing process of regulating accounting and reporting standards compliance and other factors that result in needless complexity;
4. The vehicles that companies use to convey financial information to investors and the systems available to investors for accessing such information; and
5. The various international accounting standards and whether such standards should be integrated into the U.S. financial reporting system.

Comments should be submitted within 30 days after publication in the Federal Register. Click here for information on how and where comments may be submitted.

• Print
• Comments
• Trackbacks

Ohio Attorney General Mark Dann has criticized US Solicitor General Paul Clement for filing an amicus brief with the US Supreme Court that argues against liability for certain forms of securities fraud. As mentioned here, Dann filed an amicus brief earlier this year along with 31 other state AGs arguing the opposite position. The SEC had asked the federal government to take the position of the state AGs in support of the defrauded investors but the Bush administration demurred.

At the heart of the case is Section 10(b) of the Securities Exchange Act which essentially prohibits the use of any manipulative or deceptive device in connection with the purchase or sale of a security. The Eighth Circuit has held that fraud is not deceptive under Section 10(b) unless the defrauding party made a misstatement or failed to disclose information despite a duty to disclose. Defrauded investors argue that such a ruling protects accountants, lawyers, banks, and other third parties who perpetuate fraud but who don’t actually make misleading statements to investors. Oral argument is set for this fall. 

• Print
• Comments
• Trackbacks

The SEC believes that the global capital markets and investors could benefit from globally accepted accounting standards, and is therefore considering permitting U.S. issuers to prepare financial statements in accordance with International Financial Reporting Standards, as opposed to generally accepted accounting principles as used in the United States.

In its concept release, the SEC explains its long-standing desire to minimize disparity between the U.S. accounting and disclosure methods and those of other countries. Minimizing such disparity may encourage and facilitate expansion of capital markets across borders while simultaneously affording sufficient disclosure to protect investors.

Currently, the Financial Accounting Standards Board and the International Accounting Standards Board are working together toward converging U.S. and international accounting standards. The SEC acknowledges the risk that each Board may slow convergence efforts if U.S. issuers are permitted to use International Financial Reporting Standards to prepare financial statements. This is just one of the many considerations the SEC is seeking comment on in its concept release.

• Print
• Comments
• Trackbacks

Earlier this week former Brocade CEO Gregory Reyes was found guilty of all charges in connection with stock option backdating and failing to report such backdating to auditors, regulators, and investors. This is the first conviction of an executive in the government’s option backdating investigation, and it occurred despite the fact Reyes never cashed in on his backdated options.

Reyes faces years of prison time and significant fines. More convictions are expected in a post-Enron era where juries are willing to convict not only instigators of backdating plans, but those who go along with illegal practices as well.  

• Print
• Comments
• Trackbacks

The SEC has released two conflicting proposals regarding shareholder access to proxy statements. The SEC has been considering different versions of increased shareholder access to proxy statements for several years, but it was last year’s Second Circuit decision in American Federation of State, County, and Municipal Employees, Employees Pension Plan v. American International Group, Inc. (462 F. 3d 121) that has driven the recent wave of activity.

By way of background, shareholders have a state law right to nominate and elect directors; they just can’t use the company’s proxy statement to solicit votes for their candidates. The SEC believes the philosophy of the proxy statement is in conflict if two competing parties (the company and a rogue shareholder) can use the same document (the company’s proxy statement) to solicit proxies for competing nominees for director.

Instead, the proxy rules contemplate a separate proxy statement for shareholders who want to nominate directors. And, just to make sure these shareholders don’t get onto the company’s proxy through a backdoor, there is a specific rule (14a-8(i)(8)) that allows the company to exclude shareholder proposals that relate to the election of the board.

The Second Circuit disrupted this system in the AIG case when it ruled that AIG could not rely on Rule 14a-8(i)(8) to exclude a shareholder proposal aimed at direct election of directors. The shareholder proposal was for an amendment to the AIG bylaws that would allow for a procedure under which AIG would be required to include shareholder nominated directors in its proxy materials.

The SEC is worried that this ruling allows a shareholder to get nominees on the company proxy without having to disclose all the information that would be required if the shareholder would have to produce its own proxy statement. Hence the two proposed changes to the proxy rules:

Proposal (1) is an affront to the AIG decision. It would amend Rule 14a-8(i)(8) in hopes of allowing it to exist essentially the way it did before the AIG decision. Of course, a court could always disagree that the amendment has this effect.

Proposal (2) embraces the AIG decision, in that it would allow for shareholder director nominees to appear on the company’s proxy statement; however, there are significant caveats. For example, only shareholders who have been 5% holders for the previous year would be permitted to propose bylaw amendments in the company’s proxy, and they would first need to file a more-detailed Schedule 13G disclosing their background and interactions with the company. And, a shareholder that nominates a director must also disclose the same type of information that would currently be required in a separate proxy, such as basic information about the nominating shareholder and the nominee. Nominating shareholders will have the burden of providing this information to the company and will be liable for any fraud that goes along with this information.

Proposal (1) is an attempt to preserve the status quo despite the Second Circuit’s ruling in the AIG case. Proposal (2) is a whole new system. Both proposals are sure to produce significant comments and discussion. 

• Print
• Comments
• Trackbacks