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

Effective February 4, 2008, smaller reporting companies may begin preparing their SEC reports and registration statements using the same forms as other SEC reporting companies but with scaled disclosure requirements. Eventually, there will be no special “small business” forms such as Forms 10-KSB and SB-2.

Companies qualify as a smaller reporting company if they:

1. have a common equity public float of less than $75 million or
2. are unable to calculate their public float and have annual revenue of $50 million or less.

Public float is calculated as of the last business day of the second fiscal quarter.

Companies with a public float between $25 million and $75 million would not have qualified as “small businesses” under the old rules, but can now choose to alternate between the disclosure requirements of smaller reporting companies and other companies, with some limitations.

Note the following key differences in disclosure obligations:

• Smaller reporting companies do not have to disclose risk factors;
• Smaller reporting companies need only provide two years of analysis and financial statements, as opposed to three years, in their Management Discussion & Analysis; and
• Smaller reporting companies need only provide 3 of the 7 compensation tables in their proxy statement.
  

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In an effort stop identity theft and intrusions into online brokerage accounts, the SEC has proposed amendments to Regulation S-P to provide more specific requirements for protecting personal information. Regulation S-P requires certain institutions to safeguard customer records and information. It was adopted in 2000 in direct response to the Gramm-Leach-Bliley Act, which requires every financial institution to inform its customers about its privacy policies and imposes limits on the disclosure of personal customer information to third parties.

The proposed amendments to Regulation S-P create more specific requirements for protecting information and responding to security breaches, including requiring financial institutions to designate which employees coordinate information security programs. The amendments also broaden the scope of the disposal of customer records and information and the requirements for such disposal. The SEC has specifically requested comment on what should be considered “personal information.”

Finally, the amendments permit some transfer of information to third parties without notice to the investor when the investor follows a representative who moves from one brokerage or advisory firm to another. The proposed exemption would allow firms with departing representatives to share limited customer information with the new firm for use in contacting the investor and offering a choice about whether to follow the representative to the new firm. The proposal is presented as a way of maximizing choice for the investor.

The SEC is accepting comments for 60 days from publication. Presumably some comments will address what the new rules mean in terms of the costs of compliance.

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Last week the House of Representatives Committee on Oversight and Government Reform rescheduled a hearing on CEO termination payments in connection with the mortgage lending crisis. In January, Committee Chairman Henry Waxman sent letters to Citigroup, Merrill Lynch and Countrywide Financial asking them to justify payments to outgoing CEOs despite significant subprime-related losses and decreasing stock values. The hearing follows a December 2007 hearing on the use of compensation consultants to determine CEO pay. Scheduled to testify, presumably to justify their compensation, are Angelo Mozilo, CEO of Countrywide, E. Stanley O’Neal, former CEO of Merril Lynch, and Charles Prince, former CEO of Citigroup.

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