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

According to RiskMetrics, the Laborers’ International Union of North America and the International Brotherhood of Teamsters don’t think Treasury’s bailout program does enough to curb executive compensation.

The unions want a number of reforms, including:

• Incentive compensation not to exceed one times annual salary;
• Stock option awards tied to increased company performance relative to a peer group;
• Stock award holding requirements for the full term of an executive’s employment;
• No accelerated vesting; and
• Limits on severance payments.

The labor funds have submitted proxy statement proposals to JPMorgan Chase, KeyCorp, Bank of America, American Express, and SunTrust Banks, and plan to submit proposals to more than 45 other firms planning to participate in the Troubled Asset Relief Program (TARP).

Participation in the TARP requires some limits on executive compensation so companies may be able to argue exclusion of the labor union proposals from the proxy on the grounds they have “substantially implemented” the requests.

The debate continues as to whether executive compensation is a product of free market labor costs or the market is flawed and needs executive compensation regulation.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The SEC enforcement manual, dated October 6, 2008, now states that the staff should not ask a party to waive the attorney-client or work product privileges when investigating potential securities laws violations.

As previously discussed here, the Department of Justice adopted a similar procedure in September to change its must-criticized policy of labeling companies uncooperative if they refused to waive privilege.

The SEC enforcement manual specifically says that a party’s decision to assert a legitimate privilege will not negatively affect whether they receive credit for cooperation.  However, the manual does not address whether waiving privilege could positively affect cooperation in the eyes of the SEC.  Congress continues to consider the idea of legislatively prohibiting attaching any weight to a waiver of privilege when making SEC enforcement decisions.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The division of corporate finance of the SEC released a new staff legal bulletin on Friday dealing with shareholder proposals on company proxy statements.  One aspect of the bulletin concerns a hypothetical shareholder proposal that requires the board of directors to amend the company’s charter.  The question at hand is whether the proposal can be excluded from the proxy statement if applicable state law requires that a charter can only be amended if the amendment is initiated by the board of directors and subsequently approved by the shareholders.

This sounds like excluding a proposal based on a technicality.  Is the applicable state law really designed to discourage shareholder input preceding a charter amendment?  If a large shareholder suggests a charter amendment to the board, and the board studies the issue and comes to the same conclusion, should the amendment be considered board-initiated?

Interestingly, the staff bulletin answers with a technicality of its own.  The staff concedes there is some basis for excluding such a proposal based on state law; however, the proponent should be permitted to revise the proposal to urge the board of directors to “take the steps necessary” to amend the charter.

According the SEC’s website, staff legal bulletins represent the views and policies of the staff but are not legally binding. The last such bulletin was issued in June of 2005.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Do the Red Flag Rules of the FTC and the federal banking agencies apply to broker-dealers registered with the SEC? The short answer seems to be “Yes.”

The Red Flag Rules require “financial institutions” and “creditors” with “covered accounts” to protect against identity theft by implementing written programs designed to detect and prevent identity theft.

The definition of “creditor” includes anyone who arranges for the extension of credit, which presumably includes a broker-dealer that extends credit in a margin account for the purchase of securities.  The definition of “financial institution” includes anyone who directly or indirectly holds a “transaction account” belonging to a consumer, which is further defined to include an account on which an account holder can make withdrawals by negotiable instrument, payment orders, telephone transfers, or similar items.  Accordingly, a broker-dealer that offers a check-writing feature as part of a brokerage account may be a financial institution.

Finally, a “covered account” is one maintained primarily for personal, family or household purposes, which could include accounts held by retail customers of a broker-dealer.

That broker-dealers must comply with the Red Flag Rules is not a bad thing; however, broker-dealers must also soon comply with proposed SEC amendments to Regulation S-P.  The amendments require the implementation of an information security program designed to safeguard customer records and information.  The Red Flag Rules and Regulation S-P do not necessarily conflict, although adherence to both could create overlap and inefficiencies.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link