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The Securities Edge

Securities Blog for Middle-Market Companies

Just in time for Halloween: Are the latest PCAOB auditing standards a treat or a trick?

Posted in Bob's Upticks

The SEC has approved new PCAOB auditing standards relating to related party transactions, significant unusual transactions, and financial relationships and transactions between a company and its executives, including executive compensation.  You can find the SEC’s release on the new standards here.

When the PCAOB first proposed these standards, a number of us were concerned that the auditing profession might be getting into the business of second-guessing not only disclosures on related party transactions and executive compensation, but also the substance of transactions and compensation.  For one thing, the proposal stated that auditors would need to assess the risks associated with these areas, which led the Society of Corporate Secretaries and Governance Professionals and others to politely suggest that the PCAOB should stay away from the area (you can find the Society’s comment letter here).

In response to these comments, the PCAOB tweaked its language a bit and gave some mild assurances that its intent was misunderstood and that it didn’t want to get into the weeds as feared.   However, references to executive compensation stayed in the standards, and their wording doesn’t rule out the possibility that those weeds might be gotten into after all.

So when your auditors offer you this new piece of candy for Halloween, maybe you should ask for some reassurances before you bite into it.

What do you think?

Bob

The Securities Edge launches Bob’s Upticks

Posted in Announcements
Bob's Upticks added to The Securities Edge

Photo by Austin Kleon

To our readers:

As you may have noticed, this week we launched a new feature for The Securities Edge.  We call our new feature “Bob’s Upticks,” which will be authored by our very own Bob Lamm.  We are excited to add this new “blog within a blog” and to share Bob’s extensive and deep securities and corporate governance knowledge with you!

While The Securities Edge has always strived to provide deeper analysis on some of the most important issues of the day, Bob’s Upticks will use shorter posts and will focus on keeping you up to speed on the weekly changes in the securities and corporate governance world.  When Bob was the Chairman of the Securities Law Committee for the Society of Corporate Secretaries and Governance Professionals, we all looked forward to receiving Bob’s weekly updates.  With Bob’s Upticks, our readers get the same opportunity! You can even subscribe separately to the RSS feed for Bob’s Upticks 

Please drop us a note to let us know what you think.

My inaugural Uptick: How about never? Does never work for you?

Posted in Bob's Upticks

I have read several reports quoting Mary Jo White, Chair of the SEC, as saying that the remaining Dodd-Frank corporate governance rulemakings will be out by year-end.  Admittedly, the reports aren’t clear as to what Chair White means.   Does she mean that the so-called pay ratio rule will be adopted in final form by year-end (in which case the disclosures wouldn’t be required until 2016)?  Or that by year-end the Commission will have proposed rules on hedging, clawbacks and pay-for-performance?  All of the above?  It’s anyone’s guess.

I have also read the daily emails I receive from the SEC entitled “Upcoming Events Update.”  (I get several of these “Updates” every day, even though they are identical and don’t seem to have been updated at all.  For those of you who don’t get these emails, they purport to announce things like every meeting of the SEC and every speech to be given by Commissioners and Staff members.)  For the last month or two, no open meetings of the SEC have been scheduled (and it’s virtually impossible for these rules to be proposed or adopted otherwise than at an open meeting).  So when I saw today that Continue Reading

Bob

No more secret identities: Broker-dealers may soon be required to identify beneficial owners of legal entity customers

Posted in Capital Raising
BSA requires broker-dealers to know who you are

Photo by St. Murse

As we blogged about in May, the Bank Secrecy Act (“BSA”), which requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering, applies to entities that we may not traditionally think of as “financial institutions,” including securities broker or dealers. Compliance with the BSA is no easy task. And if a recent notice of new proposed rule by the U.S. Treasury’s Financial Crimes Enforcement Network (also known as FinCEN) becomes law, it’s not about to get any easier.

FinCEN’s stated intent with the proposed rule is to clarify and strengthen customer due diligence requirements for banks, brokers or dealers in securities, mutual funds and futures commission merchants and introducing brokers in commodities. Under current regulations, each of these institutions must establish, document and maintain a Customer Identification Program (or “CIP”) appropriate for its size and business that meets certain minimum requirements, including, among others, the adoption of certain identity verification procedures, and the collection of certain customer information and the maintenance of certain records. The proposed rule adds two (2) new elements to the CIP requirements.

First, the proposed rule Continue Reading

10 nuggets on corporate governance hot topics

Posted in Corporate Governance
Bob Lamm's Golden Nugget's of Corporate Governance

Photo by Eric Roy/ Golden Nugget Casino, Las Vegas, late 80′s.

On September 30, Bob Lamm moderated a panel at a “Say-on-Pay Workshop” held during the 11th Annual Executive Compensation Conference in Las Vegas, Nevada.  The Conference is an annual event sponsored by TheCorporateCounsel.net and CompensationStandards.com – and emceed by our good friend, Broc Romanek – and features many of the pre-eminent practitioners in corporate governance and securities law. 

The panel, entitled “50 Nuggets in 75 Minutes,” may just be the CLE equivalent of speed dating – each of five panelists covers 10 “nuggets” – practical and other takeaways to help them do their jobs better – in a 75-minute panel.

Here are Bob’s 10 “nuggets,” reprinted courtesy of the Conference sponsors and Broc. 

1.    Engagement is a Two-Way Street – At this stage of the game, shareholder engagement is – or should be – a given, and one of a company’s normal responsibilities.  Along with that is the mantra “engage early and often”; in other words, don’t wait until you are faced with a negative vote recommendation to start reaching out to your major holders. 

What may not be part of the mantra is that engagement is a two-way street.  Your job (and that of your colleagues and even some directors) is to Continue Reading

Video interview: Discussing the Alibaba IPO with LXBN TV

Posted in IPOs

Following up on my recent post on the subject, I had the opportunity to discuss Alibaba’s record-breaking IPO with Colin O’Keefe of LXBN. In the interview, I share my thoughts on some issues worth watching and offer a few takeaways for American companies.

Wrong turn?: Is the SEC looking to further expand its regulatory jurisdiction through the disclosure process?

Posted in Disclosure Guidance
Is the SEC making a wrong turn by regulating corporate governance?

Photo by doncarlo

In the wake of the recent financial crisis, the Dodd-Frank Act created the SEC Investor Advisory Committee with the stated purpose of advising the SEC on (i) regulatory priorities of the SEC; (ii) issues relating to the regulation of securities products, trading strategies, and fee structures, and the effectiveness of disclosure; (iii) initiatives to protect investor interest; and (iv) initiatives to promote investor confidence and the integrity of the securities marketplace. In other words, the committee is to advise on matters historically within the purview of federal securities laws. While this is fine and good, there is some indication that the SEC may again be considering the use of disclosure rules to indirectly regulate matters that are not federal securities law matters (see, e.g., conflict mineral rules, Iran-related disclosure rules, CEO pay ratio disclosure rules, etc.).

The new potential area of regulation for the SEC may be internal corporate affairs. The committee’s agenda for the October 9, 2014 meeting of the SEC Investor Advisory Committee will include a discussion of Continue Reading

Alibaba’s record IPO – How will it affect U.S. technology companies?

Posted in Capital Raising

Photo by JMR_Photography

On September 19, Chinese e-commerce giant Alibaba completed the initial public offering of its stock. The underwriters for the offering subsequently exercised their option to buy additional shares, making this the largest IPO in history at $25 billion. The stock’s price immediately jumped by a huge amount, finishing its first day of trading at $93.89, a 38% increase over its $68.00 IPO price. The stock has since lost some ground, closing at $87.17 on Tuesday.

What does this massive IPO mean for U.S. technology companies? I see four possible areas of impact:

  1. U.S. technology companies may delay their IPOs until they see how the Alibaba stock performs. This could be a short delay if the stock price holds up or does well. Right now U.S. technology companies Hubspot, Lendingclub.com, GoDaddy.com and Box, among others, are expected to conduct IPOs this fall.
  2. If the substantial demand for Alibaba stock holds up, fund managers may reduce their Continue Reading

The JOBS Act – Any results yet?

Posted in Capital Raising
Waiting for the results of the JOBS Act?

Photo by Gueorgui Tcherednitchenko

President Obama signed the JOBS Act into law on April 5, 2012 amid much fanfare and optimism. Small and medium sized fast-growing technology companies and their executives were especially sanguine about this new act as it appeared that it would provide access to much-needed additional expansion capital. These companies were still reeling from the recession and the substantial reduction in available venture capital financing, and they saw the JOBS Act as a potentially positive event. A little more than two years later, has this initial optimism proved to be warranted? Let’s take a look at some of the provisions of the Act.

A new regulatory structure for crowdfunding was initially the most anticipated provision of the JOBS Act. I never believed that crowdfunding would be as beneficial as some people did, but I hoped that it could provide some additional access to capital for smaller companies which were starved for funds. Unfortunately we are still waiting for the SEC’s final crowdfunding regulations. The SEC appears to be caught between two complaining factions here – one which thinks the proposed rules are too restrictive and won’t work, and one which thinks Continue Reading

Nasdaq annual listing fees are going up, up (but not away)

Posted in Announcements

Nasdaq fees are ready for takeoffIn late August, Nasdaq announced changes to their annual listing fees.  Generally, the fees will increase effective January 1, 2015, but Nasdaq is also adopting an all-inclusive annual fee and eliminating its quarterly fees.  The new annual fee will now include fees related to listing additional shares, record-keeping changes, and substitution listing events.  The all-inclusive fee is optional for issuers until January 1, 2018 at which point it becomes mandatory.

Issuers have a choice to make.  Option #1 – An issuer can do nothing and continue to pay an annual fee as well as pay the quarterly fees to list additional shares.  Under this method, an issuer will experience increased 2015 fees ranging from 0% to 40% depending on how many shares an issuer has outstanding.  Generally, the largest increases are for issuers with less than 10 million shares outstanding (14% increase) and for issuers with more than 100 million shares outstanding (40% if there are between 100 and 125 million shares outstanding and 25% if there are more than 150 million shares outstanding).  Think of this option as the same as flying on an airplane.  You get a seat (usually), but if you want anything else you need to pay.

Option #2 – Elect to Continue Reading