According to a February 2, 2010 article in The Washington Times, that answer can be summarized in one word:  porn!  As reported by The Washington Times, one regional supervisor at the SEC attempted to look up pornography on his/her work computer over 1,800 times in a 17-day span!  And in all more than two dozen SEC employees have attempted to access pornographic websites over the past two years.  Although the names of the employees were not disclosed, one employee admitted accessing pornographic sites on numerous occasions over a one year span, but he tried not to let it affect his work!  Sure.

            It appears most of the employees have undergone some sort of disciplinary action, but short of termination, although some resigned short of an investigation.

            The Washington Times article can be viewed in full here:  http://m.washingtontimes.com/news/2010/feb/02/sec-workers-investigated-for-viewing-porn-at-work/?feat=home_headlines

This is mostly an informational blog, because I'm not sure I have an opinion on it yet.  But Pink OTC Markets, Inc. and Cromwell Coulson certainly have an opinion on FINRA's recent proposal to create a Quotation Consolidation Facility ("QCF") or, as Pink OTC Markets calls it, an unconstitutional, anti-competitive, abuse of regulatory power, and a taking of property without just compensation.

You can read the FINRA proposal here.

You can read the comments that have been submitted to the proposal here.  Including the comment letter from Pink OTC Markets, Inc. here.

Finally, there is a pretty good commentary on the battle here.

I find the back office workings of quoting and trading in the OTC markets to be fascinating, but I will freely admit that I don't fully understand it.  I doubt many people really do.

Back in November I blogged on the potential sale of the OTCBB by FINRA.  It has been stated that Pink OTC Markets, Inc. is one of the leading candidates to buy it.  Now, Pink OTC Markets is accusing FINRA of circumventing (if not completely destroying) the asset that is for sale.  I guess if you can't get the price you want for something, and you have regulatory authority to create something competitive with your potential buyer, that is a pretty good negotiating position now isn't it?

In recent posts we reported the new SEC rules related to governance and executive compensation disclosure (see December 28, 2009 blog entry).  The new rules were approved by the SEC on December 16, 2009 and go into effect February 28, 2010.  In the SEC’s most recent Compliance & Disclosure Interpretations (CD&Is) the SEC staff sheds some light on the new requirements. 

Based on questions posed to the SEC staff, the following is a brief synopsis of the guidance given regarding the new requirements (for a full recitation of the questions and answers, see the full CD&Is here:  http://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm):

1.                  In the compensation table, for stock awards and option awards that are subject to vesting, the grant date fair value reported for awards excludes the effect of estimated forfeiture.

2.                  The disclosure related to Item 402(s) related to the narrative disclosure requirements regarding the registrant’s compensation policies and practices as they relate to the registrant’s risk management should be disclosed together with the registrant’s other Item 402 disclosure, and not placed in another area, which could hide or obscure the information.

3.                  The “additional services” provided by executive compensation consultants that are subject to the disclosure requirement of Items 407(e)(3)(iii)(A) and (B), are not limited to services for non-executives.

4.                  When the fees paid to compensation consultant’s are considered fees for services for “determining or recommending the amount or form of executive and director compensation” vs. when they are related to “additional services” depends on the facts and circumstances of each service.  The SEC stated:  “Fees for consulting on broad-based, non-discriminatory plans in which executive officers or directors participate and for providing information relating to executive and director compensation, such as survey data (in each case, that would otherwise qualify for the exclusion from disclosure if they are the only services provided), are considered to be fees for "determining or recommending the amount or form of executive and director compensation" for purposes of reporting fees under the rule. However, "consulting" on broad-based non-discriminatory plans does not also include any related services, such as benefits administration, human resources services, actuarial services and merger integration services, all of which are "additional services" subject to the disclosure requirements of Items 407(e)(3)(iii)(A) and (B). In addition, if the non-customized information relates to matters other than executive and director compensation, then the fees for such information would be for "additional services."

5.                  For Item 401(e)(1) disclosure, the evaluation of the director’s particular and specific experience, qualifications, attributes or skills that led the board to conclude the person should serve as a director at the time, needs to be made for each individual director independently and not in the aggregate for all directors.  Additionally, such disclosure should be provided for all directors, even if they are not up for re-election at the upcoming shareholder’s meeting.

6.                  If a company grants an equity award to an executive officer, but that same award is forfeited during the same year because the executive officer leaves the company, the grant date fair value of the award must be included for the purposes of determining the total compensation and identifying the name executive officers for that year.

For advice regarding any of these rules, a company should consult with legal counsel with experience representing public companies.

In December, the AICPA published an article entitled Self Evaluation - A Primer for Audit Committees, where they suggested that audit committees should conduct an annual self evaulation of their performance and effectiveness. 

The article is actually published by the AICPA's own Audit Commitee Effectiveness Center, a website devoted to audit committees that has a wealth of information.

On August 3, 2009, I blogged regarding the SEC’s proposed revisions to executive compensation disclosure in public company filings.  That blog contains an outline of the SEC proposals.  On December 16, 2009, the SEC approved the final rules revising the executive compensation disclosure in public company filings.  The SEC press release can be read here (http://www.sec.gov/news/press/2009/2009-268.htm) and contains a link to the final rule as well.  The final rules, which go into effect on February 29, 2010, are substantially similar to the proposed rules.

A brief synopsis of the new rules is set forth in the SEC’s press release and is recited here:

Require Disclosure of a Company's Compensation Policies and Practices as They Relate to the Company's Risk Management:

The SEC approved a rule that would help investors determine whether a company has incentivized excessive or inappropriate risk-taking by employees. Among other things, it would require a narrative disclosure about the company's compensation policies and practices for all employees, not just executive officers, if the compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the company. Smaller reporting companies will not be required to provide the new disclosure.

Enhance Information About Directors and Nominees:

The SEC approved new rules to improve information about directors and nominees for director. The new requirements include for each director and director nominee, disclosure of:

o       The particular experience, qualifications, attributes or skills that led the company's board to conclude that the person should serve as a director of the company.

o       Any directorships at public companies and registered investment companies that each director and director nominee held at any time during the past five years.

o       Legal proceedings, such as SEC securities fraud enforcement actions against the director or nominee, going back 10 years, instead of the current 5 years, as well as an expanded list of legal proceedings covered by the rule.

Disclose How Diversity Is Considered in the Director Nomination Process:

The SEC approved a rule that would require disclosure of whether, and if so how, a nominating committee considers diversity in identifying nominees for director.If the nominating committee or the board has a policy with regard to the consideration of diversity in identifying director nominees, the final rules require disclosure of how this policy is implemented and how the nominating committee or the board assesses the effectiveness of its policy.

Provide Information About Board Leadership Structure and the Board's Role in Risk Oversight:

The SEC approved rules relating to board leadership structure and the board's role in risk oversight. The rules require disclosure about:

o       A company's board leadership structure, including whether the company has combined or separated the chief executive officer and chairman position, and why the company believes its structure is the most appropriate for the company at the time of the filing.

o       In certain circumstances, whether and why a company has a lead independent director and the specific role of such director.

o       The extent of the board's role in the risk oversight of the company.

Require Quicker Reporting of Voting Results:

The SEC approved amendments to Form 8-K that would require companies to disclose the results of a shareholder vote within four business days after the end of the meeting at which the vote was held. This replaces the requirement to disclose voting results in Forms 10-K and 10-Q, which often are filed months after the relevant meeting.

Revise the Summary Compensation Table:

The SEC approved revisions to the reporting of stock and option awards in the Summary Compensation Table and the Director Compensation Table to better reflect the compensation committees' decisions with regard to these awards.

o       The amended rule requires companies to report the value of options when they are awarded to executives (the aggregate grant date fair value), instead of the current requirement to report the annual accounting charge.

o       A special instruction addresses performance based awards to address concerns that the new rule might discourage use of these awards.

Enhance Disclosure About Compensation Consultants:

The SEC approved rules requiring disclosure about the fees paid to compensation consultants and their affiliates in certain circumstances. This is intended to provide investors with information to help them better assess the potential conflicts of interest a compensation consultant may have in recommending executive compensation. The final rules are consistent with the rule proposal, but include exceptions for circumstances that should not raise the potential conflicts of interest.            

The most pertinent of these new rules will likely be those related to disclosure regarding qualifications of directors and director nominees, the disclosure related to why a management structure is appropriate for a given company, the quicker reporting of shareholder voting results, and the new method for pricing options under the executive compensation table.             

For advice regarding any of these rules, a company should consult with legal counsel with experience representing public companies.

With December upon us, the holidays are right around the corner.  This means you will likely be busy shopping, traveling, and enjoying friends and family in the weeks to come.  It also means the New Year will be upon us before we know it.  For most businesses the New Year brings new, unique opportunities. Many businesses are anxious to make those New Year’s resolutions a reality.  In order to take advantage of the optimism 2010 will bring, now is the time to make that end of season push to complete certain old projects by the end of the year and position your company where you want it to be in order to start 2010 with a bang.  Some of these projects might include:

• raising money to properly position your company to attain its goals in the new year,

• buying or selling a business segment or making a strategic acquisition,

• resolving old, outstanding disputes, or

• completing or updating a bonus or profit sharing plan.

Additionally, for many of you December 31st will mark the end of your fiscal year. With the condition of the economy being what it is, we know that taking advantage of every edge to help you maximize your company’s cash flows is valuable.  To assist in this task we are asking our clients to strategically plan their upcoming projects, in conjunction with their accountants, to determine the proper time to institute and complete them.  For many of you this will entail completing certain projects by December 31st in order to maximize certain tax benefits.  Obviously, we want to be able to service your needs in a timely manner so that you can appreciate the advantage of completing these projects by the end of the year.  These projects will vary greatly for each business, but some might include the following:

• converting debt to equity to remove the debt from your balance sheet,

• selling an asset to take advantage of the capital gains rate,

• buying an asset to use disposable income, or

• hiring a new employee with an upfront bonus.

Considering the above, please think about your upcoming projects (maybe those you have been putting off for some time), discuss your company’s financial situation with your accountant to determine the benefits of completing the projects by the end of the year, and then contact us in the near future so we can schedule your projects accordingly and complete them by the end of the year. 

Early Seasons Greetings,

The Lebrecht Group, APLC

Although it is in the early stages of the legislative process, there is possible relief on the way for smaller reporting companies that are facing the daunting task in 2010 of complying with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.  Earlier this month, the U.S. House Financial Services Committee voted to approve the “Investor Protection Act of 2009.”  If this bill is eventually signed into law, without major revisions, it would include a permanent exemption from the auditor attestation requirements of Section 404 (b) for companies with less than $75 million in market capitalization.  If successful this legislation would provide relief from the cost of complying with 404(b), which in our informal poll of auditors, is likely to add 20% to 50% to a company’s annual audit expenses.  Whatever the exact figure, complying with Section 404(b) will be a huge additional cost of being a public company and any relief from it would be welcome.  However, this bill, and the amendment exempting smaller companies from Section 404(b) in particular, faces opposition it will have to overcome in order to eventually become law.  In particular, SEC chair Mary Schapiro and investor advocates oppose this amendment, and the amendment only narrowly passed by a 37-32 vote earlier this month.  However, the bill and amendment does have support, notably from the Treasury Department and White House officials.  This bill obviously bears watching.  Check back for further updates as they become available.