Tag: Broc Romanek

SEC’s New Enforcement Cooperation Initiative

The Securities and Exchange Commission announced a new initiative encouraging cooperation. They put on a big media blitz. Big enough that they even allowed me to ask a question of SEC Enforcement Director Robert Khuzami.

For the first time, the SEC set out how it will evaluate whether, how much, and in what manner to credit cooperation, to serve as an incentive to report violations and cooperate fully and promptly in enforcement cases.

The SEC will have some new cooperation tools at its disposal:

  • Cooperation Agreements — Formal written agreements in which the Enforcement Division agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information and testimony.
  • Deferred Prosecution Agreements — Formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution.
  • Non-prosecution Agreements — Formal written agreements, entered into under limited and appropriate circumstances, in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and comply with express undertakings.

One thing that came out of my discussion with Khuzami (I’m not sure I should call him Rob.) is that the SEC is looking towards the Department of Justice and criminal prosecutions on how to use these tools. But the SEC, as a civil enforcement agency, is not used to having the benefit of these tools.

Plus, the enforcement division can only make a recommendation to the Commission with a cooperation agreement. The Commission can ignore the cooperation and still bring down its full hammer on a someone even if they are a whistle blower and cooperating with the enforcement division. The cooperation message I was hearing from the SEC did not give me the warm fuzzies.

Nonetheless, the new tools should encourage cooperation and be beneficial to SEC Enforcement. For individuals, they have the prospect that they may not be prosecuted. Companies may also induced by being able to avoid the filing of the typical SEC complaint, with pages and pages of misconduct.

To publicize the new cooperation initiative, the SEC even assembled a new Enforcement Cooperation Initiative website. The best publicity will be an individual or company benefiting from cooperation.

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Tuesday Morning Quarterback of Free Enterprise v. PCAOB

pcaob logo

On Monday, the Supreme Court listened to the oral arguments in Free Enterprise Fund v. Public Company Accounting Oversight Board (08-861). For me in the compliance world, the case is about the viability of PCAOB under Sarbanes-Oxley. For the constitutional scholars it is an important separation of powers case.

Responding to concerns about accounting that led to the collapses of Enron and WorldCom, Sarbanes-Oxley established PCAOB as an independent body to oversee the firms that do accounting for public companies. The law gives the Securities and Exchange Commission power to name the members of the Public Company Accounting Oversight Board.

The trouble is that the President has no power to remove the Commissioners of the SEC, other than the Chair. The President can only appoint them. Similarly, the SEC selects the board members of PCAOB, but cannot remove them. The Free Enterprise group says that violates a clause of the Constitution giving the president the power to appoint government officials except for certain instances involving inferior officers.

If the Supreme Court agrees that PCAOB isn’t constitutional, it could force a revisit of Sarbanes-Oxley, or at least the portion of it that creates PCAOB. In a broader view for constitutional scholarship, the case could also call into question other independent agencies and how they appoint members of those agencies.

David Zaring in The Conglomerate thinks that the Supreme Court is unlikely to get in the way of an important government agencey. After all eliminating an agency is a sever sanction.

Orin Kerr in The Volokh Conspiracy> got the impression that the arguments did not go well for the challengers to the constitutionality of the Public Company Accounting Oversight Board.

Fawn John Johnson and Jess Bravin in The Wall Street Journal look to Justice Kennedy as the key to which way the Supreme Court will decide. The liberal justices are less likely to find fault with the independent agencies. For conservative legal scholars, the case is less about the accounting board itself than about the “unitary executive” theory, which holds that because the president is accountable to the electorate, he must be able to remove federal officials at will.

The transcript and reports seem to focus on how much control the SEC has over PCAOB. Hans Bader points out that the SEC had previously expressed its frustration about how little control it had over PCAOB, seemingly contrary to the arguments made in front of the Supreme Court.

David Zaring in The Conglomerate points out that the number of law review articles referring to “PCAOB”: 1021.  Number referring to “PCOAB”: 29. So much for the higher scholarship and editing of law review articles over blogs.

UPDATE:

Broc Romanek, of The Corporate Counsel.net provides a great first-hand account of the hearing and his experience at the Supreme Court the day of the hearing: My SCOTUS Experience: The Full Monty.

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Investor Relations 2.0 After This Proxy Season

Hopefully your annual meeting of investors or shareholders went better than the annual meeting for Fortis. Shareholders in Ghent, Belgium threw shoes, coins and ballot boxes. (There is even video.)

Broc Romanek put together his thoughts on Proxy Season Developments: Ten Signs that Things are Changing Online.

  1. First Use of Live Internet Voting
  2. Soliciting Shareholder Feedback on Compensation Practices
  3. Soliciting Shareholder Feedback on Disclosures
  4. Emergence of Proponent Sites Designed to Solicit Mutual Funds
  5. Easier Ability to Track Voting ResultsUse of “RSS Street” to Follow Developments
  6. Use of Corporate Blogs (and Third-Parties) to Solicit Questions
  7. Use of Twitter to Describe Live Events
  8. Investors Communicating Through Social Sites
  9. Much Easier Use of Video Changes Everything

There is also an opportunity to review the success of the online delivery of materials through the Notice and Access Rules. Dominic Jones of the IR Web Report pointed out some statistics on its effectiveness. According to the Broadridge Notice and Access Resource Center there is a big cost savings, but also a big drop in shareholder participation.

But 2.0 tools are giving more power for investors to voice their views as part of the annual meeting. Shareholder activist Robert A.G. Monks posted a transcript of his presentation of five proposals at the Exxon meeting. You can also hear the entire meeting.

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