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Showing posts with the label Securities and Exchange Commission

Proxy Access Granted! (Sandy Wu, CIR Intern and MSF program, GWU)

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The Securities and Exchange Commission voted this morning to adopt changes to the federal proxy and other rules to facilitate director nominations by shareholders by allowing shareholders to more easily nominate directors to corporate boards. This will definitely change the balance of power between general investors and management at many U.S. companies. This is the fourth time the SEC considered questions about proxy access over the past few years.The Dodd-Frank Wall Street Reform and Consumer Protection Act finally confirmed the Commission’s authority to resolve the issue. “The proxy is often the principal means for shareholders and public companies to communicate with one another, and for shareholders to weigh in on issues of importance to the corporation,” said SEC Chairman Mary L. Schapiro. The rule was passed on a 3-2 vote, with two Republican commissioners, Troy Paredes and Kathleen Casey, opposing. “The rule is fundamentally and fatally flawed, and it will have great diff…

SEC Approves Enhanced Disclosure About Risk, Compensation and Corporate Governance

On December 16, 2009, the Securities and Exchange Commission "approved rules to enhance the information provided to shareholders so they are better able to evaluate the leadership of public companies.

Additional Materials

Final Rule: Proxy Disclosure Enhancements

Beginning in the upcoming annual reporting and proxy season, the new rules will improve corporate disclosure regarding risk, compensation and corporate governance matters when voting decisions are made.

In particular, the new rules require disclosures in proxy and information statements about:

The relationship of a company's compensation policies and practices to risk management.

The background and qualifications of directors and nominees.

Legal actions involving a company's executive officers, directors and nominees.

The consideration of diversity in the process by which candidates for director are considered for nomination.

Board leadership structure and the board's role in risk oversight.

Stock and option awards to …

Major SEC shareholder resolution policy change

According to the Responsible Investor and SEC websites, in a major policy reversal, "the Securities and Exchange Commission (SEC) (will) allow shareholder resolutions (concerning) companies’ environmental and social risks.. Similar resolutions had previously been blocked under policies dating back to the Bush administration. The move was unveiled in new guidance by the SEC’s Division of Corporation Finance under new director Meredith Cross. As a result, companies will no longer be able to automatically exclude resolutions seeking information on the risks of environmental, human rights and other social issues." Shareholder resolutions are now sure to include executive compensation, community development, diversity, gender, SRI, ESG and CSR issues.

See: http://www.sec.gov/interps/legal/cfslb14e.htm

Wall Street firms systematically cheated customers

As noted in the New York Times, "More than a dozen Wall Street trading firms systematically cheated their customers of millions of dollars by improperly slicing bits of profit from countless trades, federal regulators said on Wednesday. The Securities and Exchange Commission disclosed the allegations after negotiating settlements. The firms did not admit or deny the charges but agreed to pay a total of more than $69 million in forfeited profits and penalties.

The 14 firms named in the complaints are all “specialists,” trading firms that have a specific duty to maintain orderly markets by matching buyers and sellers and standing ready to conduct trades when buyers or sellers are scarce. They include units or subsidiaries of well-known Wall Street names, including E*Trade Capital Markets, Goldman Sachs Execution and Clearing, Knight Financial Products and TD Options."

SEC to Discuss Rules Governing Credit-Rating Agencies

According to the Washington Post, "The Securities and Exchange Commission is planning to announce Thursday it will hold a roundtable to discuss how to revamp the rules governing credit-rating agencies, according to people familiar with the matter.

This would be the first step toward addressing problems in the industry and the first public policy initiative taken by new SEC Chairman Mary L. Schapiro since she started at the commission.

Schapiro has raised concerns about credit-rating agencies, which are private firms that have been blessed by the SEC to judge the credit-worthiness of securities. Credit-rating firms gave high grades to many of the mortgage-related securities that turned out to be toxic and have wreaked havoc in the financial crisis.

The roundtable is scheduled for April 15. The three major credit- raters, including -- Standard & Poor's, Fitch Ratings and Moody's, -- and others have been invited to speak.

Schapiro has criticized the way credit-rating firms a…

SEC Approves Measures to Strengthen Oversight of Credit Rating Agencies

The SEC today "approved a series of measures to increase transparency and accountability at credit rating agencies, and ensure that firms provide more meaningful ratings and greater disclosure to investors.

The new measures impose additional requirements on credit rating agencies, whose ratings of residential mortgage-backed securities backed by subprime mortgage loans and of collateralized debt obligations linked to subprime loans contributed to the recent turmoil in the credit markets. The SEC also proposed additional measures related to transparency and competition concerning credit rating agencies."

We think these reforms are important first steps, and are mindful of the fact that politics and regulation are the "art of the possible."

As we said in 2005, fradulent practices by credit rating agencies

"threaten the integrity of securities markets. Individuals and market institutions with the power to safeguard the system, including investment analysts and NRSRO…

What we said...

Someone recently asked about our track record with respect to the market crisis. Here, from 2003 and 2006, are a few of our comments:

SEC Comments. Page 6: "Envy, hatred, and greed have flourished in certain capital market institutions, propelling ethical standards of behavior downward. Without meaningful reform, there is a small (but significant and growing) risk that our economic system will simply cease functioning."

http://www.sec.gov/rules/proposed/s71903/wmccir122203.pdf December 22, 2003.

and:

SEC Comments. Page 2: "Together these practices threaten the integrity of securities markets. Individuals and market institutions with the power to safeguard the system, including investment analysts and rating agencies, have been compromised. Few efficient, effective and just safeguards are in place. Statistical models created by the firm show the probability of system-wide market failure has increased over the past eight years.

Investors and the public are at risk."

http…

SEC Disclosure Initiatives (E.M. Chang)

Modernizing the Securities and Exchange Commission’s Disclosure System

Yesterday, the SEC hosted a roundtable meeting to discuss the 21st Century Disclosure Initiative. The Initiative seeks to examine the basic purposes of disclosure, from the perspectives of investors and markets. The SEC hopes to create a comprehensive plan for overhauling the current disclosure system, EDGAR.

In the first panel, panelists talked about the kinds of information and data format that the market and investors really need, given this dynamic market environment. Most panelists argued that investors need summarized information rather than whole financial statements.

A summary of panelist comments would be:

"Most individual investors access company information using third party services, like Yahoo Finance, Bloomberg, etc… The issue is that people don’t really have time and ability to figure out where is the number they want by looking at the hundreds pages financial statements in the EDGAR system. Howev…

Christopher Cox

Christopher Cox is still, without a doubt, the best financial regulator appointed thus far by the Bush Administration. We base this on performance. Mr. Cox knew the situation. He came in at a time of unprecedented corporate and market institution fraud and malfeasance. Things got worse, of course, but it was bad when he walked in the door. As soon as he took over, he increased staff and started investigating Wall Street broker/dealers, something many did not believe he would do, given his close ties to the Street. His Office of Interactive Disclosure is a masterpiece, and shows he understands the role technology will play in preventing future crises. The Office created an online tool that enables investors to easily and instantly compare what 500 of the largest American companies are paying their top executives, an Internet Web page that enables investors to more easily read, analyze, and compare the information provided by mutual funds related to fund cost, risk, and past performance

SEC Charges Former CEO of Kellogg, Brown & Root, Inc. with Foreign Bribery

According to the SEC:

"Washington, D.C., Sept. 3, 2008 — The Securities and Exchange Commission today charged former Kellogg, Brown & Root, Inc. (KBR) executive Albert Jackson Stanley with violating the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and related provisions of the federal securities laws. The Commission alleges that over a 10-year period, Stanley and others participated in a scheme to bribe Nigerian government officials in order to obtain construction contracts worth more than $6 billion. The contracts were awarded to a four-company joint venture of which The M.W. Kellogg Company, and later KBR, was a member."

Pax Fined for Failure to Screen Investment Funds (Angela Wang)

According to the Associated Press, “Pax World Management Corp. has agreed to pay a $500,000 fine because it failed to follow its own socially responsible investing criteria over a five-year period, when two of its mutual funds invested in off-limits industries such as gambling and liquor, and oil and gas exploration.”
“Portsmouth, N.H.-based Pax, a pioneer in the growing socially responsible investing niche, agreed to pay the penalty to resolve civil charges announced Wednesday by the Securities and Exchange Commission.”

“Pax said the portfolio managers that had overseen the two funds at which the SEC found violations are no longer employed by Pax. The firm's head of social research at the time of the failures also has left, along with the chief compliance officer.”

http://ap.google.com/article/ALeqM5jpAR6_I1tvMPstp_dU30tfdqP-AQD928BKJ03

Angela Wang

U.S. Senate confirms 3 new SEC commissioners

According to Reuters,

"WASHINGTON, June 27 (Reuters) - The U.S. Senate on Friday confirmed one Republican and two Democratic nominees to fill open commissioner seats at the Securities and Exchange Commission. Luis Aguilar, a law partner at McKenna Long & Aldridge, and Elisse Walter, a senior executive with the Financial Industry Regulatory Authority, were approved for the vacant Democratic seats on the commission.

Troy Paredes, a professor at Washington University School of Law, was approved for the open Republican spot."

We do not expect much, at this late date, from these new Commissioners. In the SEC's upcoming battle with Treasury and the Federal Reserve Board, having the SEC board at full strength (something the Fed is not) is a small advantage, but will probably be negated.

Under the "Blueprint for Regulatory Reform: A Report from the Treasury Department on Ways to Improve Oversight of the Financial Services Sector" plan announced on Saturday, March 29, …

"Treasury Dept. Plan Would Give Fed Wide New Power"

According to the New York Times, a Treasury Department plan released (over a weekend to the press and selected insiders only) would give substantial new power to the Federal Reserve Board. "The Treasury plan would let Fed officials examine the practices and even the internal bookkeeping of brokerage firms, hedge funds, commodity-trading exchanges and any other institution that might pose a risk to the overall financial system." This would be a significant expansion of the central bank’s regulatory mission.

We are not, at this point, opposed to this effort. We noted, in an October 2, 1998 filing with the DC Circuit of the US Court of Appeals (Case Number 98-1459), our belief that the Fed should be designated a "Super-regulator, with broad responsibility for overseeing the activities of banks, thrifts, pension funds, insurance companies, mutual funds, brokerage firms and investment banks.

We believe social investors need to review the plan carefully. The Times stated:

&quo…

SEC launches new investment analysis tool

According to the SEC,

"The Securities and Exchange Commission announced the launch of the “Financial Explorer” on the SEC Web site to help investors quickly and easily analyze the financial results of public companies. Financial Explorer is open source, meaning that its source code is free to the public, and technology and financial experts can update and enhance the software."

"In addition to Financial Explorer, the SEC currently offers investors two other online viewers – the Executive Compensation viewer and the Interactive Financial Report viewer, also available at www.sec.gov/xbrl. The Executive Compensation viewer enables investors to instantly compare what 500 of the largest U.S. companies are paying their top executives. The Interactive Financial Report viewer also helps investors gather, analyze, and compare key financial disclosures filed voluntarily by public companies using XBRL."

New Internet Tool With Instant Comparisons of Executive Pay

According to the SEC:

"Securities and Exchange Commission Chairman Christopher Cox today launched the first-ever online tool that enables investors to easily and instantly compare what 500 of the largest American companies are paying their top executives. The new database highlights the power of interactive data to transform financial disclosure.The Executive Compensation Reader - available today on the SEC's Web site at http://www.sec.gov/xbrl - builds on the Commission's new requirements that went into effect earlier this year to dramatically enhance clarity and completeness of executive compensation disclosure."

On Shareholder Proposals: the Big Dogs Weigh In

In a November 1st letter to the Chairman of the SEC, Christopher Cox, 9 members of the Senate Banking Committee, or almost ten percent of the full U.S. Senate, wrote urging the SEC to maintain the current set of proxy rules and regulations. In the view of these members, "neither proposal should be adopted."

(For our response, see:
http://twisri.blogspot.com/2007/10/response-to-sec-shareholder-proposals.html)

Current federal law leaves regulation of the proxy process up to the SEC. Period. In a side conversation at a House Financial Services Committee hearing on Proxy Access held on 9/27, we warned Tim Smith, Chairman of the Social Investing Forum against believing that pushing to hold a hearing or getting letters written will block implementation of one of the two proposed rules. The issue is similar to what occurred in Florida (2000) and Ohio (2004:) what matters is the relevant vote, not the popular vote. In this case, the relevant vote is that of the Commission. Unless you h…

Turmoil at the SEC

According to the SEC, "Commissioner Roel C. Campos..announced that he intends to leave the Commission in a month's time and plans to return to the private sector. Currently serving his second term, Mr. Campos was first appointed by President George W. Bush and confirmed by the U.S. Senate as a Commissioner in August 2002." This follows the August 6, 2007 announcement that "Martin P. Dunn, Deputy Director of the Division of Corporation Finance, will leave the agency at the end of August to join O'Melveny & Myers LLP as a partner in its Washington D.C. office."

We believe Mr. Campos and Mr. Dunn may have been implicated in, or administratively responsible for, the leak of a draft proxy access proposal (SEC Proxy-Access Proposal Draws Fire from Investors. The Wall Street Journal. By JUDITH BURNS. July 11, 2007; Page D2). This leak led to concerns about the early and selective distribution of proposed public policies only to moneyed interest groups. We note …

This Week's Events and News

Presbyterian Foundation cited for socially responsible investing

According to The Presbyterian News Service, "The Social Investment Forum Foundation listed the Presbyterian Foundation as one of the leading United States foundations using social or environmental screening along with traditional financial analysis as criteria for their investment strategy. Other foundation leaders in social and environmental screening recognized include the United Methodist Foundation and the United Church Foundation."

SEC News and Enforcement Actions

On August 7, 2007, the Securities and Exchange Commission "filed financial fraud charges against First BanCorp, alleging that former senior management of the NYSE-listed, Puerto Rico-based bank holding company concealed the true nature of more than $4 billion worth of transactions involving "non-conforming" residential mortgages. Non-conforming mortgages have income verification and credit history standards that are generally more fle…