The SEC has continued its recent pace in bringing enforcement proceedings and looking into allegations of fraud. Perhaps most significantly, the SEC has publicly commented on the allegations of fraud relating to public companies that become public as a result of reverse mergers. Our featured article, found below the new "Of Note" section summarizing events of the past quarter, discusses the SEC's comments.
The SEC has also adopted the highly controversial final rules relating to the Dodd-Frank Act's whistleblower program. As discussed below, companies will need to re-evaluate their existing compliance and reporting policies to reduce the risks of wrongdoing, as well as reinforce a culture that prevents employees from bypassing the companies' policies and going straight to the SEC after discovering potentially damaging information.
- The SEC announced in its timetable for implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act that it will adopt final rules on the disclosure relating to conflict minerals, disclosure by resource extraction issuers and disclosure of mine safety information. The deadline for adopting these rules was in April 2011. Members of Congress have asked the SEC to explain the delay. Look for a future issue of Public Company Perspectives for a discussion of the rules, once adopted.
- The SEC acknowledged that since it has not specified a taxonomy for use by foreign private issuers that prepare their financial statements in accordance with international financial reporting standards (IFRS), those foreign private issuers cannot comply with the interactive data reporting requirements for fiscal periods ending on or after June 15, 2011, which they otherwise are required to do. Until the SEC specifies a taxonomy, such foreign private issuers need not submit interactive data files or post such files on their website.
- SEC Chairman Mary L. Schapiro outlined the steps that the SEC has taken and intends to take to reduce regulatory burdens on raising capital, including the formation of a new Advisory Committee on Small and Emerging Companies and an evaluation of triggers for public reporting.
- Meredith Cross, the director of the SEC's Division of Corporation Finance, expressed concern as to whether the SEC can deliver a workable rule under Section 953(b) of the Dodd-Frank Act, which directs the SEC to require companies to publicly disclose the median annual total income for all employees (other than the CEO) and to calculate the ratio of that median income to the annual total income of the company's CEO.
- The Dodd-Frank Act directed the SEC to conduct a study to determine how to reduce the burden of complying with Section 404(b) of the Sarbanes-Oxley Act (auditor attestation requirement) for issuers whose market capitalization is between $75 million and $250 million. The SEC's Office of the Chief Accountant performed such a study and recommended that such issuers remain subject to Section 404(b). Accordingly, only issuers with a market capitalization of less than $75 million will be exempt from Sarbanes-Oxley's auditor attestation requirements.
- The SEC has been reviewing whether current disclosure requirements relating to exposure to cybersecurity risks are adequate. Currently, such risks must be disclosed only if material to a public company.
- The Public Company Accounting Oversight Board, or PCAOB, agreed to issue for public comment a concept release to enhance the quality and utility of auditors' reports, instead of the boilerplate language currently used.