SEC Fee Rate Advisory #1 for Fiscal Year 2015

The SEC announced that in fiscal year 2015 the fees that public companies and other issuers pay to register their securities will be set at $116.20 per million dollars, representing a 10% drop from the current filing fee rate of $128.80 per million dollars.  The SEC order can be reviewed here.

SEC Announces $300,000 Whistleblower Award to Audit and Compliance Professional Who Reported Company’s Wrongdoing

The SEC announced a whistleblower award of more than $300,000 to a company employee who performed audit and compliance functions and reported wrongdoing to the SEC after the company failed to take action when the employee reported it internally.  It’s the first award for a whistleblower with an audit or compliance function at a company.

SEC Adopts Asset-Backed Securities Reform Rules

The SEC announced that it has adopted new rules for asset-backed issuers governing the disclosure, reporting, and offering process for asset-backed securities (ABS) to enhance transparency, better protect investors, and facilitate capital formation in the securitization market.

SEC Adopts Credit Rating Agency Reform Rules

The SEC announced that it has adopted new requirements for credit rating agencies to enhance governance, protect against conflicts of interest, and increase transparency to improve the quality of credit ratings and increase credit rating agency accountability.  The new rules and amendments, which implement 14 rulemaking requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, apply to credit rating agencies registered with the SEC as nationally recognized statistical rating organizations (NRSROs).

SEC Charges Bank of America with Fraud in RMBS Offering

The SEC charged Bank of America and two subsidiaries with defrauding investors in an offering of residential mortgage-backed securities (RMBS) by failing to disclose key risks and misrepresenting facts about the underlying mortgages. (Press release and complaint)

The SEC alleges that Bank of America failed to tell investors that more than 70 percent of the mortgages backing the offering originated through the bank’s “wholesale” channel of mortgage brokers unaffiliated with Bank of America entities.  Bank of America knew that such wholesale channel loans presented vastly greater risks of severe delinquencies, early defaults, underwriting defects, and prepayment.  Bank of America only selectively disclosed the percentage of wholesale channel loans to a limited group of institutional investors.  Bank of America never disclosed this material information to all investors and never filed it publicly as required under the federal securities laws.

SEC Announces Award for Whistleblower Who Reported Fraud to SEC After Company Failed to Address Issue Internally

The SEC announced an award of more than $400,000 for a whistleblower who reported fraud to the SEC after the company failed to address the issue internally.

SEC Investor Alert on Unregistered Offerings

The SEC’s Office of Investor Education and Advocacy published an alert regarding unregistered offerings, entitled “10 Red Flags That an Unregistered Offering May be a Scam.” When Rule 506(c) of Regulation D was adopted pursuant to Title II of the JOBS Act, many feared that the rule would facilitate scammers trying to use the lifting of the general solicitation ban as a way to reach more potential victims.  This new investor alert is directed at educating investors about scams involving private placements and unregistered offerings, not just those involving a general solicitation.

SEC Announces Settled Proceedings for CEO and CFO Violations of SOX Internal Control and Certification Provisions

The SEC announced partially settled administrative proceedings against the CEO and former CFO of a company for violating the SOX internal control and certification provisions. The SEC alleges that the CEO and former CFO represented in a management’s report on internal controls that the CEO participated in management’s assessment of the company’s internal controls, when he didn’t actually participate in the evaluation. Moreover, the CEO and former CFO were alleged to have each certified that they had disclosed all significant deficiencies in internal controls to the outside auditors, when they allegedly misled the auditors about their controls by withholding from the auditors information about inadequate inventory controls and improper accounting practices.  It is not often in the years since SOX was enacted that these sort of standalone internal control/certifications cases are brought. Typically charges on these points are incidental to a much larger case relating to accounting failure.

SEC Publishes Investor Alert Regarding False and Misleading Stock Information Spread via Social Media

The SEC’s Office of Investor Education and Advocacy published an Investor Alert warning that promoters may use social media channels to spread false and misleading information about stock, mostly penny stocks.  Use of social media enables promoters to reach larger numbers of individuals with minimum effort and at a relatively low cost.  The alert provides tips as to how to spot the red flags of a social media based investment fraud.


Delaware Extends Inspection Rights to Privileged Internal Investigation Documents

The Delaware Supreme Court in Wal-Mart v. Indiana Electrical Workers Pension Trust Fund– approved granting shareholders the right to inspect privileged and confidential internal investigation materials upon showing “good cause.”

American Meat Institute and the Conflict Minerals Rules

The U.S. Court of Appeals for the District of Columbia Circuit issued an en banc opinion in the appeal of American Meat Institute vs. U.S. Department of Agriculture, upholding a Department of Agriculture rule requiring “country of origin” labeling for meat products.  The outcome of this case may give the SEC hope that the Court will reverse the three-judge panel’s holding that the Dodd-Frank Act conflict minerals disclosure rules violate the First Amendment in National Association of Manufacturers, et al., v. Securities and Exchange Commission.  This is because a central issue with regard to the standard for review in the National Association of Manufacturers case was also at issue in American Meat Institute.

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Broadridge Publishes 2014 Proxy Season Statistics

Broadridge released its 2014 proxy season statistics. Most were in line with recent years, except mobile voting grew to over 1.5 million shareholders, a 300% increase over since ’12 and 70% from ’13.

PwC and IRRC Report on Cybersecurity Disclosures

report released by PwC and the Investor Responsibility Research Center Institute indicates that while companies must disclose significant cyber risks, “those disclosures rarely provide differentiated or actionable information.” The report goes on to examine key cybersecurity threats to corporations and provides information to investors for the purpose of evaluating investment risk, business mitigation strategies, and the quality of corporate board oversight.

Updated AICPA Comfort Letter Guidance

The American Institute of Certified Public Accountants issued SAS 129, which amends the guidance in SAS 122 on comfort letters. The amendment addresses the auditor’s responsibilities when engaged to issue comfort letters to requesting parties in connection with a nonissuer entity’s financial statements included in a registration statement or other securities offerings. Through this amendment, the AICPA is seeking to address unintended changes to previous practices as a result of its Clarity Project (not to be confused with the FASB Simplification Initiative). The amended comfort letter guidance is effective for comfort letters issued on or after December 15, 2014, but early implementation is encouraged