fear and loathing on the ir trail class actions enforcement proceedings and restatements n.
Download
Skip this Video
Download Presentation
Fear and Loathing on the IR Trail: Class Actions, Enforcement Proceedings and Restatements

Loading in 2 Seconds...

play fullscreen
1 / 11

Fear and Loathing on the IR Trail: Class Actions, Enforcement Proceedings and Restatements - PowerPoint PPT Presentation


  • 97 Views
  • Uploaded on

Fear and Loathing on the IR Trail: Class Actions, Enforcement Proceedings and Restatements. Jerome F. Birn, Jr. March 18, 2005. Topics. Shareholder Class Actions SEC & U.S. Attorney Proceedings Reg. FD MD&A Safe Harbor SOX 404 and Erosion of Materiality. Shareholder Class Actions.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Fear and Loathing on the IR Trail: Class Actions, Enforcement Proceedings and Restatements' - ima


Download Now An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
fear and loathing on the ir trail class actions enforcement proceedings and restatements

Fear and Loathing on the IR Trail:Class Actions, Enforcement Proceedings and Restatements

Jerome F. Birn, Jr.

March 18, 2005

topics
Topics
  • Shareholder Class Actions
  • SEC & U.S. Attorney Proceedings
  • Reg. FD
  • MD&A
  • Safe Harbor
  • SOX 404 and Erosion of Materiality
shareholder class actions
Shareholder Class Actions
  • Filing trends
  • Institutional plaintiffs
  • Evolving case law
  • Personalized exposure
sec u s attorney proceedings
SEC & U.S. Attorney Proceedings
  • New attitude
    • A crime is a crime
    • Aiding & abetting
  • Explosion of chain-of-command: whistleblowers
  • Up and down the org chart
  • Enforcement as retrospective regulation
  • What they expect
    • Independent internal investigation
    • Discovery costs and burdens
    • Privilege waivers
reg fd recent enforcement actions
Reg. FD:Recent Enforcement Actions
  • Schering-Plough (Sept. 2003)
    • Conduct
      • Individual meetings with several fund managers/buy-side analysts
      • Non-webcast meeting with sell-side analysts
    • Improper disclosures
      • Negative tone on Q3-02 and FY 2003 – but no specific numbers
      • Prior disclosures said trends “could” happen; comments said “would”
    • “Providing guidance to a select few through a combination of spoken language, tone, emphasis, and demeanor, is precisely the kind of unfair advantage that the SEC wants to prevent.”
    • $1 million fine against Company; $50,000 fine against CEO
reg fd recent enforcement actions1
Reg. FD:Recent Enforcement Actions
  • Allegations in Siebel Systems (June 2004)
    • Conduct: after CFO held one-on-one meeting with institutional investor and invitation-only dinner with investment banker, stock rose 8% the next day
    • Improper alleged actions
      • Positive comments about business activity level and deal pipeline in contrast to prior negative comments
      • IR Director named because he “failed to prevent selective disclosure” and “failed to cause Siebel to make public disclosure the next day”
    • First enforcement action for failure to maintain adequate disclosure controls and procedures
reg fd lessons
Reg. FD Lessons
  • Current quarter guidance especially sensitive
  • FD applies to good news or bad news
  • SEC focusing on nudge and a wink
  • High risk
    • One-on-one meetings
    • Analyst changes projections after private meeting or call
  • Best Practices
    • Email
    • Don’t reaffirm guidance unless you really mean it
    • No follow-up calls to make sure they “get it”
    • Consider a press release or web-cast updates
    • Always check with counsel
meaningful md a
Meaningful MD&A
  • Caterpillar (known trends and uncertainties)
    • Brazilian subsidiary accounts for 23% of profits but not separately disclosed in MD&A
    • Notwithstanding risk disclosures in 10-K and 10-Q, Caterpillar did not go far enough to disclose uncertainties and potential adverse effects on earnings.
    • Company lacked "adequate procedures . . . designed to ensure compliance with the MD&A requirements."
meaningful md a1
Meaningful MD&A
  • The key: meaningful disclosure controls
    • Appropriate controls can atone for a mistake
    • Accounting controls vs. disclosure controls
    • Create viable internal channel for whistleblowers and procedures for responding
    • Review of MD&A
      • Compare disclosures to internal presentations on trends and risks
      • Elicit views of counsel/disagreements
    • Non-GAAP financial measures (Reg. G and Item 10 of Reg. S-K)
      • Accompany and reconcile
      • Consistency and transparency
  • Need protocol to close quarter and issue results, including MD&A
  • Same protocol for guidance updates
effective use of safe harbor
Effective Use of Safe Harbor
  • Significance and structure of Safe Harbor
  • Written vs. oral
  • Baxter case
    • No basis to conclude the important risks were disclosed
    • The risks remained the same; the problems allegedly didn’t
  • Companies often fail to
    • Identify the forward-looking information
    • Accompany it with risk factors
    • Make the cautionary disclosures meaningful
sox 404 and the erosion of materiality
SOX 404 and the Erosion of Materiality
  • Quick overview of Section 404
    • Management design and test controls
    • Auditors must attest to efficacy of controls
  • What is a “material weakness”?
    • “More than remote” chance that a defective control will create a material error
  • You must disclose and describe a material weakness
  • End of the era of non-material errors?
    • SAB 99 and the old “5% rule”
    • A 1% error could be immaterial to financial statements but a “material weakness” requiring disclosure
  • Beginning of the era of “presumptive restatement”?