6/09/08 -- More Senior Officers Are Getting Snared in Insider Trading Cases.
The Securities and Exchange Commission (SEC) has seen a rise in the number of senior company officials engaging in insider trading, a senior SEC official said in a June 4, 2008, speech in Washington, DC.

"We have been recently dismayed at the nature of the defendants' behavior, which is troubling," said Linda Thomsen, Director of the SEC's Enforcement Division. "The tippers and tippees have been in senior positions of trust and confidence, and the quality of the behavior is reminiscent of the days of Ivan Boesky and Dennis Levine."

Thomsen, who was speaking at Compliance Week's annual conference, said that the number of insider trading cases brought by the agency has remained steady in recent years, with 46 cases in 2006 and 47 in 2007. Insider trading cases account for 8% to 12% of the Enforcement Division's work.

"The people involved may not remember Boesky and Levine," said Thomsen, in reference to two notorious insider trading cases in the 1980s. "The need to remind people of the consequences of this kind of behavior is acute."

Another recent upward trend is in foreign bribery cases, according to Thomsen.

"In the past two or so years, there have been more cases than in the 30-year history of the (Foreign Corrupt Practices) Act," said Thomsen, who attributes the trend in part to the rise in global transactions. The SEC recently brought criminal actions against some companies over bribery allegations involving officials in Nigeria, Rwanda, and Senegal.

6/03/08 -- SEC Issues XBRL Filing Proposal in Release No. 33-8924.
The Securities and Exchange Commission (SEC) issued Release No. 33-8924, Interactive Data to Improve Financial Reporting, on May 30, 2008.

Comments on the proposal are due by August 1.

If approved, the final rule would require U.S. issuers and foreign registrants that follow U.S. generally accepted accounting principles (GAAP) and have public floats above $5 billion required to submit financial statements tagged in the eXtensible Business Reporting Language (XBRL) as separate exhibits to their filings for their reporting periods that end on or after December 15, 2008.

The SEC is proposing a phased launch that would apply to all domestic companies following U.S. GAAP and foreign registrants using the International Financial Reporting Standards (IFRS) by 2010.

The tagged financial statements would be provided as exhibits in Item 601(b) of Regulation S-K and Form 20-F.

In addition, while companies would be required to submit financial statements tagged in interactive data, they would still have to submit statements in the standard electronic formats that they have had to use for regulatory filings for several years- ASCII code and hypertext markup language (HTML).

The SEC asked that all filers use the XBRL tags in the EDGAR Filer Manual. Public companies would also have to publish the same tagged data they submit to the SEC on their corporate websites.

5/21/08 - FASB Will Review Measurement of Transferor Interests in Financial Asset Sales.
Now that the Financial Accounting Standards Board has decided to no longer permit qualified status for special purpose entities, it is moving on to consideration of the other proposed amendments that had been included in Exposure Draft (ED) No. 1225-001, Accounting for Transfers of Financial Assets: An Amendment of FASB Statement No. 140.

The topic is the only official order of business for the Board's May 21, 2008, weekly meeting at its Norwalk, CT, headquarters.

The Board plans to look at the measurement of interests that continue to be held by the transferor, and whether it needs to be amended from the existing Statement of Financial Accounting Standards (SFAS) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities--a Replacement of FASB Statement No. 125. There have been heated exchanges as to how to measure interests held by the transferor, such as a bank selling securitized assets, as well as those interests now held by the transferee, especially in the aftermath of the sub-prime mortgage crisis.

In 2007, the Securities and Exchange Commission encouraged the FASB to allow SFAS No. 140 to be interpreted so that mortgage originators, or transferors, could modify the terms of loans without violating the terms of the securitizations.

5/20/08 -- SEC Release No. 34-57795 Seeks To Adjust Shareholder Requirements for NASDAQ Companies.
The Securities and Exchange Commission posted a proposal from Nasdaq OMX Group Inc. in Release No. 34-57795, Notice of Filing of Proposed Rule Change to Modify Nasdaq's Continued Listing Requirements to Replace Round Lot Shareholders, on May 7, 2008. The proposal seeks to alter the listing requirements for companies that trade on the exchange.

Comments are due June 3.

The proposed changes would affect Nasdaq's definitions under Section 19(b)(1) of the Securities Exchange Act of 1934 of the terms public holders, beneficial holders, round lot holders, total holders, and reported security for a Nasdaq stock.

An amendment to Nasdaq Rule 4310 would permit U.S. companies that have at least 300 public shareholders, instead of 300 round lot holders, to continue to list on the exchange. Similar changes are proposed for foreign securities and American Depositary Receipts.

According to the SEC, Nasdaq is proposing the changes because of the difficulty it has in determining which shareholders hold round lots. SEC rules only require public companies to disclose the total number of shareholders in their filings, not the number of round lot holders.

5/19/08 -- SEC Amends Rules for Business Development Companies in Release No. IC-28266.
In Release No. IC-28266, Definition of Eligible Portfolio Company under the Investment Company Act of 1940, issued on May 15, 2008, the Securities and Exchange Commission said it amended Rule 2a-46 of the Investment Company Act of 1940 in order to make it easier for investors to help finance small business.

The amendment expands the definition of eligible portfolio company to include any domestic operating company with securities listed on a national securities exchange if the company has a market capitalization of less than $250 million.

The amendment will be effective in July, 60 days after its publication in the Federal Register.

The rule was originally drafted in 2006 in light of the Federal Reserve's 1998 amendments to the definition of eligible portfolio company. Congress established business development companies (BDCs) in 1980 to help fund smaller and developing companies, but the Investment Company Act prohibited a BDC from making an investment unless 70% of its total assets were invested in securities of specific types of companies, including eligible portfolio companies.

The amendment is designed to provide an easier access to capital for certain smaller companies that may not have ready access to the public capital markets or other forms of conventional financing.

5/12/08 --Chip Maker Marvell Technology Hit With Options Backdating Charge
A Silicon Valley semiconductor company and one of its co-founders have agreed to pay fines to settle charges of backdating stock options filed May 8, 2008, by the Securities and Exchange Commission.

The SEC's complaint against Marvell Technology Group of Santa Clara, CA, and former chief operating officer Weili Dai alleged that Marvell provided potentially lucrative "in-the-money" options (granted at below-market prices) to employees.

Rather than report compensation expenses to shareholders, as required at the time for these "in-the-money" options, the SEC charges that Marvell backdated the options to dates with lower stock prices, and falsely represented that the options had been granted "at-the-money" (at market price) on earlier dates.

The complaint said that Marvell "used employee stock options as a form of compensation to recruit, reward, and retain key employees."

According to the SEC, such grants of in-the-money options, without taking the appropriate compensation charge on the company's income statement, ran afoul of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.

Marvell and Dai settled the SEC's charges without admitting or denying the allegations and will pay financial penalties of $10 million and $500,000, respectively.

5/08/08 -- SEC Chair Talks About a Coordinated Response to the Credit Crisis
The introduction of mark-to-market accounting in the 1990s helped financial institutions and regulators address the problems of that era, but with the collapse of the subprime mortgage market, regulators are contending with a host of problems they never expected and wondering if the accounting practice is suitable to the current crisis.

"The apparent pro-cyclicality of fair value accounting has gotten the attention of economists as well as accountants," Securities and Exchange Commission Chairman Christopher Cox said in an April 30, 2008, speech to the Investment Company Institute in Washington, DC.

Some analysts, in looking at the effect fair value rules have had on market behaviors, have wondered if the valuation techniques banks employ exacerbate market cycles on both the way up and the way down. In-demand securities become valued more highly on banks books while investors are interested in them. When the liquidity dries up, valuation services decrease the reported prices, then banks write down the values on their balance sheets, and the result is a vicious cycle.

"The fact that model-based valuations in the absence of an active market can be highly variable across companies in similar circumstances means that almost every estimate of fair value requires significant judgment," Cox said, adding that a roundtable discussion on fair value being planned by the SEC's Chief Accountant may lead to policy recommendations. The issues that will likely be discussed include the application of Level 3 methods, including proprietary models, to lightly traded securities as prescribed in the valuation hierarchy in the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements.

5/06/08 -- SEC ADVISORY COMMITTEE TAKES UP FAIR VALUE ACCOUNTING, DROPS DISCUSSION OF IFRS
The jury is still out on the absolute merits of fair value accounting for financial statements, a variety of experts told the Securities and Exchange Commission's Advisory Committee on Improvements to Financial Reporting in an open meeting on May 2, 2008, in Chicago.

"What are users most interested in?" said one of the participants. "Then there's the issue of what's doable. I think we're finding with [the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements] it's challenging for financial statements."

The subcommittee's report cautions against expanding the use of fair value in financial reporting until a number of issues are better understood and resolved, including the FASB's project on the measurement framework, which is looking at developing a consistent approach to determine which measurement attribute should apply to different types of business activities.

"What we have proposed is a framework not based on any one asset, we've based it on activities," said Susan Schmidt Bies, the Chair of CIFR's Substantive Complexity Subcommittee and a member of the Federal Reserve Board from December 2001 through March 2007. "We think that's what users want, and it's more based on what businesses do, because it asks what is the cash flow recognized in the financial statement and how is that related to what's going on in the income statement." The subcommittee report says the SEC should recommend that the FASB "be judicious in issuing new standards and interpretations that expand the use of fair value in areas where it is not already required, until completion of a measurement framework."

5/01/008 -- Regulators Will Weigh Costs and Benefits Before Issuing IFRS Rule.
As the Securities and Exchange Commission draws up plans to issue a rule that will either permit, or even mandate, U.S. companies to use the International Financial Reporting Standards, it is wrestling with some questions that are fundamental to almost any public policy debate.

At the outset, the SEC is looking to the examples of other countries that started out with a standard-by-standard approach to accounting convergence, said Julie Erhardt, the SEC's Deputy Chief Accountant, on April 29, 2008, at Pace University's annual Contemporary Accounting Issues Conference in New York.

Since the SEC issued a final rule in Release No. 33-8879, Acceptance From Foreign Private Issuers of Financial Statements Prepared in Accordance With International Financial Reporting Standards Without Reconciliation to U.S. GAAP, in December 2007, only 37 foreign issuers have submitted financial statements in IFRS. Of those, 35 submitted filings without reconciling to U.S. GAAP because they used IFRS as issued by the International Accounting Standards Board. Twenty nine of the 35 said their statements complied with both IFRS as issued by the IASB and their local, national version of the standards.

4/28/08 -- Role, Influence of Sovereign Wealth Funds Comes Under the Spotlight.
Recent months have seen weakened U.S. banks turn to overseas investors, in many instances state-operated sovereign wealth funds, to rebuild their capital bases. At the same time, members of Congress and financial regulators have watched with concern as some of the investors backed by foreign governments have become among the largest shareholders in some of the most prominent U.S. financial institutions.

At the moment, unless one of the investors is deemed a threat to a national security or violates the law, there's little the Securities and Exchange Commission (SEC) or any other regulator can do.

"We administer a disclosure based regime," said Ethiopis Tafara, Director of the SEC's Office of International Affairs, in response to a question during an April 24, 2008, hearing of the Senate Banking Committee.

Tafara told Senator Jack Reed (D-RI) that the agency staff can't block a state-sponsored foreign investor from taking a large stake in a U.S. company.

Regulators and lawmakers may not be able to stop the investments, but they've certainly noticed them: Of the $60 billion in equity raised raised by U.S. financial companies since July 2007, $39 billion was supplied by sovereign wealth funds, according to the Congressional Research Office.

The SEC's Form 3 under Section 16(a) of the Securities Exchange Act of 1934 requires officers and directors as well as any holder of 10% or more of a public company to disclose their interest.

Section 13(d) of the 1934 Act requires holders of 5% or more of a company's stock to disclose the purchase within 10 days.

4/25/08 - IFRS Timetable For U.S. Issuers Will Be Ready In 2008, Says Cox.
"The rapidly increasing interest in [the International Financial Reporting Standards] in the U.S., and the rapidly increasing acceptance of IFRS in the rest of the world, reflect a growing consensus that these standards will deliver the high quality, consistency, and global comparability that so many have advocated for so long," said Christopher Cox, Chairman of the Securities and Exchange Commission. He also said the agency's staff was working on a schedule to spell out the pace of IFRS-related rule making for U.S. issuers.

"Our nation has a good deal at stake in seeing IFRS fulfill its promise," Cox said during an April 18, 2008, speech to the U.S. Chamber of Commerce in Washington, DC. He noted that total foreign trading activity by U.S. investors is more than $11 trillion. Total trading activity by foreign investors in U.S. markets is $33 trillion.

"It's for these reasons that our work on converging to a single global accounting standard is so important," he said.

The SEC issued Final Rule Release No. 33-8879, Acceptance From Foreign Private Issuers of Financial Statements Prepared in Accordance With International Financial Reporting Standards Without Reconciliation to U.S. GAAP, in December 2007. It issued Concept Release No. 33-8831, Allowing U.S. Issuers To Prepare Financial Statements In Accordance With International Financial Reporting Standards (Corrected), last August.

Cox also noted that the International Organization of Securities Commissions set up a database for international securities regulators to compare notes on the adoption of IFRS in various markets, and added that it was important for issuers in the U.S. and overseas to follow IFRS as they are written by the International Accounting Standards Board (IASB) and not local versions.

4/22/08 - SEC Delays XBRL Meeting to May 14.
The Securities and Exchange Commission postponed its meeting to discuss a possible rule on the eXtensible Business Reporting Language (XBRL), from Monday, April 21 to May 14, 2008.

A brief statement on the SEC website said, "At times, changes in Commission priorities require alterations in the scheduling of meeting items," and a spokesperson for the agency did not have any information beyond that.

4/16/08 - XBRL Tagged Data Will Highlight Links Among Accounting Concepts. With the Securities and Exchange Commission preparing its proposed rule on the use of interactive data in the eXtensible Business Reporting Language, the agency staff wants issuers to hear their argument that the new technology offers several advantages over existing methods of statement preparation.

"In time, many companies will be using accounting software that includes XBRL data tagging as an integral part of the system," said Brian Cartwright, the SEC's General Counsel in an April 12, 2008, speech in Dallas, to the American Bar Association's Committee on Federal Regulation of Securities. "That will make it cheaper and easier for those companies to prepare their financial statements, with far less risk of human error. And the financial statements that are produced by that software then will have been tagged automatically."

Cartwright said the Commissioners are likely to consider a rule proposal on XBRL in the near future.

According to Cartwright, basic accounting concepts-whether they be assets, current assets, or inventory-that financial executives are familiar with will be translated into XBRL tags.

"There's a hierarchical character to accounting concepts," Cartwright said. "For example, work-in-process inventory is a type of inventory, which is a type of current asset, which is a type of asset. So users of data tagged with your new system undoubtedly would find it useful to be able to access a database that enumerated the various parent and child relationships between the accounting concepts you've provided tags for. That might help, among other things, in making elegant presentations possible, with, for example, the various kinds of inventory-raw materials, work-in-process, finished goods-indented under the heading inventory."

Cartwright said the software will read the opening and closing tags for each line item and then know that the number that follows belongs to that tag. Financial systems would essentially look for the information surrounded by the appropriate tags.

4/15/08 - How Banks Kept Securitized Mortgages Off Their Balance Sheets
The accounting treatment for special structures that permitted banks to keep assets such as securitized mortgages off of financial statements may have had an unintended role in the subprime mortgage crisis, said Robert Herz, chairman of the Financial Accounting Standards Board during a speech at the Harvard Club in New York on April 11, 2008.

"What has happened in recent years, with the benefit of hindsight, is the realization that these assets are not passive in nature, certainly not subprime mortgages," Herz said. "The modification of the loans, may not be what was anticipated upfront, but that is what was happening."

The qualified special purpose entities (QSPEs) were used by banks as a conduit to distribute pooled assets, such as subprime mortgages, into the secondary market, thus keeping them off their balance sheets.

Assets could qualify for a sale if they met certain qualifications and the entity could demonstrate that it had only had passive control over the assets.

Herz said that the question concerning whether banks can now change the terms of many of these troubled loans to lower the risk that they will default is a strong indication that the control over the assets is not passive, and that the accounting treatment-which permitted them to be treated as sales-was not appropriate.

4/10/08 - SEC, CFTC Consolidation Could Open Door to New Financial Products
A recent cooperative effort between the Securities and Exchange Commission and the Commodity Futures Trading Commission could "mark the beginning of an end to the limbo in which products on which both agencies have a potential regulatory claim have too often found themselves," said SEC Commissioner Paul Atkins in an April 1, 2008, speech to the Securities Industry and Financial Markets Association in Orlando, FL.

The two rulemakers agreed to cooperate on the approval of new products in March, and Atkins said the initial signs of this effort were not only positive, but pointed the way to bigger changes in the financial services industry, particularly in light of the Blueprint for a Modernized Financial Regulatory Structure issued by the Treasury Department just a few weeks after the agencies announced their agreement.

"It is not surprising, then, that calls for a consolidation of the agencies have increased," Atkins said. In his view, the two agencies will benefit greatly if they adopt the CFTC's principles-based approach to market supervision and scrap the SEC's traditional rules-based form of regulation.

He pointed to the expedited approval process the agencies have adopted for two gold-based exchange traded funds

4/08/08 - SEC Content is Added to Codification Website for Verification.
The Financial Accounting Standards Board posted some Securities and Exchange Commission content onto the FASB's Accounting Standards Codification website on April 3, 2008. The content keeps the original wording issued by the SEC, but it has been reorganized into roughly 90 accounting topics that are aligned with content from other standard setters.

The SEC sections contain content related to matters within basic financial statements, but do not include the entire population of SEC rules, regulations, interpretive releases, and staff guidance. For example, topics such as Management's Discussion and Analysis and auditing or independence matters are not included.

Content in the SEC section is expected to change over time as the agency revises its regulations and staff guidance, and while the FASB said it will keep the content up to date, the SEC is not going to revise its procedures for issuing rules and accounting guidance. That may result in delays between SEC changes and the corresponding updates to the Codification website, the FASB said.

The Codification does not replace or affect requirements or guidance issued by the SEC.

4/3/08 - Busy Agenda in Store for a Five-Member SEC.
If Democrats Elisse Walter and Luis Aguilar are confirmed to fill the vacant seats on the Securities and Exchange Commission, the agency's rulemaking may gain the legitimacy it needs at a critical juncture for U.S. capital markets.

House and Senate leaders have expressed their support for the nominees, and noted their considerable experience. Aguilar is a Partner in the Atlanta office of the law firm McKenna, Long & Aldridge. Walter is a Senior Executive Vice President for Regulatory Policy & Programs at the Financial Industry Regulatory Authority (FINRA), the self-regulatory organization for the brokerage industry.

Lawmakers also noted that there is challenging work ahead for the SEC.

"I was pleased to work with the majority leader to put forward these two highly qualified candidates," said Senator Christopher Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, referring to Senator Harry Reid (D-NV), who submitted the nominations to President Bush in 2007. "The SEC faces many important issues. Among these are consolidated supervision, whether to allow mutual recognition, accounting integrity, the role of investment advisers, strong enforcement of the securities laws, and proxy access."

SEC Chairman Christopher Cox said last fall that he would address the issue of proxy access when the two vacant seats had been filled, but some SEC watchers doubt that Cox will push to include this item on the agency's rulemaking agenda, given the little time left before a new administration takes office, the chaos in the financial markets, and the lack of support for improving shareholder access to the proxy process among the three Republicans who hold a voting majority on the five-member Commission.

4/02/08 - Bush Nominees for SEC Openings Appear to Have Support of Democrats, Investors.
The nominations of Democrats Elisse Walter and Luis Aguilar to fill the vacant seats on the Securities and Exchange Commission have been met with cautious optimism in the investment community.

"We very much welcome confirmation hearings," said Amy Borrus, Deputy Director for the Council of Institutional Investors. "We view it as an opportunity to hopefully hear what Walter and Aguilar have to say about any number of important investor issues, including proxy statements and IFRS." The Council's members sponsor more than $3 trillion in public, corporate, and union pension plans, and the group has lobbied the SEC to pass reforms that would increase the ability of shareholders to nominate directors through the proxy process.

Aguilar and Walter were nominated by President Bush on March 28, 2008, to fill two seats that had been vacant for months. The White House had held up the nominations, which were announced on the same weekend as the Treasury Department unveiled a far-reaching overhaul of the financial regulatory system, since late 2007.