Great Update on Securities Issues for Smaller Companies

I was again honored to be part of an amazing panel of prominent lawyers at the American Bar Association spring meeting of the Section of Business Law at the spanking new convention center here in Vancouver. Here are a few interesting highlights:

• SEC Director of Small Business Policy Gerald Laporte indicated it is not likely there will be any further delay in implementing Sarbanes-Oxley Section 404 compliance for smaller public companies.
• The SEC is pushing the “compliance and disclosure interpretations” (CD&Is) as a place where previously interpretations mixed with no-action letters and the like. Keep an eye on these.
• One CD&I makes clear, for example, that vested unexercised stock options can be included in net worth to determine accredited status.
• Mr. Laporte addressed the fact that there may be some technical amendments to the smaller public company reporting regime rulemaking that eliminated Regulation S-B. Included in this might be clarifying that a no revenue company (such as a shell company) can include a “plan of operation” rather than full management’s discussion and analysis section. But he all but said it appears you can do it based on existing regulations, but they might want to clarify.
• A senior PCAOB representative gave a good tip for issuers: in your audit engagement, have the auditor promise to infom the company if its engagement is ever reviewed by the PCAOB. Without that they have no obligation to tell the company.
• Mary Schapiro of the SEC is not the biggest fan of IFRS (conforming all accounting standards to one).
• Update on Regulation D and pending proposal:
  • The effort on getting the 2007 proposal passed may have “run out of steam” according to Laporte. They are waiting to see what appetite Schapiro and other new commissioners have for finishing it.
  • Congress recently encouraged the SEC to address qualification standards for accredited investors in hedge funds, and since the SEC probably won’t single them out, it might be the impetus to finalize the Reg. D proposal.
  • The SEC Inspector General recently recommended reinstating the requirement that Form D be filed as a condition to receiving the Reg. D exemption. Staff is not thrilled.
  • It will take awhile before “one stop” filing of Form D with SEC and the states will be accepted (if ever) and implemented. There is a consultant working on it but that seems to be about it. For now, it’s still electronic with SEC and paper with the states.
  • Changes to new Form D: when is first sale? Seems to suggest if you take someone’s money and they give it to you irrevocably, even if not closed, that it counts as a sale and the Form D has to be filed within 15 days thereafter. Problem is whether you then have to pre-file in states.

Thanks to moderator and friend Lee Liebolt for arranging this very interesting and dynamic panel. Headed back to NY tomorrow…

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