SEC Approves One-Year Extension for Small Businesses from Auditor Attestation Requirement in Sarbanes-Oxley Act
SEC Staff Gains OMB Approval to Proceed With Data Collection for Cost-Benefit Study of SOX 404 Implementation
The Securities and Exchange Commission announced today that it has approved a one-year extension of the compliance date for smaller public companies to meet the Section 404(b) auditor attestation requirement of the Sarbanes-Oxley Act. The SEC also announced that it received Office of Management and Budget (OMB) approval yesterday to proceed with data collection for a study of the costs and benefits of Section 404 implementation, focusing on the consequences for smaller companies and the effects of the Section 404 auditor attestation requirements. The results of the study are expected to become available during the extension period.
With the extension, smaller companies will now be required to provide the attestation reports in their annual reports for fiscal years ending on or after Dec. 15, 2009. SEC Chairman Christopher Cox first proposed this one-year delay for small businesses during December 2007 testimony before the House Small Business Committee, and the Commission formally proposed this extension on Feb. 1, 2008.
The SEC staff's cost-benefit study, which was announced in February, is being led by the SEC's Office of Economic Analysis with assistance from the Office of the Chief Accountant and the Division of Corporation Finance. The OMB's approval, on June 19 is an important milestone in the project, as the SEC staff can now begin the collection of data through interviews and other outreach. The staff submitted the study design for OMB review and approval in compliance with the Paperwork Reduction Act of 1995. With OMB approval and the key financial data for annual reports becoming available to companies this spring, the SEC staff will be moving forward with interviews and a web-based survey as part of its effort to collect real-world data from a broad array of companies and analyzing what drives costs, particularly for smaller companies, and where companies and investors derive the benefits from Section 404.
John W. White, Director of the SEC's Division of Corporation Finance, said, "Over the past few years, the Commission and PCAOB have committed extensive resources to improving the efficiency and cost-effectiveness of the implementation of Section 404's requirements, particularly for smaller companies. I am optimistic that this study of real-world data will help further inform our efforts to improve the implementation of SOX 404."
The SEC staff's cost-benefit study will help determine whether the new management guidance on evaluating the internal controls over financial reporting issued by the Commission in June 2007 and the Public Company Accounting Oversight Board's (PCAOB) Auditing Standard No. 5 approved by the Commission in July 2007 are having the intended effect of facilitating more cost-effective internal control evaluations and audits of smaller reporting companies. The study includes gathering new data from a broad array of companies about the costs and benefits of compliance with the Section 404 requirements. The study also pays special attention to those smaller companies that are complying for the first time with the requirements that are currently in effect.
Section 404 has two provisions: 404(a) requires company management to assess the effectiveness of the company's internal controls over financial reporting, while 404(b) requires an auditor attestation on management's assessment. Larger companies, comprising more than 95 percent of the market capitalization of U.S equity securities markets, have been subject to both provisions since 2004.
The extension of the Section 404(b) compliance date for smaller companies is the latest in a series of Commission efforts to help reduce unnecessary compliance costs for smaller companies while preserving important investor protections. In 2007, the SEC issued new guidance for management's Section 404 assessment to help companies focus their reviews on the internal control issues that matter most to investors. Companies of all sizes, including smaller companies, are filing their first 404(a) reports this year with the benefit of the new guidance. Furthermore, the SEC and the PCAOB voted unanimously to replace the standard for the 404(b) auditor attestation, which is intended to make the process more efficient. This year, larger companies are filing their first 404(b) reports under the new audit standard.
The full text of the final amendments for the extension of the auditor attestation requirement for smaller companies will be posted to the SEC Web site as soon as possible. The amendments will take effect 60 days after the release is published in the Federal Register. (Press Rel. 2008-116)
Commission Revokes Registration of Securities of Cardinal Communications, Inc. for Failure to Make Required Periodic Filings
On June 20, the Commission revoked the registration of each class of registered securities of Cardinal Communications, Inc. (Cardinal) for failure to make required periodic filings with the Commission.
Without admitting or denying the findings in the order, except as to jurisdiction, which it admitted, Cardinal consented to the entry of an Order Instituting Proceedings, Making Findings, and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 (Exchange Act) finding that Cardinal had failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Cardinal's securities pursuant to Section 12(j) of the Exchange Act.
Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:
No member of a national securities exchange, broker, or dealer shall make use of the mails or any means of instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked ….
(Rel. 34-57992; File No. 3-13076)
Commission Orders Hearings on Registration Suspension or Revocation Against Three Delinquent Companies for Failure to Make Required Periodic Filings and/or Making Non-Compliant Filings
On June 20, the Commission instituted public administrative proceedings to determine whether to revoke or suspend for a period not exceeding twelve months the registration of each class of the securities of three companies for failure to make required periodic filings, or, in the case of Mother Lode Gold Mines Consolidated, making non-compliant filings, with the Commission (ticker symbol provided if available):
In this Order, the Division of Enforcement (Division) alleges that Baroque Corp. and Solvis Group, Inc. are delinquent in their required periodic filings with the Commission. The Division also alleges that Mother Lode Gold Mines Consolidated's filings failed to comply with Exchange Act and rules thereunder because they did not include financial statements which had been either audited or reviewed by an independent auditor.
In this proceeding, instituted pursuant to Exchange Act Section 12(j), a hearing will be scheduled before an Administrative Law Judge. At the hearing, the judge will hear evidence from the Division and the respondents to determine whether the allegations of the Division contained in the Order, which the Division alleges constitute failures to comply with Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 thereunder, are true. The judge in the proceeding will then determine whether the registrations pursuant to Exchange Act Section 12 of the securities of these respondents should be revoked or suspended for a period not exceeding twelve months. The Commission ordered that the Administrative Law Judge in this proceeding issue an initial decision not later than 120 days from the date of service of the order instituting proceedings. (Rel. 34-57995; File No. 3-13077)
SEC Files Settled Insider Trading Action Against Adrian P. Di Vita
The Commission today filed a settled insider trading action in the United States District Court for the District of Columbia against Adrian P. Di Vita, a former manager at Williams-Sonoma, Inc. In its complaint, the Commission alleged that, by attending certain meetings with senior management and otherwise, Di Vita received material nonpublic information that enabled him to know that Williams-Sonoma would lower its earnings guidance for fiscal year 2006 and the third quarter of that year when the company issued a scheduled earnings press release on Aug. 24, 2006. With that information, and prior to the issuance of the press release, Di Vita sold all 707 of his Williams-Sonoma Stock Fund units and additionally purchased 1,000 put option contracts on Williams-Sonoma stock. After Williams-Sonoma issued its August 24 press release, the company's stock price fell by more than eight percent, and Di Vita sold his put options. As a result of his trading in the stock fund units and the put options, Di Vita avoided losses and had profits totaling $67,690.
In its complaint, the Commission further alleged that Di Vita, by virtue of his conduct, violated antifraud provisions of the federal securities laws. Without admitting or denying the allegations in the Commission's complaint, Di Vita has offered to settle the action. Di Vita has consented to the entry of a final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Exchange Act Rule 10b-5; ordering him to pay $76,932.80 in disgorgement of ill-gotten gains and losses avoided plus prejudgment interest; and ordering him to pay a civil penalty of $67,690.
The Commission acknowledges the assistance of the Chicago Board Options Exchange in this matter. [SEC v. Adrian P. Di Vita, Civil Action No. 1:08-cv-01060 (CKK) (D.D.C.)] (LR-20626)
INVESTMENT COMPANY ACT RELEASES
American International Group, Inc., et al.
An order has been issued on an application filed by American International Group, Inc. (AIG), et al. to exempt certain limited partnerships and other investment vehicles formed for the benefit of eligible employees of AIG and its affiliates from certain provisions of the Investment Company Act. Each partnership or other investment vehicle will be an "employees' securities company" within the meaning of Section 2(a)(13) of the Act. (Rel. IC-28301 - June 18)
Order Approving and Declaring Effective an Amendment to the Plan for the Allocation of Regulatory Responsibilities
The American Stock Exchange, the Boston Stock Exchange, the Chicago Board Options Exchange, the International Securities Exchange, Financial Industry Regulatory Authority, the New York Stock Exchange, the NYSE Arca, The NASDAQ Stock Market, and the Philadelphia Stock Exchange filed a proposed amendment to their plan for the allocation of regulatory responsibilities pursuant to Rule 17d-2 (File No. S7-966). Publication is expected in the Federal Register during the week of June 23. (Rel. 34-57987)
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