Apr. 06, 2023
My apologies again. I believe I have identified yet another issue with Exchange Act Rule 10D-1, which may create problems for both Exchange-listed companies and the Exchanges that review how such companies comply with the Exchange listing standards pertaining to the recovery of erroneously awarded incentive-based compensation. The issue pertains to Exchange Act Rule 10D-1(b)(1)(ii), which specifies the date that an issuer is required to prepare an accounting restatement, for purposes of determining the relevant recovery period under Exchange Act Rule 10D-1(b)(1)(i)(D). As a practical matter, the text in Exchange Act Rule 10D-1(b)(1)(ii)(A) and and (B) seems to make sense only with respect to a "Big R" accounting restatement. With respect to a "little r" accounting restatement, it would seem that the date a company's board of directors, board committee, or authorized officer(s) concludes (or reasonably should have concluded) that an accounting restatement with respect to previously issued financial statements is required must fall with the current period (i.e., the fiscal period for which the company is preparing financial statements), since it is the correction/lack of correction, in the current period, of the error(s)/misstatement(s) in the previously issued financial statements that causes the current period financial statements to be materially misstated. Given that, it would not seem possible that a court, regulator, or other legally authorized body could ever direct the company to prepare an accounting restatement of the company's previously issued financial statements prior to the filing of the current period financial statements - that have not yet been filed. This raises a second issue, tied to the language of Regulation S-K, Item 402(w)(1) and the parallel provisions of Form 20-F, Item 6.F, and Form 40-F, General Instruction B, Paragraph (19). Under what circumstances could the second of the two scenarios (i.e., there is an outstanding balance of erroneously awarded incentive-based compensation to be recovered from application of the company's Exchange-mandated compensation recovery policy to an accounting restatement that the company was required to prepare prior to the company's most recently completed fiscal year? Section II.B.2.c of SEC Release No. 33-11126 does not touch upon the above-identified issue. Don Meiers