SEC Advisory Committee Makes Recommendations to Improve Financial Reporting For Investors
On August 1, Securities and Exchange Commission Chairman Christopher Cox received the final report of an SEC advisory committee containing 25 recommendations to make financial information more useful and understandable to investors.
Last year, Chairman Cox announced the creation of the SEC Advisory Committee on Improvements to Financial Reporting, comprised of members representing investors and other key constituencies in America's capital markets. Chairman Cox asked the Advisory Committee for recommendations on reducing unnecessary complexity in the U.S. financial reporting system and making financial reports clearer and more understandable to investors. Today, the chairman of the Advisory Committee, Robert C. Pozen, presented Chairman Cox with a final report containing recommendations that can be implemented by the SEC, the Financial Accounting Standards Board (FASB), and the Public Company Accounting Oversight Board (PCAOB).
Chairman Cox said, "I commend the Advisory Committee and Chairman Pozen for their work to make financial reporting less complex and more useful to investors. I have asked the Commission staff to immediately begin analyzing these recommendations, and to prepare regulatory actions based on them wherever appropriate."
Chairman Pozen said, "Our recommendations would make financial reports more useful to investors - with clearer guidelines, fewer exceptions and greater focus on really important information."
The SEC already has taken steps to benefit investors based on two earlier recommendations made by the Advisory Committee. On May 14, the Commission formally proposed using new technology to get important information to investors faster, more reliably, and at a lower cost by requiring all U.S. companies to provide financial information using interactive data beginning as early as next year. And on July 30, the SEC approved new guidance to public companies to address their concerns about how to comply with the securities laws while developing their Web sites to serve as an effective means for disseminating important information to investors.
The Committee's report provides practical proposals to improve financial reporting in five main areas:
Among other things, the Committee noted in the first area that many individual investors find company filings with the SEC to be overly complex and detailed. The Committee recommended the inclusion of a short executive summary at the beginning of a company's annual report that would describe concisely the main aspects of its business and its key performance metrics.
In the second area, the Committee called for more investor participation in accounting standard setting by increasing investor representation on the FASB and Financial Accounting Foundation (FAF).
In the third area, the Committee noted that the underlying objectives of certain accounting standards are sometimes obscured by dense language, detailed rules, and numerous exemptions. The Committee recommended a different approach to the substantive design of standards. For example, the Committee called for improved rules on off-balance sheet accounting and fewer situations where alternative accounting standards exist for the same transaction. The Committee recommended that companies provide better disclosure to investors about what portion of their earnings constitutes cash or accrued income based on historic cost accounting and what portion represents unrealized gains or losses based on fair value estimates.
To reduce the proliferation of U.S. GAAP, the Committee said it strongly supports FASB's efforts to complete the codification of all authoritative accounting literature into one document. The Committee said that others such as audit firms may still publish their views on accounting issues, but they should be labeled as non-authoritative. In this fourth area, the Committee also called for a clearer delineation of functions on interpreting accounting standards - with the FASB taking the lead on broad issues and the SEC on registrant-specific issues.
In the fifth area, the Committee recommended increased correction of accounting errors and more disclosures about those corrections to investors. However, the Committee warned that the correction of every accounting error should not automatically result in a lengthy process of restating financial statements for several prior years. The Committee said that in the "dark period" during restatements when companies generally cease filing current financial reports, companies usually do not provide investors with much information. Thus, the Committee said it believes that restatements of prior years should be undertaken for the correction of accounting errors that are material to current investors.
FASB Chairman Robert Herz and PCAOB Chairman Mark Olson were official observers to the Advisory Committee and joined Chairman Cox and Chairman Pozen at the SEC today to release the final report. They have committed to continue working together with the SEC to increase the usefulness of the financial reporting system. (Press Rel. 2008-166)
Troy Paredes Sworn in as SEC Commissioner
On August 1, Troy A. Paredes was sworn in as a Commissioner of the Securities and Exchange Commission by SEC Chairman Christopher Cox during a ceremony at the SEC's Washington D.C. headquarters.
The ceremony was attended by his wife Laura Paredes, his parents Smiley and Hollie Paredes, his brother Randy Paredes, as well as other family members and friends. Other SEC commissioners and senior officials also attended.
Commissioner Paredes was appointed to the SEC by President George W. Bush on June 30, 2008. Prior to his appointment, Commissioner Paredes was teaching and researching in the areas of securities regulation and corporate governance as a professor at Washington University School of Law in St. Louis, Mo.
"Commissioner Paredes brings extensive knowledge of securities regulation and corporate governance that will be of enormous help to the Commission's work to safeguard investors, maintain orderly markets, and encourage capital formation," said SEC Chairman Christopher Cox. "I look forward to working with him and welcome his expertise as we move forward with a busy agenda at the SEC to help the American investor."
Commissioner Paredes said, "I am deeply honored and humbled by the opportunity to join the Commission and to do my part in helping to advance the Commission's vital mission of protecting investors, promoting capital formation, and ensuring that our country's securities markets function effectively. I look forward to working with Chairman Cox, my fellow commissioners, and the SEC's dedicated staff as we work together to serve the public interest at this very important time."
Commissioner Paredes has pursued numerous research interests during his time in academia, including such pertinent topics as executive compensation, hedge funds, the allocation of control within firms, the impact of psychology on corporate decision making and investor behavior, and the development of corporate governance and securities law systems in emerging markets. Commissioner Paredes has authored articles on these topics and is a co-author of a leading multi-volume securities regulation treatise.
Before joining Washington University's faculty in 2001, Commissioner Paredes practiced law, working on a variety of transactions and matters involving financings, mergers and acquisitions, and corporate governance.
Commissioner Paredes graduated from the University of California at Berkeley with a degree in economics in 1992, and graduated from Yale Law School in 1996. (Press Rel. 2008-167)
In the Matter of Gordon R. Moore
On August 1, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions (Order) against Gordon R. Moore. The Order finds that on Jan. 8, 2008, Gordon R. Moore (Moore) pled guilty to one count each of three class three felonies in Denver District Court: securities fraud, theft, and computer crime. On Feb. 26, 2008, he was sentenced to two years probation and ordered to pay criminal restitution in the amount of his illegal commissions. The counts of the criminal indictment to which Moore pled guilty alleged, inter alia, that Moore fraudulently induced many investors, the majority of whom were current teachers in Colorado public schools, to consent to rollover their retirement investments from their Colorado Public Employees' Association 401(k) accounts into new 403(b) accounts during the period July 2004 through June 2007. Moore misrepresented the rollover rules to clients and induced them to sign documents which he later falsified. He fraudulently induced approximately $1,665,166 worth of direct customer rollovers into 403(b) accounts using this scheme.
Based on the above, the Order bars Moore from association with any broker, dealer, or investment adviser. Moore consented to the issuance of the Order without admitting or denying the findings therein, except that Moore admitted the fact of his guilty plea. (Rels. 34-58293; IA-2766; File No. 3-13113)
SEC Charges Brent Lemons, Former Registered Representative From Tyler, Texas, With Fraud
The Commission today filed a civil action against Brent S. Lemons, a former registered representative from Tyler, Texas. The Commission's complaint, filed in the United States District Court for the Eastern District of Texas, Tyler Division, alleges that from about September 2004 through April 2007 Lemons misappropriated over $1.3 million in funds from at least three of his customers.
According to the Commission's complaint, Lemons managed the financial affairs for some of his customers and misused their trust to perpetrate his fraudulent scheme. The complaint alleges that Lemons had his customers sign bank and brokerage documents in blank, under the false pretense that he would use the documents to liquidate securities in their accounts and reinvest the proceeds in higher yielding securities. Lemons instead used the documents signed in blank to extract funds for his personal use from the accounts of his customers without their authorization. According to the complaint, the majority of the misappropriated funds appear to have been used to cover Lemons's gambling losses of approximately $1.4 million.
In its complaint, the Commission alleges that Lemons violated Section 10(b) of the Securities Act of 1934 and Rule 10b-5 there under. The Commission is seeking a permanent injunction, disgorgement plus prejudgment interest, and a civil money penalty against Lemons. [SEC v. Brent Lemons, Civil Action No. 6:08-cv-308, USDC, SDTX, Houston Division)] (LR-20669)
INVESTMENT COMPANY ACT RELEASES
Van Eck Associates Corporation, et al.
A notice has been issued giving interested persons until August 22 to request a hearing on an application filed by Van Eck Associates Corporation, et al. Applicants request an order to amend a prior order that permits: (a) series of an open-end management investment company that are based on equity or fixed-income indexes for which no entity that creates, compiles, sponsors, or maintains the indexes is or will be an affiliated person, or an affiliated person of an affiliated person, of any applicant, or any sub-adviser or promoter to a series, to issue shares that can be redeemed only in large aggregations; (b) secondary market transactions in shares to occur at negotiated prices; (c) dealers to sell shares to purchasers in the secondary market unaccompanied by a prospectus when prospectus delivery is not required by the Securities Act of 1933; (d) certain affiliated persons of the series to deposit securities into, and receive securities from, the series in connection with the purchase and redemption of large aggregations of shares; (e) under specified limited circumstances, certain series to pay redemption proceeds more than seven days after the tender of shares; and (f) certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire shares. The amended order would permit applicants to offer five new series based on equity securities indexes for which the investment adviser applicant may be deemed a sponsor. Rel. IC-28349 - July 31)
Javelin Exchange-Traded Trust, et al.
A notice has been issued giving interested persons until August 25 to request a hearing on an application filed by Javelin Exchange-Traded Trust, et al., for an order to permit series of open-end management investment companies whose portfolios will consist of the securities of an equity securities index to issue shares that can be redeemed only in large aggregations and would trade in the secondary market at negotiated prices. The order would allow dealers to sell shares of the series in the secondary market unaccompanied by a prospectus when prospectus delivery is not required by the Securities Act of 1933, permit certain affiliated persons of the series to deposit securities into and receive securities from the series, and permit certain series to pay redemption proceeds more than seven days after the tender of shares for redemption under certain circumstances. The order also would permit certain registered management investment companies and unit investment trusts outside of the same group of investment companies as the series to acquire shares of the series. (Rel. IC-28350 - July 31)
Proposed Rule Changes
The Financial Industry Regulatory Authority filed a proposed rule change and Amendment No. 1 thereto (SR-FINRA-2008-026) pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 to adopt the FINRA Rule 0100 Series (General Standards) in the Consolidated FINRA Rulebook. Publication is expected in the Federal Register during the week of August 4.(Rel. 34-58245)
The NASDAQ Stock Market filed a proposed rule change and Amendment No. 2 thereto (SR-NASDAQ-2008-025) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder, relating to the establishment of the Equity Value Indicator Cross. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58275)
NYSE Arca filed a proposed rule change under Rule 19b-4 (SR-NYSEArca-2008-79) to list and trade ELEMENTSSM linked to the CS/RT Emerging Infrastructure Total Return Index Powered by HOLT™ due 2023. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58276)
The New York Stock Exchange filed a proposed rule change (SR-NYSE-2008-61) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 amending NYSE Rule 104(e) (Dealings by Specialists) to modify the conditions governing the specialists' use of the price improvement trading message pursuant to NYSE Rule 104(b)(i)(H). Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58278)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change filed by the New York Stock Exchange to reduce the order flow sent to the Specialist Application Programmed Interface (SR-NYSE-2008-67) has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58268)
A proposed rule change (SR-Amex-2008-61) filed by the American Stock Exchange to list and trade binary options on certain broad-based indexes has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58272)
A proposed rule change filed by the American Stock Exchange (SR-Amex-2008-59) to delete outdated sections of its delisting rules has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of August 4. (Rel. 34-58277)
SECURITIES ACT REGISTRATIONS
RECENT 8K FILINGS