SEC Proposes Measures to Improve Corporate Governance and Enhance Investor Confidence
The Securities and Exchange Commission today voted on three measures that are intended to better inform and empower investors to improve corporate governance and help restore investor confidence.
The Commission proposed requiring public companies receiving money from the Troubled Asset Relief Program (TARP) to provide a shareholder vote on executive pay in their proxy solicitations The Commission also voted to propose better disclosure of executive compensation at public companies in their proxy statements, and approved a New York Stock Exchange rule change to prohibit brokers from voting proxies in corporate elections without instructions from their customers.
"With over 800 billion shares being voted annually at over 7,000 company meetings, it is imperative that our proxy voting process work - starting with the quality of disclosure and continuing through to the integrity of the vote results," said SEC Chairman Mary Schapiro. "These three items considered today are all related to the fundamental goal of enhancing the quality of the system through which shareholders exercise their franchise."
Shareholder Approval of Executive Compensation of TARP Recipients
The Emergency Economic Stabilization Act of 2008 requires shareholder approval of executive compensation during the period in which any obligation arising from financial assistance provided under TARP remains outstanding. The SEC is seeking public comment on proposed changes to Commission rules that would:
Proxy Disclosure & Solicitation Enhancements
The Commission proposed a set of rule revisions intended to improve the disclosure provided to shareholders of public companies regarding compensation and corporate governance matters when voting decisions are made. These new disclosures are designed to enhance the information included in proxy and information statements, and would include information about:
In addition, the proposals are aimed to improve the reporting of annual stock and option awards to company executives and directors as well as to require quicker reporting of election results. The Commission also proposed amendments to the proxy rules intended to clarify how they operate.
NYSE Rule Concerning Discretionary Proxy Voting by Broker-Dealers
The Commission voted to approve an NYSE proposal that would eliminate broker discretionary voting for all elections of directors, whether contested or not. Currently, NYSE Rule 452 and corresponding Listed Company Manual Section 401.08 permit brokers to vote on behalf of their beneficial owner customers in uncontested elections of directors if the customers have not returned voting instructions.
The Commission published the NYSE proposed rule change for public comment on March 6, 2009, and received 153 comment letters from issuers, transfer agents, institutional investors, proxy advisory firms and others.
The NYSE's proposal is designed to enhance corporate governance and accountability by helping assure that investors with an economic interest in the company vote on the election of directors. It also would address concerns that broker discretionary voting for directors has impacted election results.
Specifically, the NYSE proposal would add "election of directors" to the list of enumerated items for which a member generally may not give a proxy to vote without instructions from the beneficial owner. The proposal contains a specific exception for companies registered under the Investment Company Act of 1940. In addition, the NYSE proposes to codify two previously published interpretations that do not permit broker discretionary voting for material amendments to investment advisory contracts with an investment company.
Public comments on today's first two items must be received by the Commission within 60 days after their publication in the Federal Register. The full text of the proposed rule amendments will be posted to the SEC Web site as soon as possible.
The NYSE's proposal will apply to shareholder meetings held on or after Jan. 1, 2010. The SEC's approval order will be published in the Federal Register and posted on the SEC Web site as soon as possible. (Press Rel. 2009-147)
RULES AND RELATED MATTERS
Money Market Fund Reform
The Securities and Exchange Commission proposed comprehensive rule amendments to significantly strengthen the regulatory framework for money market funds, increase their resilience to economic stresses, and reduce the risks of runs on the funds. Among other things, the proposed amendments would tighten the risk limiting conditions of rule 2a-7 (the rule governing money market funds), require money market funds to report their portfolio holdings each month, and permit a money market fund that has "broken the buck" (i.e., re-priced its securities below $1.00 per share) to suspend redemptions and postpone payment of redemption proceeds to facilitate an orderly liquidation.
The Commission is seeking public comment on the proposal. Comments must be submitted on or before September 8, 2009. The full text of the release proposing the rule amendments is available on the SEC website. (Rel. IC-28807; File No. S7 11-09)
SEC Obtains Emergency Relief to Halt Fraud Conducted by Omaha, Nebraska Investment Adviser
The Securities and Exchange Commission charged Omaha, Nebraska investment adviser Envision Investment Advisors, LLC (Envision), and its principal Ryan M. Jindra, with misappropriating nearly $775,000 of client assets. According to the Commission's complaint, filed in federal district court in Omaha, between at least August 2008 and April 2009, Envision, acting through Jindra, fraudulently deducted fees from numerous client accounts. The Commission alleges that Jindra used the misappropriated funds both for himself, for example to buy a Cadillac Escalade, and to operate Envision, which is in perilous financial condition. Further, the Commission alleges that Jindra destroyed documents, including emails, in an attempt to hide his actions. Because Jindra and Envision have discretionary authority with respect to millions of dollars of client assets, the Commission sought and obtained, on June 30, 2009, a temporary restraining order and an emergency court order freezing the assets of Jindra, Envision, and Envision Financial Group, Inc., Envision's parent company which received some of the client funds. Additionally, the court ordered a full accounting, expedited discovery, and the prevention of any further destruction or alteration of documents.
The complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 204, 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 204-2, 206(4)-4 and 206(4)-7(a)(7)(B) thereunder. In addition to the emergency relief already obtained, the complaint seeks disgorgement of the defendants' ill-gotten gains plus pre-judgment interest, civil penalties, and permanent injunctions barring future violations of the charged provisions of the federal securities laws. The complaint also seeks disgorgement plus pre-judgment interest from the relief defendant, Envision Financial Group, Inc. [SEC v. Ryan M. Jindra and Envision Investment Advisors, LLC, defendants, and Envision Financial Group, Inc., relief defendant, Case No. Case 8:09-CV-00216-JFB-TDT (D. Neb.)] (LR-21113)
SEC Charges Former Chief Accounting Officer of Beazer Homes for Fraudulent Earnings Management Scheme
The Securities and Exchange Commission announced that it has filed a civil complaint against Michael T. Rand, of Sandy Springs, Georgia. The Commission charged Rand, the former chief accounting officer of Atlanta-based home builder Beazer Homes, USA, Inc., for conducting a multi-year fraudulent earnings management scheme and misleading Beazer's outside auditors and internal Beazer accountants in order to conceal his wrongdoing.
The Commission alleges that Rand fraudulently decreased Beazer's reported net income by recording improper accounting reserves during certain periods between 2000 and 2005 in order to meet or exceed analysts' expectations for Beazer's diluted earnings per share (EPS) and maximize yearly officer and senior employee bonuses. Rand began reversing these improper reserves beginning in the first quarter of fiscal year 2006 in order to offset Beazer's declining financial performance.
The Commission's complaint also alleges that in fiscal year 2006 and the first two quarters of fiscal year 2007, Rand improperly recognized revenue from the sale and leaseback of certain model homes on Beazer's financial statements and used secret side agreements in order to hide his misconduct from Beazer's outside auditors. Cumulatively, Rand's actions caused Beazer to understate its income in SEC filings by approximately $63 million during fiscal years 2000 to 2005, representing approximately 7 percent of Beazer's cumulative actual restated net income of $955 million for the period. Rand's fraudulent actions caused Beazer to overstate its income and understate its loss by a total of $47 million during fiscal 2006 and the first two quarters of fiscal 2007, representing 20 percent of Beazer's cumulative actual restated net income of $232 million for the period.
The Commission's complaint charges Rand with violating or aiding and abetting the antifraud, reporting, books and records and internal control provisions of the federal securities laws, and seeks a permanent injunction, disgorgement of Rand's ill-gotten gains plus prejudgment interest, and a financial penalty. The SEC also seeks a court order barring Rand from acting as an officer or director of any public issuer.
The Commission's investigation is continuing. The Commission acknowledges the assistance of the United States Attorney's Office of the Western District of North Carolina. (Rels. 33-8960; 34-58633; AAE Rel. 2884; File No. 3-13234) [SEC v. Michael T. Rand, Civil Action No. 1:09-CV-1780 (NDGA)] (LR-21114; AAE Rel. 3003)
INVESTMENT COMPANY ACT RELEASES
Notices of Deregistration under the Investment Company Act
For the month of June 2009, a notice has been issued giving interested persons until July 21, 2009, to request a hearing on any of the following applications for an order under Section 8(f) of the Investment Company Act declaring that the applicant has ceased to be an investment company:
(Rel. IC-28803 - June 26)
WisdomTree Investments, Inc., et al.
An order has been issued on an application filed by WisdomTree Investments, Inc., et al., to amend two prior orders (Prior Orders) to modify a condition so that certain registered investment companies may rely on the Prior Orders to invest in the WisdomTree India Earnings Fund and additional series of the WisdomTree Trust that invest all of their respective assets in wholly-owned subsidiaries as described in the application. The order also amends one of the Prior Orders by deleting the relief granted from the requirements of Section 24(d) of the Investment Company Act and revising related terms and conditions of the applications for such order. (Rel. IC-28805 - June 29)
Accelerated Approval of Proposed Rule Change
The Commission granted accelerated approval of a proposed rule change submitted by NASDAQ OMX PHLX (SR-Phlx-2009-40) relating to listing and trading of foreign currency options. Publication is expected in the Federal Register during the week of June 29. (Rel. 34-60169)
Approval of Proposed Rule Changes
The Commission has issued an order approving a proposed rule change filed by the NASDAQ Stock Market, as modified by Amendment No. 1 thereto (SR-NASDAQ-2009-039), to amend the By-Laws of The NASDAQ OMX Group, Inc. Publication is expected in the Federal Register during the week of July 6. (Rel. 34-60183)
The Commission approved a proposed rule change submitted by the Chicago Board Options Exchange (SR-CBOE-2009-028) relating to rebating member dues for certain members. Publication is expected in the Federal Register during the week of July 6. (Rel. 34-60185)
Proposed Rule Change
NYSE Arca filed a proposed rule change (SR-NYSEArca-2009-52) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder to Amend the Schedule of Fees and Charges for Exchange Services. Publication is expected in the Federal Register during the week of July 6. (Rel. 34-60184)
Immediate Effectiveness of Proposed Rule Changes
A proposed rule change (SR-ISE-2009-42) filed by the International Securities Exchange relating to fee changes has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of July 6. (Rel. 34-60192)
A proposed rule change filed by the NASDAQ Stock Market (SR-NASDAQ-2009-052) to the Nasdaq Listing Rules to make certain technical changes and typographical corrections 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 July 6. (Rel. 34-60193)
Approval of Extension of Temporary Registration as a Clearing Agency
The Commission issued a notice and order soliciting comments and extending the Fixed Income Clearing Corporation's temporary registration as a clearing agency through June 30, 2010. Publication is expected in the Federal Register during the week of July 6. (Rel. 34-60189)
SECURITIES ACT REGISTRATIONS