Speech by SEC Chairman:
Remarks at the Commission Open Meeting
Chairman Harvey L. Pitt
U.S. Securities and Exchange Commission
January 22, 2003
Good Morning. This is an open meeting of the Securities and Exchange Commission, on January 22, 2003.
As I noted at our last open meeting, this week and last are the busiest two weeks of rulemaking in this Agency's history. Today we'll consider adopting four final rules related to the Sarbanes-Oxley Act. By the end of this week - only 6 months after the President signed the Act - the record of action by the Commission and its Staff will be nothing short of remarkable:
Within 30 days of the Act's signing, we adopted rules requiring CEOs and CFOs to certify their financial statements.
Including those we'll consider today and tomorrow, we will have adopted eight other final rules relating to:
Pro forma financial information,
Codes of ethics for senior executives,
Financial experts on audit committees,
Trading during pension fund blackout periods,
Disclosure of material off-balance sheet transactions,
Retention of audit records,
Independence standards for public company auditors, and
Standards of conduct for corporate attorneys.
In addition, by the end of the week we will have submitted to Congress four separate studies of:
Penalties and disgorgements in our enforcement cases,
Securities professionals who've "aided and abetted"
federal securities law violations,
Commission enforcement actions involving reporting violations
and restatements, and
The role and function of credit rating agencies.
These deadlines will have been met without the Commission slowing its other work - including our robust enforcement program and numerous regulatory initiatives unrelated to Sarbanes-Oxley. And we've already begun work on other rules, studies and requirements of the Act, including by proposing rules related to:
Improper influence on auditors,
Listing standards related to audit committees, and
Public company internal control reports.
Although I've said it many times before, it bears repeating - I commend the Staff for its work to meet the deadlines under the Act. The entire Agency has been involved in implementing the Act. Our Staff has been working, literally, around the clock for months to meet incredibly short deadlines, while carefully considering thousands of comment letters received on our proposals.
I'd also like to commend the diligence and dedication of my four colleagues, who've read through countless drafts, endured numerous meetings, and have spent a great deal of time worrying through the details of each of these projects.
Today, we consider recommendations from our Division of Corporation Finance, Office of the Chief Accountant, and Division of Investment Management. Those who've represented the Staff at the table over the last few months deserve extraordinary praise, but there are many others who have not been at the table whose efforts also have contributed greatly to the Staff's achievements. For example:
Ethiopis Tafara, Acting Director of our Office of International Affairs, and his Staff, have been of enormous assistance to the Staff and Commissioners regarding the extraterritorial impact of many of the rules, including coordinating our interactive roundtables on the international impact of the attorney conduct and auditor independence rules. As I think you will see, we have made a concerted effort to try to be responsive to the concerns of international regulators, without diminishing US investor protections, and Ethiopis has been at the forefront of those efforts.
Many in our General Counsel's office, including Meridith Mitchell, Gordon Seymour, Kimberly Drexler and Jill Felker, have contributed greatly. They're represented at the table by General Counsel Giovanni Prezioso.
Jack Katz, our Secretary, and the rest of his Office also have coordinated an unprecedented number of releases, comment letters and meetings, while providing valuable input. Jack is the repository of much of the agency's institutional memory, without whom we could not really function.
Joan McKown, Chief Counsel of our Enforcement Division, and her able Office, led three of the studies we will submit to Congress this week.
David Shillman and Mark Attar, of the Division of Market Regulation, led the efforts to complete the study on credit rating agencies.
And Larry Harris, our Chief Economist, and the entire Office of Economic Analysis, lent their economic expertise to all of our efforts.
Our agenda is long today, and we are anxious to get started.
The first item is the adoption of Form N-CSR. This form will be used by mutual funds and other registered management investment companies to certify their reports to shareholders under Section 302 of the Sarbanes-Oxley Act. We also are implementing the "code of ethics" and "financial expert" disclosure requirements of the Sarbanes-Oxley Act for mutual funds and other registered management investment companies.
Second, we consider amending existing requirements to enhance the independence of auditors of public companies, including in key areas such as the provision of non-audit services, partner compensation and partner rotation. I commend Jack Day, our Acting Chief Accountant, and Sam Burke, Bob Burns and Paul Munter, for their incredibly hard work on this proposal, which fulfills Congress's intent in a way that serves investors well. I'd also like to thank Jeff Minton from the Division of Corporation Finance for his assistance on this rule.
Next, we'll consider rules that would require companies to provide a discussion of off-balance sheet arrangements in the MD&A portion of their SEC filings. We'll also consider requiring registrants to present information about their contractual obligations in a clear and straightforward table. This will improve transparency of registrants' liquidity and capital resources. I commend Corp Fin Director Alan Beller, and Andrew Thorpe, as well as Acting Chief Accountant Jack Day, and his colleagues Jenifer Minke-Girard and Eric Schuppenhauer, for their hard work on this important initiative.
Finally, we'll consider a rule specifying the information auditors must retain subsequent to the completion of an audit or review of a company's financial statements. These records are often key to our enforcement efforts. Again, I commend the Staff in our Chief Accountant's Office - especially Jack Day and Bob Burns - as well as the staff of our Enforcement Division - including Linda Thomsen and Laurie Stegman - for their hard work in drafting this sensible rule on this important issue.