June 24, 2002
14341 Spa Drive
Huntington Beach, CA 92647
Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
File No. S7-21-02-comment, via e-mail
Dear Mr. Katz:
Thank you for taking comment on the proposed certification rules. The Commission should be commended for taking this timely action. Staff has done a fine job in rehashing some of the history of financial statement certification and executive approval, and indicating areas for comment.
I am a public investor with no financial stake in this issue.
I support the proposed rule, and believe it would reaffirm existing duties of corporate officers and boards, help re-establish investor confidence, while not adding undue liability or burdens. Generally, I would support the widest possible application of the rule to both the individuals concerned and the statements involved, while minimizing the burden by making compliance with the rule as streamlined and flexible as possible.
You ask, "Should there be circumstances where a false certification should not give rise to Rule 10b-5 liability? Should we specifically provide an exemption from Rule 10b-5 liability? If so, under what circumstances or conditions?" The answer is, no. One positive contribution regulators everywhere can make is to help private investors uncover evidence of wrongdoing. This is a sorely needed function, as private rights of action have eroded over the years, and as well the securities industry has been able to restrict evidence discovery through the mandated arbitration system. The SEC has often been a silent (or even worse) partner in these various erosions, despite its duty to protect investors. Please, do nothing to further risk eroding our rights-do not include any liability carve-outs. You said it already-this proposal does not add to liability. Nothing further need be said.
Companies should not have to establish new committees to consider disclosure issues. Existing committees and even existing processes should be allowed to fulfill the requirements of this rule. Issuers should be given flexibility to ensure that top execs are "in the loop" on critical disclosure issues. One would hope that any CEO worth his millions would know full well what was going on. In fact, this is undoubtedly the case most times, and a simple signature/certification requirement may be enough, without getting into more committees, meetings and paperwork, which may actually tend to obfuscate what's going on. The best situation one could imagine is where a CFO and line managers have many informal and frank communications with the CEO about the numbers; asking them to then document everything they do could detract from their work and be burdensome. Requiring certification of procedures may not help. However, you cannot let a CEO get off by simply delegating these procedures, then claiming ignorance when misstatements occur. A certification requirement from senior execs, together with a reaffirmed duty to be actively engaged in oversight or preparation of those statements, may suffice. For example, a simple log of meetings might do. In any event, the rule should be structured in a way to support active and reasonable enforcement by the SEC and the exchanges-it should give enforcers the ammunition to hold the top dogs accountable. This will ensure CEOs pay proper attention.
Small issuers should be excluded. The main problem is with the larger corporations that have the ability to insulate top management.