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Standards & GuidanceBriefs .....
Foreign companies will find it easier to exit US markets as a result of a US Securities and Exchange Commission (SEC) decision to ease conditions for deregistration. Roel Campos, SEC commissioner, said nearly 60% of European companies currently listed in the US will be able to deregister under the new rules. The new rule received the backing of Todd Malan, Organization for International Investment chief executive, who said “This move will attract more foreign companies to US exchanges, than it will encourage to leave”. Campos also commented on cooperation between the SEC and other jurisdictions and regulators. Suggesting that it is only a matter of time before events like the New York Stock Exchange/Euronext merger will mean the SEC has to accommodate cross-border trading and transactions, he supported a recent proposal to allow foreign securities to be sold through foreign screens directly to US investors.
The UK's Financial Reporting Council (FRC), which is responsible for regulating corporate reporting, is consulting on changes to its governance structure that would see members appointed on merit rather than as representatives of particular interests. The intention of this proposal is to bring to the FRC wide practical experience in reporting and governance. Also suggested is that the FRC’s board and council be merged into a single governing body, and that in future only the chair and deputy chair be appointed by government ministers. Sir Christopher Hogg, FRC chair, said the proposals should allow the regulator’s work to be more effectively focused and communicated. The consultation is open until 1 June.
The UK government has launched an independent review of liability in respect of damage or loss suffered as a consequence of inaccurate, false or misleading information disclosed by companies or their managements to the market, including to their own shareholders, or of failure to disclose relevant information promptly or at all. The review is being led by Paul Davies, the Cassel Professor of commercial law at the London School of Economics. The review follows a government consultation last year on extending the scope of the statutory damages regime for disclosures required under Financial Services Authority disclosure rules implementing the transparency directive. The government included a power to amend, limit or extend the scope of the new liability regime in the Companies Act 2006 and the review aims to make recommendations on whether to exercise this power and, if so, how. Davies published a discussion paper on this last month. The deadline for comments is 27 April.
Four former senior executives of Canadian telecommunications company, Nortel, have been charged with repeatedly engaging in accounting fraud to bridge gaps between its true performance, its internal targets and Wall Street expectations. Among those accused, by the US Securities and Exchange Commission (SEC), is Frank Dunn, the company’s former chief financial officer and chief executive, and the misconduct is alleged to have taken place between September 2000 and January 2004. It is alleged that the defendants benefited financially through their pay packages due to the manipulation of Nortel’s financial results. The Ontario Securities Commission, which has been working with the SEC while conducting its own investigation, is to hold a hearing on 1 May, into violations of Canadian securities law by Dunn and two other former executives.
A US appeals court has stripped Enron shareholders of their class action status, meaning they will no longer be able group together to sue the collapsed energy company’s banks. The court overruled a decision that Merrill Lynch, Credit Suisse First Boston and Barclays were primary participants in the fraud at Enron. This means the banks can no longer be held liable for both their own actions as well as those of everyone else a jury might find to have been involved. This kind of liability could have pushed the banks’ settlement far higher than the $7.3bn already recovered from Enron’s lenders, including JPMorgan Chase and Citigroup. The shareholders have said they will seek a review of the court's decision, possibly in the US supreme court.
Salvatore Sodano, former chairman and chief executive of the American Stock Exchange (Amex), has had administrative proceedings filed against him by the US Securities and Exchange Commission (SEC) for allegedly failing to enforce compliance with federal securities laws and exchange rules. Amex itself was censured for failing to enforce compliance with securities laws and to comply with its record keeping obligations between from at least 1999 to June 2004. It is alleged that Amex’s regulatory failings stem largely from Sodano’s failure to make regulation on Amex a priority. Scott Friestad, SEC associate director, said the action against Sodano alleges he abdicated his oversight responsibilities and repeatedly ignored warnings about Amex’s regulatory deficiencies.
There was a big drop in the level of possible informed share trading prior to FTSE 350 announcements in 2004/05, according to the Financial Services Authority (FSA). The FSA said that only 2% of significant announcements by companies were preceded by informed price movements compared to 11.1% in the period 2002/03 and 19.6% between 1998 and 2000. The level of informed trading ahead of takeover announcements fell from 32.4% in 2004 to 23.7% in 2005. However, the FSA said this was still a high level and was little changed from the 24% in 2000 before the implementation of the Financial Services and Markets Act. The 2005 figures include the period after the introduction of the new disclosure rules for listed companies under the market abuse directive.
David Stockman, former budget director to US president Ronald Reagan, has been charged with misleading investors while chief executive of Collins & Aikman (C&A), the bankrupt car parts manufacturer. The charges, brought by US attorney Michael Garcia, allege that between December 2001 and May 2005 Stockman took part in a conspiracy to conceal from investors and lenders the truth about C&A’s financial position. This, it is alleged, involved the artificial inflation of figures by prematurely recognising cost reductions based on supplier rebates. Also charged are J Michael Stepp, former C&A chief financial officer; David Cosgrove, former controller; and Paul Barnaba, former director of purchasing. C&A has entered into a non-prosecution agreement.
Russian prosecutors have raided the Moscow offices of PricewaterhouseCoopers as part of their ongoing investigation of Yukos. PwC audited the Russian oil company which collapsed after the Russian government forced the sale of its assets as part of the recovery of alleged unpaid taxes. Its former boss, Mikhail Khodorkovsky, is currently in jail having been found guilty of fraud and tax evasion. PwC said the authorities had permission to seize documents relating to a 2002 tax claim against the auditor but that paper and electronic files seized in fact related to a wider range of issues and it strongly objected to their seizure. PwC has begun legal proceedings to request that documents not related to the 2002 tax case be returned. It denies any wrongdoing in relation to the tax case or its audits of Yukos.
A consultation is drawing to a close (2 April) on changes that tighten up India's corporate governance rules. The Securities and Exchange Board of India said that since clause 49 of its listing agreement with companies took effect in 2006 there had been calls for changes. Amendments proposed include introducing independence criteria for non-executive chairman which if not met would require half, rather than a third, of the board to be comprised of independent directors; introducing a 90-day time limit for boards to replace an independent director and stating that nominee directors are not considered independent.
The House of Commons Treasury select committee is to launch an inquiry into the private equity industry. The investigation by MPs follows the launch of a working group by the British Private Equity and Venture Capital Association (BVCA) that will produce a report into how transparency by companies backed by private equity can be improved, and recent trade union criticism of the industry. Economic Secretary to the Treasury Ed Balls, speaking at the London Business School recently, welcomed the BVCA initiative. He also announced that the government would be reviewing the current tax rules that apply to the use of shareholder debt where it replaces the equity element in highly leveraged deals.
Maurice Greenburg, who quit as chairman and chief executive of insurance company, American International Group, in 2005 and has faced legal proceedings over alleged accounting irregularities when at the firm, was engaged in a campaign to boost his reputation. Some of the work carried out on his behalf emerged in a lawsuit issued last month by a US media and research company, eSapience. The firm is claiming that Greenburg's investment firm, CV Starr, owes around £2m in unpaid bills for work, such as organising events and finding a ghost writer for an autobiography of Greenburg, it carried out last year.
The Hong Kong stock exchange has launched a corporate governance section on its website. Online information provided is on the exchange’s key corporate governance principles, practices and policies. There is also a checklist to illustrate the exchange’s compliance with the Code on Corporate Governance Practices which form an appendix to Hong Kong’s Listing Rules.
TIAA-CREF, which provides pension services to US academics and researchers, has published a revised edition of its policy statement on corporate governance. Changes include revised policies on executive compensation and new voting policies relating to lead directors, shareholder advisory votes on pay and shareholder access to the proxy.
The UK’s Auditing Practices Board (APB) is asking for comments on the International Standard on Auditing (ISA) 550 on related parties and ISA 570 on going concern. These were recently published by the International Auditing and Assurance Standards Board (IAASB) following changes to previously proposed rules. The APB said it would welcome comments from interested parties before it responds to the IAASB. The IAASB’s comment period for ISA 570 ends on 31 May 2007 and the APB wants to hear from respondents by 4 May 2007. The IAASB deadline for ISA 550 is 30 June and the APB would like responses by 1 June. Meanwhile, the Accounting Standards Board has made amendments to its financial reporting standard on reporting financial performance (FRS 3). Comments on these changes should be received by 27 April.
The San Diego State University college of business administration’s corporate governance institute has appointed an advisory board which includes, Nell Minnow, editor and co-founder of The Corporate Library and Cynthia Richson, chief executive of the Investor Responsibility Research Center Institute and former corporate governance officer for the Ohio Public Employees Retirement System.
April, 2007 |
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