Securities Industry Commentator by Bill Singer Esq

On The Beach in Hysteria Mode (BrokeAndBroker.com Blog)

What can happen to a company if coronavirus sends every employee home (CNBC.com)

SEC Adopts Amendments to Reduce Unnecessary Burdens on Smaller Issuers by More Appropriately Tailoring the Accelerated and Large Accelerated Filer Definitions (SEC Release)

Amendments to Reduce Unnecessary Burdens on Smaller Issuers by More Appropriately Tailoring the Accelerated and Large Accelerated Filer Definitions (Statement by SEC Chair Clayton)

Statement on Amendments to Reduce Unnecessary Burdens on Smaller Issuers by More Appropriately Tailoring the Accelerated and Large Accelerated Filer Definitions by SEC Commissioner Hester M. Peirce

Statement on the Rollback of Auditor Attestation Requirements by SEC Commissioner Allison Herren Lee

Bergen County Man Charged With Stealing Millions From Lenders And Corporations In Wire Fraud Scheme (DOJ Release)

January 21, 1978 (Season 3, Episode 9), "What if Napoleon Had a B-52 Bomber?"

November 4, 1978 (Season 4, Episode 4), "What if Eleanor Roosevelt Could Fly?"

January 27, 1979 (Season 4, Episode 10), "What if Superman Had Landed in Nazi Germany?"

February 23, 1980 (Season 5, Episode 12), "What if Spartacus Had a Piper Cub?"

Following the adoption of the amendments, smaller reporting companies with less than $100 million in revenues will continue to be required to establish and maintain effective internal control over financial reporting (ICFR). Their principal executive and financial officers must continue to certify that, among other things, they are responsible for establishing and maintaining ICFR and have evaluated and reported on the effectiveness of the company's disclosure controls and procedures. In addition, these smaller companies will continue to be subject to a financial statement audit by an independent auditor, who is required to consider ICFR in the performance of that audit. As a result of these amendments, and unlike larger issuers, these smaller companies will no longer be required to obtain a separate attestation of their ICFR from an outside auditor. These smaller issuers will be able to redirect the associated cost savings into growing their businesses. Business development companies will receive analogous treatment as a result of the amendments.

Today's amendments would not impact the largest company in the S&P 500 with a market capitalization of approximately $1.2 trillion.[2]  They would not even impact the 500th largest company in the S&P 500 with a market capitalization of approximately $3.5 billion.[3]  The companies that would be affected are not in the S&P 500 and not in the Russell 1000.  Investors should know that the S&P 500 makes up approximately 80 percent of total market capitalization[4] and, when you include the next 500 companies (the Russell 1000), you get to approximately 90 percent of the total market capitalization.[5]  We are not talking about any of these companies.  Instead, we estimate that companies benefiting from today's measures collectively represent less than 1 percent of total market capitalization.  Notably, the collective market capitalization of the more than 500 companies that will benefit from today's amendments is less than 1/4  of the market capitalization of the largest company in the S&P 500.  We are talking about smaller companies that should benefit from scaled regulation and from our commitment to retrospective review and the modernization of our rule sets.

Nevertheless, the amendments provide welcome relief for SRCs that had annual revenues of less than $100 million in the most recent fiscal year and BDCs in analogous circumstances.  To make our public markets more attractive for companies that have their most vibrant years of growth ahead of them, we need to eliminate unnecessary costs of being public.  The Section 404(b) compliance costs saved by these SRCs and BDCs now will be available for uses that are more productive.  I am encouraged by indications in the comment file that the amendments will enable, for example, biotech companies to invest more in research and development and community banks to make more loans to local businesses. A company trying to develop a vaccine for a fast-spreading virus, something that is now on all of our minds, will be able to pour resources and-importantly-management's time and attention into that effort rather than into obtaining an internal controls audit.  For some companies, of course, an external audit of internal controls might be the best use of resources.  Our rule -- which includes a check box on the front page of annual reports to indicate whether there is an ICFR auditor attestation -- makes it easy for investors to decide whether they want to invest in companies that have chosen not to devote resources to internal controls audits. 

Today, in the face of extensive objection from investors, we strip away a layer of investor protection for financial reporting. The rule adopted today removes the requirement that an auditor attest to the adequacy of internal controls over financial reporting (ICFR) for public companies with revenues of less than $100 million. Eliminating the auditor attestation removes a critical gatekeeping function that we know works to improve the reliability of financial reporting for investors. And we sacrifice this important protection for an admittedly modest cost reduction for issuers that could well be negated by an increased cost of capital.    

There are valid concerns on both sides of the policy choice the Commission makes today. Public companies with relatively lower revenues are understandably concerned about costs related to regulatory compliance; investors are understandably concerned about the extent and reliability of disclosures they need to make informed investment decisions. 

Rather than balancing these concerns, however, the final rule overrides investors' views, and eliminates the auditor attestation requirement at lower-revenue companies. In fact, as we have seen with other rules, the final rule swings further than the proposal in the direction that concerned investors, eliminating the ICFR auditor attestation requirement for certain business development companies (BDCs) as well.

From 2016 through 2019, O'Callaghan defrauded two financial services groups and four other companies of millions of dollars by deceiving them into believing that "Bank A" was agreeing to commit funds to revolving credit facilities. He represented himself as an executive at Bank A using the aliases "Edward Tierney" and "Michael Nash." O'Callaghan induced the victims into making trades in which they agreed to pay Bank A to take on a commitment to fund revolving credit facilities.

O'Callaghan submitted numerous fraudulent documents to the victims that were designed to deceive them into believing that Nash and Tierney were legitimate representatives of Bank A, including email addresses resembling legitimate Bank A email addresses, false email signature blocks for Tierney and Nash that bore the Bank A logo and listed the business address for Bank A, fraudulent wiring instructions bearing Bank A's logo and address, and a tax form bearing a tax identification number for Bank A.

O'Callaghan directed the victims to wire funds to a bank account at Bank A that O'Callaghan controlled and then converted the money for his own use, including the purchase of an automobile, gambling, travel, and payments to a private club.

• Securities Industry Commentator
• Bill Singer