Tweet
PRINTER VERSION

SUMMARY OF DISCLOSURE LAWS 

At one time filing, disclosure and compliance with SEC regulations were not, strictly, IR functions. However, in a small company the IR person wears many hats. In addition, SEC rules on filing and disclosure have become so complicated that today a major function of the IR department is to assist the Corporate Secretary with these tasks.

When a corporation has over 300 shareholders of record (500 if there are assets under $10 mil.) it must report to the Securities and Exchange Commission (SEC). That's not as hard as it used to be since a broker holding many people's stock in street name is counted as only 1 shareholder of record! A company with fewer than 300 shareholders may also choose to report to the Securities and Exchange Commission SEC because this is a requirement to remain listed on the OTCQB/OTCBB, NASDAQ, AMEX and NYSE. This means that the company must, in a timely manner, submit audited annual reports (form 10K), quarterly reports (form 10Q), and notification of significant corporate events (form 8K) and proxy materials. Thes filings must be in the electronic format(s) required by the SEC.

Under the SEC's Reg, FD, the company must make the above data and information available to shareholders, potential investors, analysts and the general public all at the same time. Although insider trading has been illegal for a long time, with the passing of Reg. FD in the year 2000, selective disclosure became prohibited, also. When reports are filed with the SEC they will become available at the EDGAR site almost immediately. Therefore, press releases on the subject, emails to shareholders, availability of the information on the company website and so on cannot take place before, and generally take place immediately at the time of filing.

Likewise, quarterly (or other) conference calls (or web conferences) with shareholders and/or analysts are available to the public as a whole. Except under emergency conditions, such conferences must be publicly announced at the minimum several days beforehand. Adequate notification can be done by a press release via a Tier 1 release distribution service which will show up at financial websites such as Yahoo Finance, by posting an announcement at the company Website and via emails to shareholders and interested parties if such an email service has been established. Although the general public can listen to such conferences, it is OK if the company limits the ability to ask questions to only a few people. In addition, the company should post a transcript or recording of the conference at their Website and let the public know how long it will be available there.

To be cautious, many if not most CEOs and CFOs will refuse to talk with anybody for the two or so weeks before the quarterly filing and subsequent conference. Some companies prohibit their CFOs from answering questions at all, instead providing a questionnaire form at the Website so that the answer can be emailed immediately after the next quarterly filing and conference. Of course, the company must be careful to insure that printed brochures and presentations at investor conferences incorporate only information which has already been made public.

Company financials and projections are of no use if they are not accurate. The 2002 Sarbanes–Oxley Act (SOX) set new standards and tightened existing ones for audits, auditors and related procedures to make sure public company figures are accurate. This came in the wake of scandals over several large companies, including Enron and WordCom, who had been cooking their books. The Public Company Accounting Oversight Board (PCAOB) was created to oversee public companies and their auditors. There has been debate over whether or not the benefits from SOX outweigh the cost of compliance which is higher than that required in foreign countries and which is onerous for small companies,

The Dodd–Frank Act aims to bring the company's management, board and shareholders closer together and to add accountablility.The Act gives shareholders a stronger say in approving executive compensation. In addition, the Act provides whistleblower incentives and protections.

As a result of the act, in 2010 the SEC established new proxy access rules that that would permit shareholders to include their nominees for election to a company's board of directors in the company's proxy materials. This meant that dissident sharholders no longer need to fund their own, separate mailing. Then in July 2011 the D.C. Court of Appeals issued its decision in Business Roundtable and Chamber of Commerce of the United States of America v. Securities and Exchange Commission. The BRT and Chamber filed the lawsuit seeking to overturn the SEC’s proxy access rule. The court found for the BRT and Chamber and vacated the rule. But will this be appealed? Stay tuned!

There is, actually, a piece of legislation which works in a company's favor when it wants to make a forward-looking projection. That is the Private Securities Litigation Reform Act of 1995, otherwise known as the Safe Harbor Law. The act protects management from liability if statments, written or oral, are identified as forward-looking, and accompanied by meaningful cautionary statements. Here is a link to McGraw Hill's Safe Harbor Statement. And here is a link to a text-only version in case they reorganize and the link is lost.

If your public company is NOT SEC-reporting but is on the OTCQX (part of OTCMarkets.com), you must conform with the OTCQX's rules on disclosure, Posted at OTCqx.com. You also must have a Designated Advisor for Disclosure (DAD). If you wish to be on the "Current Information" Pink Sheets Tier at OTC Markets you must conform with their reporting rules for this tier.

Below are several useful articles for companies which are SEC-reporting.

• A must-read publication is A Plain English Handbook: How to Create Clear SEC Disclosure Documents, by the SEC.
• The entire August 2000 regulations regarding selective disclosure is at Final Rule: Selective Disclosure and Insider Tradings
• Meredith Landry at Brobek.com wrote a good article, Minimize Securities Litigation Risks. This article specifically addresses the IR information at your company website. Although Brobek.com is gone, the article can now be found at findlaw.com If this site also disappears, here is a text-only version.
• Safe Harbor Law Boosts Corporate Disclosure by Stanford GSB. An opinion as to the effect this law has had. If this page disappears at their site, here isa text-only version.
• The entire text of Sarbanes-Oxley in PDF format at FindLaw.com.
• Sarbanes Oxley 101 - Online guide to the Sarbanes-Oxley Act of 2002 and SOX compliance for businesses.
• Bowne File16 Update.
• Public Company Accounting Oversight Board -- private-sector, non-profit corporation, created by the Sarbanes-Oxley Act of 2002.
• SEC Institute Online -- Holds workshops and seminars.
• SEClaw.com -- has articles, commentary, forums and a bookstore.
• What Will Be Dodd-Frank's Biggest Impact? brought to you by IR Magazine.