President Signs Corporate Responsibility and Accounting Reforms Bill
By: JOHN H. STOUT
August 2002
In response to recent highly publicized accounting scandals, questionable financial transactions and insider trading allegations, the last several months have seen numerous proposals for improving corporate governance. The National Association of Corporate Directors, Business Roundtable, NASDAQ, the New York Stock Exchange, and several other noteworthy organizations have weighed in.
Late last week the House and Senate passed the Sarbanes-Oxley Act of 2002, significant legislation that will directly affect the accounting profession and governance of publicly held companies, as well as Board practices at private companies and non-profit corporations. Among the matters dealt with, the Act:
- Establishes a Public Company Accounting Oversight Board.
- Prohibits 8 types of consulting services by public company auditors.
- Requires rotation of audit partners after 5 years; and a study of rotation of audit firms.
- Requires retention of audit records for 5 years.
- Makes Board audit committees responsible for hiring and overseeing auditors.
- Provides strict “independence” standards for Board audit committee members.
- Requires audit committees to have one member who is a financial expert and to disclose that person’s name.
- Requires CEO’s and CFO’s to certify that they reviewed SEC filed reports, have no knowledge of material omissions and believe the financial information fairly represents the company’s financial condition. False certification can result in criminal sanctions.
- Prohibits efforts to fraudulently influence, coerce, manipulate or mislead auditors for the purpose of making financial statements misleading.
- In the event of a restatement of financial results, provides for forfeiture of certain CEO and CFO compensation plus profits realized from securities sales during the 12-month period following release of financial statements that don’t comply with SEC reporting requirements because of misconduct.
- Prohibits escaping certain provisions of the Act by incorporating offshore.
- Bars insider trades during pension black-out periods.
- Requires the SEC to issue rules for disclosure of off balance sheet financing.
- Prohibits most loans to directors and executive officers.
- Requires filings within 2 days of insider securities transactions.
- Requires the SEC to issue rules requiring disclosure of whether a company has a code of ethics for senior financial officers.
- Requires an “enhanced review” of companies’ 1934 Act disclosures by the SEC at least every 3 years.
- Requires real time disclosure of material changes in the business or financial condition of companies.
- Requires greater separation of analyst/investment banking relationships, and prohibits retaliation against analysts who issue negative reports.
- Requires disclosure of analyst/broker-dealer conflicts of interest.
- Provides substantial criminal sanctions for destroying, altering or tampering with records with the intent to impede justice.
- Makes debts nondischargeable if incurred in connection with violation of securities laws.
- Extends the statute of limitations for securities fraud.
- Provides whistleblower protection for employees of public companies who provide evidence of fraud.
- Authorizes the SEC to freeze substantial company payments to directors, officers and others during a securities fraud investigation.
- Provides that monies collected by the SEC from fines and profits disgorgements be allocated to a fund for victims of financial fraud.
- Strengthens the SEC’s authority to prohibit persons from serving as officers and directors of public companies under certain circumstances
Fredrikson & Byron has had an active corporate governance practice for many years. We are an associate member of the National Association of Corporate Directors, and one of our senior attorneys is on the NACD Advisory Board and President of its Minnesota chapter. He is also a member of the American Bar Association Committee on Corporate Governance and its subcommittee on international governance, and a member of the International Corporate Governance Network. Our attorneys frequently publish and speak on governance matters, and the firm has been cited as one of the top firms in the area by Corporate Board Member magazine.
We provide three clusters of governance services: advisory, civil litigation, and investigative responses and criminal defense. A partial listing of lawyers and their contact information for each service area is included.
Advisory Services
Members of the Corporate Governance Group regularly consult with Boards, Special Board Committees, independent directors and corporate executives of public, private, family-owned and nonprofit corporations on a broad range of governance matters, including:
- Organization of the Board and its committees.
- The role and duties of the Board and its committees.
- Preparing and reviewing statements of corporate governance principles, codes of ethical conduct and conflicts of interest policies, and Board committee charters.
- Relationships between the Board, shareholders, management and other corporate constituencies.
- Evaluating conflicts of interest and corporate opportunity issues.
- Board and committee performance evaluation matters.
- Limiting director and officer liability.
- D&O insurance, including coverage analysis.
- Representation of the Board and special committees in merger, acquisition and takeover transactions.
- Contentious and non-contentious proxy solicitations.
- Advising Board committees (e.g., special committees appointed to consider mergers and similar transactions and litigation, as well as audit compensation, nomination, governance, and other standing Board committees).
- Analyzing director and officer indemnification issues.
- Assisting with the preparation and performing of corporate legal and ethical compliance reviews.
- Update presentations to Boards on current governance.
John
Stout, Chair |
Robert
Ranum |
Karen
Grandstrand |
Bruce
Johnson |
Larry
Hause |
|
Civil Litigation
Our lawyers have represented companies, officers, directors and shareholders in numerous lawsuits and arbitrations, including:
- Prosecuting and defending shareholder claims for fraud, breach of fiduciary duty, and shareholder oppression.
- Representing corporations, directors and officers on a variety of insured and uninsured claims.
- Pursuing coverage issues with D&O insurers.
- Dissenters’ rights and “piercing the corporate veil” claims.
- Resolving director and management disputes.
- Corporate indemnification claims.
Thomas
Fraser |
James
Dorsey |
Emily
Duke |
Investigative Responses and Regulatory Defense
With the intense pressure that has been brought to bear on regulators to restore confidence in the securities markets it is inevitable that a number of companies and their directors and officers will be the subject of investigations, and in some instances enforcement efforts. Our White Collar and Regulatory Defense Group is comprised of lawyers with as much direct, hands-on-experience as larger, national law firms. The Group includes a leading criminal defense trial attorney with over 20 years experience devoted exclusively to the defense of white collar cases, especially financial fraud investigations, trials and appeals; a former Department of Justice trial attorney with over 25 years experience in financial and fraud litigation; a former United States Attorney for the District of Minnesota; former staff from the Minnesota Attorney General’s office; and other highly capable, aggressive litigators.
The Group closely collaborates with our Securities Law Group, which has in-depth experience in representing public and private companies on securities matters. It also utilizes experienced former federal special agents trained to conduct internal investigations and defend against all types of financial fraud allegations.
We represent companies, directors, officers, employees and various company advisors (e.g., accountants, attorneys and consultants). Our services include:
- Internal investigations
- Response to government investigations.
- Coordination of public relations issues.
- Defense of civil, criminal and administrative enforcement actions.
John
Lundquist, Chair |
Steve
Kaplan |
David Lillehaug |
Dulce
Foster |
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Corporate Governance Seminar Series
As part of the firm’s ongoing commitment to helping business leaders stay up to date on governance issues, Fredrikson & Byron will launch a seminar series this fall. The purpose will be to help executives and directors understand the new regulations, consider governance “best practices,” consider corporate compliance measures, and protect themselves and their organizations against civil and criminal investigations and litigation. The series will include local and national speakers. Please email Heather King if you’d like to be included on our invitation list.