Intro Video Transcript

SEC Compliance and Reporting An Introductory Overview Welcome to SEC Compliance and Reporting an Introductory Overview. My name is Ronald Kiima. I’m the author and I’ll be your host today. As a matter of background and relevant to this course; I am a former SEC Assistant Chief Accountant. I spent two thirds of a day with the SEC at their headquarters in Washington D.C, spending about eight and a half years in total. During that time I was with the Division of Corporation Finance, which oversees all public company matters in the normal course. The last six and a half years or so, I was an Assistant Chief Account in that division responsible for overseeing a number of industries or sectors. Prior to joining the SEC I spent a number of years with the Audit Practise at the University of Baltimore, doing large SEC registry and Audits. I also spent a period of time as the Managing Shareholder of the Accounting and Audit Practise on the East Coast Regional Firm, and also assisted a recently IPO company on the NASDAQ as the Senior Manager of Compliance Reporting and Special Projects, getting them up to speed. The Table of Contents for the topics that we’ll be covering today: • Commission – Politics and Structure • Principle Federal Securities Laws – Public Companies • Principle ’33 Act Forms – IPO Candidates and Public Companies • Principle ’34 Act Forms – Public Companies • Principle Regulations, Rules and Interpretations – Public Companies • Filter Designations – Reporting Deadlines • Form 10-K Annual Report – Overview • Form 10-Q Quarterly Report – Overview • Form 8-K Current Report – Overview • Schedule 14A Proxy/Information Statement – Overview Starting off with the Commission it’s Politics and Structure First of all, the SEC is an Independent Regulatory Agency; what that basically means is that, they’re not to be politically interfered with in the course of fulfilling of their daily oversight of responsibilities, and I can tell you in my eight and a half years with the SEC, that was largely true. My teams and I ran compliance reviews of the filings made by various public companies and ninety nine percent of the time there was nothing of the way of political influence that got in interjected into the process. The SEC is led by a five member commission, they’re all nominated by the President and the President gets to control three of the five seats for his party. So, currently under President Obama three of the five seats are filled with democratic appointments, the other two have to go outside the party in power, coincidently they happen to be republicans at this point of time. So, you have three democrats and two republicans. When the President nominates a member for the commission, it has to go before the senate for hearing, ultimately we have a vote and that is known as the senate rendering it’s vice and consent, if they prevail the senate hearings in both then they are ultimately seated for a 4-5 year term. Each term is intended to expire five years out on June 30, with each term kind of expiring sequentially so that there is always legacy remaining at the commission. Once a Commissioner’s term expires at the end of the five years, they can be re-nominated for a second five year term which is not unusual. The SEC has a handful of Diversions and their responsibilities are largely segregated. The Diversion that we will be focused on primarily will be the Diversion of Corporal Finance or “Corp Fin” as many people affectionately refer to it. Now, people stop me occasionally and say “Ronald, you were with the SEC, why didn’t they put so and so in jail?” Well, I always have to explain to them that when the SEC was created in 1934, the President in congress only grant the SEC civil enforcement powers. The SEC has never been granted criminal enforcement powers. So, when the SEC believes a sanctioning is warranted, those sanctions are limited to civil measures. This typically would entail things such as: • Penalties and Fines • Interest • The discouragement of many ill-gotten gains • They also routinely, temporarily or permanently bar individuals from ever being associated with a public company in the future. In effect they’re all getting their careers to the private sector. • They can also impose all type of government internal control measures upon a company are real measures in effect. Now, even though the SEC is not interfered with on a daily basis in its normal oversight responsibilities, it’s obviously influenced as all agencies are, through legislation or appropriations. Whatever the President in congress legislates, is the law and the SEC is bound to enforce that and the SEC has a voice in that legislation as its being formulated and deliberated, and more times than not the SEC I think does get the legislation that they believe is in the shareholders best interest. Now, the budgetary appropriation process can have a huge influence on the SEC’s abilities to fulfil its mandate to the extent that there is a pro-regulatory mindset prevailing politically in Washington D.C, the SEC will typically get more appropriations which allows it to get staffing and e a little bit more aggressive to the extent that there’s an anti regulatory trend in Washington D.C then obviously the SEC’s budget would be contracted and that could be a challenge for the SEC in meetings, some of its oversight mandates. Now this is the current composition of the five Commissioners: Democrats: Mary Jo White, ESQ [2013 – Obama Appointed] Luis A. Aquilar, ESQ [2011 – Obama Appointed] [2008 – Bush Appointed] Kara M. Stein, ESQ [2013 – Obama Appointed] Republicans: Daniel M. Gallagher, ESQ [2011 – Obama Appointed] Michael S. Piwowar, Ph.D [2013 – Obama Appointed] You will notice that four of the five currently are securities attorneys or have been securities attorneys and there’s one that is a Ph.D in Economics. Historically that has been the case; the composition of the commission typically has been made up of the investment banker types, security lawyer types and an occasional economist. Historically for reasons that escape me, there has never been as I can recall a recently practising CPA as a member of the commission. I just think that CPA’s such as ourselves are wired, we’re very analytic, we tend to be inquisitive, we ask questions, we challenge things and I think that serves to be disruptive to the political processes and as a consequence the most powerful CPA at the SEC is housed in the Chief Account’s office, which we’ll also be talking about in a second. Commission Structure Now, this is a quick overview schematic of the SEC, it’s headed up as I said with the five member commission. Our focal point will be on the items that I’ve highlighted in red. • Commission • Office of the Chief Accountant • Division of Corporation Finance • Public Companies The Principle Accounting Advisory role to the Commission would be the office of the chief Accountant that houses the Chief Accountant of the SEC, which without a doubt is the most powerful Accountant in the United States and arguably the most powerful Accountant in the world. Then you have his counterpart or her counterpart as the Officer General Counsel that will be the top Legal Cop in the SEC. A few years ago they added as a result of mortgage banking prices and the resulting problems that we had in the economy, a division of economic and risk analysis; in effect it’s an internal think tank where the SEC recruited a lot of renowned specialised or specialists in varies areas that are complex, such, “Exotic Derivatives” they went out and they saw to individuals from Wall Street or Academia that were experts in things like Abetted Derivatives. So, that is the think tank that advises the Commissioner in complex issues and emerging issues, they’re also responsible for being the eyes and ears of the SEC, so they’re supposed to be looking out over the landscape for financial instruments or transactions or structures or the like. Things that could be problematic, things that the existing regulatory oversight is maybe lacking in or trailing in and trying to be proactive to get out of frontal issues versus being reactive. Below that, you see the four principle divisions of the SEC the: Division of Corporation Finance, routinely referred to as Corp Fin. This is the division that I was previously employed with this is the division responsible of overseeing all public company matters in the normal course. Just as a matter of trivia, there’s a division of Investment Management that’s largely responsible for overseeing things such as mutual funds, there’s a division of Trading and Markets which is responsible for typically overseeing most of the Wall Street related matters, the exchanges appropriates and the likes. Then to the far right you’ll see the Division of Enforcement which is probably what you hear most about in the media and that’s because the Division of Enforcement, at least when it pertains to Public Company matters is typically the last leg of a three legged race. Most cases involving accounting and financial reporting matters are made in the Division of Corporation Finance through their compliance oversight reviews and interactions with companies. Once Corp Fin de-tax an accounting problem that they believe rises above the level of acceptability, meaning that there was either gross negligence or some attempt at fraud, the Division of Corporation finance can then make a referral to the Division of Enforcement for the pursuit of civil sanctions. If the Division of Enforcement believes that there’s also a criminal element to that violation then they can correspondingly make a referral to the Department of Justice for criminal pursuit.