Welcome to the February 2010 edition of the Sarbanes
Oxley Compliance Professionals Association (SOXCPA)
newsletter
Dear
Members,
Today we will
discuss
Section 406 of
the
Sarbanes Oxley Act,
and the new
Enforcement
Cooperation Initiative
by the Securities and Exchange Commission
(series of measures to further strengthen its enforcement program).
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Contents
1.
Risk
Professionals
2.
Compliance Professionals
3.
Sarbanes Oxley Professionals
4.
Basel ii Professionals
5.
Solvency ii Professionals
6.
Hedge Funds Professionals
7. Members of the
Board of Directors
Section 406 of the
Sarbanes Oxley Act
We will start from the Act
SEC. 406. CODE
OF ETHICS FOR SENIOR FINANCIAL OFFICERS.
(a) CODE OF ETHICS DISCLOSURE.—The Commission shall issue rules to
require each issuer, together with periodic reports required
pursuant to section 13(a) or 15(d) of the Securities Exchange Act
of 1934, to
disclose
whether or not, and if not, the reason therefor, such issuer has
adopted a code of ethics for senior financial officers, applicable
to its principal financial officer and comptroller or principal
accounting officer, or persons performing similar functions.
(b)
CHANGES IN CODES OF ETHICS.—The
Commission shall revise its regulations concerning matters
requiring prompt disclosure on Form 8–K (or any successor thereto)
to
require the
immediate disclosure, by means of the filing of such
form, dissemination by the Internet or by other electronic means,
by any issuer of any
change in or
waiver of the code of ethics for senior financial officers.
(c) DEFINITION.—In this section, the term
‘‘code of ethics’’ means such standards as are reasonably
necessary to promote—
(1) honest and ethical conduct, including the ethical handling of
actual or apparent conflicts of interest between personal and
professional relationships;
(2) full, fair, accurate, timely, and understandable disclosure in
the periodic reports required to be filed by the issuer; and
(3) compliance with applicable governmental rules and regulations.
(d) DEADLINE FOR RULEMAKING.—The Commission shall—
(1) propose rules to implement this section, not later than 90
days after the date of enactment of this Act; and
(2) issue final rules to implement this section, not later than
180 days after that date of enactment.
We will
continue with the Final Rule from the SEC
Securities and
Exchange Commission, Final Rule
The final rules require a company to
disclose whether it has adopted a code of ethics that
applies to the registrant's principal executive officer, principal
financial officer, principal accounting officer or controller, or
persons performing similar functions.
If the
company has not adopted such a code of ethics, it must explain why
it has not done so.
Final Definition of "Code of Ethics"
The final rule defines the term "code of ethics" as written
standards that are reasonably designed to deter wrongdoing and to
promote:
• Honest and ethical conduct, including the
ethical handling of actual or apparent conflicts of interest
between personal and professional relationships;
• Full, fair, accurate, timely, and understandable disclosure in
reports and documents that a registrant files with, or submits to,
the Commission and in other public communications made by the
registrant;
• Compliance with applicable governmental laws, rules and
regulations;
• The prompt internal reporting to an appropriate person or
persons identified in the code of violations of the code;45 and
• Accountability for adherence to the code.
We eliminated
the component of the definition requiring the code to promote the
avoidance of conflicts of interest, including disclosure to an
appropriate person or persons identified in the code of any
material transaction or relationship that reasonably could be
expected to give rise to such a conflict, because the conduct
addressed by this component already is addressed by the first
prong of the proposed definition, requiring honest and ethical
conduct and the ethical handling of actual and apparent conflicts
of interest.
We are not adopting commenters'
suggestions that we set forth additional ethical principles that
the code of ethics should address.
We continue to believe that
ethics codes do, and should,
vary from
company to company and that
decisions as to the specific provisions
of the code, compliance procedures and disciplinary measures for
ethical breaches
are best left
to the company.
Such an approach is consistent
with our disclosure-based regulatory scheme.
Therefore,
the rules do
not specify every detail that the company must address
in its code of ethics, or prescribe any specific language that the
code of ethics must include.
They further
do not specify
the procedures that the company should
develop, or the types of sanctions that the company should impose,
to ensure compliance with its code of ethics.
We strongly encourage
companies to adopt codes that are
broader and
more comprehensive than necessary to meet the
new disclosure requirements.
We have added an instruction to the code of ethics disclosure item
indicating that a company
may
have separate codes of ethics for different types of officers.
The instruction also clarifies
that the provisions of the company's code of ethics that address
the elements listed in the definition and apply to those officers
may be part of a broader code that addresses additional issues and
applies to additional persons, such as all executive officers and
directors of the company.
Filing of
Ethics Code as an Exhibit
We proposed to require a company to file a copy of its ethics code
as an exhibit to its annual report.
We received several comment
letters stating that the rules should not include this
requirement.
A common ground for objection
was that some codes are extremely lengthy and therefore would be
difficult to file electronically on our
EDGAR system.
Some also asserted that
ethics codes
may contain a significant amount of detailed information that
would not be of particular interest to investors.
We are not entirely persuaded by the commenters that we should not
require a company disclosing that it has a code of ethics that
applies to its principal executive officer and senior financial
officers to make those provisions of the code available.
However, more flexibility
seems appropriate in light of the fact that many companies already
post their codes on their websites.
We therefore are adopting
rules that will allow companies to choose between
three alternative methods of making their ethics codes
publicly available.
First, a company may file a copy of
its code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions and addresses the specified elements
as an exhibit
to its annual report.
Alternatively, a company may post the text
of its code of ethics, or relevant portion thereof, on its
Internet
website, provided however, that a
company choosing this option also must disclose its Internet
address and intention to provide disclosure in this manner in its
annual report on Form
10-K, 10-KSB,
20-F or 40-F
As another
alternative, a company may provide an
undertaking in its annual report on one of these forms
to provide a
copy of its code of ethics to any person without charge upon
request.
If a company is complying with this disclosure item in its annual
report, inclusion of the company's website
address in the annual report will not, by itself, include or
incorporate by reference the information on the company's website
into the annual report, unless the company otherwise acts to
incorporate the information by reference
Also, we understand that a
company may have multiple websites that it uses for various
purposes, such as investor relations, product information and
business-to-business activities.
We intend the requirement to
disclose the company's website address to mean the website the
company normally uses for its investor relations functions.
Will
Obama reforms change considerably before they become law?
Alistair Darling
said yes, because of the "Sarbanes Oxley
Effect".
“America will no doubt be
very
conscious of the Sarbanes-Oxley effect,
where they legislated in haste to fix a problem. What we must
guard against is creating opportunities for arbitrage between
different zones of financial regulation — that is why we need to
work together.”
Alistair Darling, Chancellor of the
Exchequer
(The British Cabinet minister who is responsible for economic and
financial matters)
Breaking News
Enforcement Cooperation Initiative by the SEC
The Securities and
Exchange Commission solves the problems that led to the failure to
detect Bernard L. Madoff’s Ponzi scheme by reorganizing its
enforcement division and announcing a new cooperation initiative by
rewarding those who help its investigation.
SEC Announces
Initiative to
Encourage
Individuals and Companies to Cooperate and Assist in Investigations
Washington, D.C.,
Jan. 13, 2010: The Securities and Exchange Commission announced a
series of measures to
further strengthen its enforcement program
by encouraging
greater cooperation from individuals and companies in the agency's
investigations and enforcement actions.
The new initiative
establishes
incentives for
individuals and companies
to fully and truthfully cooperate and assist with SEC investigations
and enforcement actions, and provides new tools to help investigators
develop first-hand evidence to build the strongest possible cases.
The cooperation
initiative is expected to result in invaluable and early assistance in
identifying the scope, participants, victims and ill-gotten gains
associated with fraudulent schemes.
"This is a
potential game-changer for the Division of Enforcement," said Robert
Khuzami, Director of the Division of Enforcement.
"There is no
substitute for the insiders' view into fraud and misconduct that
only cooperating witnesses can provide. That type of evidence can
expand our ability to conduct our investigations more swiftly, and
to act quickly to file charges, freeze assets, and protect
investors."
To improve the
quality, quantity, and timeliness of information and assistance it
receives,
the SEC approved the following measures:
First,
the Division of Enforcement is authorizing its staff to
use various tools to encourage individuals and
companies to report violations and provide assistance to the agency.
The new tools are
laid out in a
revised version
of the Division's enforcement manual in a new section entitled
"Fostering Cooperation."
For many years,
similar cooperation tools have been regularly and successfully used
by the Justice Department in its criminal investigations and
prosecutions.
The new cooperation tools, not previously available in SEC
enforcement matters, include:
-
Cooperation
Agreements
— Formal written agreements in which the Enforcement Division
agrees to recommend to the Commission that a cooperator receive
credit for cooperating in investigations or related enforcement
actions if the cooperator provides substantial assistance such as
full and truthful information and testimony.
-
Deferred
Prosecution Agreements
— Formal written agreements in which the Commission agrees to
forego an enforcement action against a cooperator if the
individual or company agrees, among other things, to cooperate
fully and truthfully and to comply with express prohibitions and
undertakings during a period of deferred prosecution.
-
Non-prosecution
Agreements
— Formal written agreements, entered into under limited and
appropriate circumstances, in which the Commission agrees not to
pursue an enforcement action against a cooperator if the
individual or company agrees, among other things, to cooperate
fully and truthfully and comply with express undertakings.
Second,
the SEC streamlined the process for submitting
witness immunity requests to the Justice Department for
witnesses who have the capacity to assist in its investigations and
related enforcement actions.
Third,
the Commission has set out, for the first time, the way in which it
will evaluate whether, how much, and in what manner to
credit cooperation by individuals to
ensure that potential cooperation arrangements maximize the
Commission's law enforcement interests.
This pronouncement
is expected to provide guidance and serve as an incentive for
individuals to report violations and to cooperate fully and promptly
in enforcement cases.
It is similar to
the so-called "Seaboard Report" that was issued in 2001 and detailed
the factors the SEC considers when evaluating cooperation by
companies.
In the newly
issued policy statement, the SEC identifies
four general considerations:
-
The assistance
provided by the cooperating individual.
-
The importance
of the underlying matter in which the individual cooperated.
-
The societal
interest in ensuring the individual is held accountable for his or
her misconduct.
-
The
appropriateness of cooperation credit based upon the risk profile
of the cooperating individual.
The developments
announced today are the latest in a series of initiatives that are
part of the most significant reorganization of the Enforcement
Division in more than 30 years.
These reforms
include vastly expanding staff training programs, hiring staff with
new skill sets, streamlining management, adding more experienced
investigators to the front lines, revising internal enforcement
procedures, restructuring processes to ensure better sharing of
information, leveraging the knowledge of third parties, and
revamping the way tips are handled.
About the Division
of Enforcement
The Division of Enforcement was created in
August 1972 to consolidate enforcement activities that
previously had been handled by the various operating divisions at
the Commission's headquarters in Washington.
The Commission's
enforcement staff conducts investigations into
possible violations of the federal securities laws, and prosecutes
the Commission's civil suits in the federal courts as well as its
administrative proceedings.
In civil suits, the Commission seeks injunctions, which are orders
that prohibit future violations; a person who
violates an injunction is subject to fines or imprisonment for
contempt.
In addition, the
Commission often seeks civil money penalties
and the disgorgement of illegal profits.
The courts may
also bar or suspend individuals from acting as corporate officers or
directors.
The Commission can
bring a variety of administrative proceedings,
which are heard by administrative law judges and the
Commission itself.
One type of
proceeding, for a cease and desist order, may be instituted
against any person who violates the federal
securities laws.
The Commission may
order the respondent to disgorge ill-gotten funds in these
proceedings.
With respect to
regulated entities (e.g., brokers, dealers and investment advisers)
and their employees, the Commission may
institute administrative proceedings to revoke or suspend
registration, or to impose bars or suspensions from employment.
In proceedings
against regulated persons, the Commission is
authorized to order the payment of civil penalties as well as
disgorgement.
§
202.12 Policy statement concerning cooperation by individuals in its
investigations and related enforcement actions.
Cooperation by
individuals and entities in the Commission’s investigations and
related enforcement actions can contribute
significantly to the success of the agency’s mission.
Cooperation can
enhance the Commission’s ability to detect violations of the federal
securities laws, increase the effectiveness and efficiency of the
Commission’s investigations, and provide important evidence for the
Commission’s enforcement actions.
There is a
wide spectrum of tools available to the
Commission and its staff for facilitating and rewarding cooperation
by individuals, ranging from taking no enforcement action to
pursuing reduced charges and sanctions in connection with
enforcement actions.
As with any
cooperation program, there exists some tension
between the objectives of holding individuals fully accountable for
their misconduct and providing incentives for individuals to
cooperate with law enforcement authorities.
This policy statement
sets forth the analytical framework employed by the Commission and
its staff for resolving this tension in a manner that ensures that
potential cooperation arrangements maximize the Commission’s law
enforcement interests.
Although the
evaluation of cooperation requires a case-by-case analysis of the
specific circumstances
presented, as
described in greater detail below, the Commission’s general approach
is to
determine whether, how much, and in what manner to credit
cooperation by individuals by evaluating four considerations:
The
assistance provided by the cooperating individual in the
Commission’s investigation or related enforcement actions
(“Investigation”);
The
importance of the underlying matter in which the individual
cooperated; the societal interest in ensuring that the cooperating
individual is held accountable for his or her misconduct; and
The
appropriateness of cooperation credit based upon the profile of the
cooperating individual.
In the end, the goal
of the Commission’s analysis is to protect the investing public by
determining whether the public interest in facilitating and
rewarding an individual’s cooperation in order to advance the
Commission’s law enforcement interests justifies the credit awarded
to the individual for his or her cooperation.
(a)
Assistance provided by the individual.
The
Commission assesses the assistance provided by the cooperating
individual in the Investigation by considering, among other things:
(1) The value of the individual’s cooperation
to the Investigation including, but not limited to:
(i) Whether the individual’s cooperation resulted in substantial
assistance to the Investigation;
(ii) The timeliness of the individual’s cooperation, including
whether the individual was first to report the misconduct to the
Commission or to offer his or her cooperation in the Investigation,
and whether the cooperation was provided before he or she had any
knowledge of a pending investigation or related action;
(iii) Whether the Investigation was initiated based on information
or other cooperation provided by the individual;
(iv) The quality of cooperation provided by the individual,
including whether the cooperation was truthful, complete, and
reliable; and
(v) The time and resources conserved as a result of the individual’s
cooperation in the Investigation.
(2) The nature of the individual’s cooperation
in the Investigation including, but not limited to:
(i) Whether the individual’s cooperation was voluntary or required
by the terms of an agreement with another law enforcement or
regulatory organization;
(ii) The types of assistance the individual provided to the
Commission;
(iii) Whether the individual provided non-privileged information,
which information was not requested by the staff or otherwise might
not have been discovered;
(iv) Whether the individual encouraged or authorized others to
assist the staff who might not have otherwise participated in the
Investigation; and
(v) Any unique circumstances in which the individual provided the
cooperation.
(b)
Importance of the underlying matter.
The
Commission assesses the importance of the Investigation in which the
individual cooperated by considering, among other things:
(1) The character of the Investigation
including, but not limited to:
(i) Whether the subject matter of the Investigation is a Commission
priority;
(ii) The type of securities violations;
(iii) The age and duration of the misconduct;
(iv) The number of violations; and
(v) The isolated or repetitive nature of the violations.
(2) The dangers to investors or others
presented by the underlying violations involved in the Investigation
including, but not limited to:
(i) The amount of harm or potential harm caused by the underlying
violations;
(ii) The type of harm resulting from or threatened by the underlying
violations; and
(iii) The number of individuals or entities harmed.
(c)
Interest in holding the individual accountable.
The
Commission assesses the societal interest in holding the cooperating
individual fully accountable for his or her misconduct by
considering, among other things:
(1) The severity of the individual’s misconduct assessed by the
nature of the violations and in the context of the individual’s
knowledge, education, training, experience, and position of
responsibility at the time the violations occurred;
(2) The culpability of the individual, including, but not limited
to, whether the individual acted with scienter, both generally and
in relation to others who participated in the misconduct;
(3) The degree to which the individual tolerated illegal activity
including, but not limited to, whether he or she took steps to
prevent the violations from occurring or continuing, such as
notifying the Commission or other appropriate law enforcement agency
of the misconduct or, in the case of a violation involving a
business organization, by notifying members of management not
involved in the misconduct, the board of directors or the equivalent
body not involved in the misconduct, or the auditors of such
business organization of the misconduct;
(4) The efforts undertaken by the individual to remediate the harm
caused by the violations including, but not limited to, whether he
or she paid or agreed to pay disgorgement to injured investors and
other victims or assisted these victims and the authorities in the
recovery of the fruits and instrumentalities of the violations; and
(5) The sanctions imposed on the individual by other federal or
state authorities and industry organizations for the violations
involved in the Investigation.
(d)
Profile of the individual.
The
Commission assesses whether, how much, and in what manner it is in
the public interest to award credit for cooperation, in part, based
upon the cooperating individual’s personal and professional profile
by considering, among other things:
(1) The individual’s history of lawfulness, including complying with
securities laws or regulations;
(2) The degree to which the individual has demonstrated an
acceptance of responsibility for his or her past misconduct; and
(3) The degree to which the individual will have an opportunity to
commit future violations of the federal securities laws in light of
his or her occupation -- including, but not limited to, whether he
or she serves as: a licensed individual, such as an attorney or
accountant; an associated person of a regulated entity, such as a
broker or dealer; a fiduciary for other individuals or entities
regarding financial matters; an officer or director of public
companies; or a member of senior management -- together with any
existing or proposed safeguards based upon the individual’s
particular circumstances.
Note
to § 202.12.
Before the Commission
evaluates an individual’s cooperation, it
analyzes the unique facts and circumstances of the case.
The above principles
are not listed in order of importance nor are
they intended to be all-inclusive or to require a specific
determination in any particular case.
Furthermore, depending
upon the facts and circumstances of each case, some of the
principles may not be applicable or may deserve greater weight than
others.
Finally, neither this
statement, nor the principles set forth herein creates or recognizes
any legally enforceable rights for any person.
Dear member,
Write in your CV, resume, websites etc. that
you are a member of the Sarbanes Oxley Compliance Professionals
Association.
Take advantage of
the distance learning and online certification program of our
Association - at a cost that is unheard of.
www.sarbanes-oxley-association.com/Distance_Learning_and_Certification.htm
Best
Regards,
George Lekatis
President of the Sarbanes Oxley
Compliance Professionals Association
General Manager, Compliance
LLC
1200 G Street NW Suite 800, Washington DC 20005, USA
Tel: (202) 449-9750
Email: lekatis@sarbanes-oxley-association.com
Web:
www.sarbanes-oxley-association.com
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