The year of disclosure reforms is upon us. Public financial disclosures, increasingly riddled with boilerplate, repetitious, and irrelevant information, have been criticized for “disclosure overload,” where too much noise drowns out critical information for investors, shareholders, and the public. In light of congressional urging, the SEC has recently sought public comments on financial disclosure requirements in Regulations S-K and S-X. The comments showcase the issues with reform from minor changes, such as document-compatibility upload in EDGAR, to overarching conceptual issues regarding requirements across administrative agencies. Disclosure effectiveness is seen as a multi-issued problem that requires a comprehensive solution.
In light of Justice Scalia’s Death, Dow Chemicals Settles Instead of Taking Its Chances in Front of the Supreme Court
In a statement released on February 26th, Dow Chemicals announced the $835 million settlement of a pending class-action lawsuit citing “growing political uncertainties due to recent events within the Supreme Court and increased likelihood for unfavorable outcomes for business involved in class action suits.” The suit in question—a class action lawsuit alleging illegal urethane price fixing—has already been decided by a lower court in favor of the plaintiff class with damages totaling $1.06 billion. Prior to settlement, Dow filed a writ of certiorari with the Supreme Court, requesting review of the lower court’s verdict for improper application of class-action lawsuit standards. However, it appears that the passing of Justice Scalia has revised Dow’s risk assessment to the tune of $835 million.
Retirees Win Against Mining Industrialist
In a nearly unprecedented turn of events, the occupant of one of the largest single-family dwellings in the U.S., mining industrialist Ira Rennert, has settled with a group of retirees from one of his subsidiary companies and agreed to pay their pensions in full.
In 2011, Rennert’s conglomerate, Renco, purchased R.G. Steel for $1.2 billion. At the time, Renco’s pension was underfunded by almost $70 million. Shortly after the acquisition, Renco struck a deal with the private equity group Cerberus in a purported attempt to find more funding for R. G. Steel. The deal included Cerberus’s purchase of a 24.5 percent equity stake in R. G. Steel – causing Renco’s ownership to fall under the 80 percent cutoff to legally be considered the controlling group and therefore responsible for pension obligations. Though Renco executives claim they acted appropriately, the government believes the intention was to avoid being held accountable for the pension payments.
No Criminal Charges against Citibank Executives for Pre-Crisis RMBS Sales
Citigroup executives involved in the sale of subprime mortgage-backed securities are off the hook in the U.S. as authorities decided not to pursue any criminal charges against them. The acknowledgement came in a report issued by one of the agencies tasked with the Citigroup probe, the Federal Housing Finance Agency’s Office of Inspector General (FHFA OIG). The report marks the probe closed and outlines the investigation, the epicenter of which was Citibank’s sale and issuance practices with respect to subprime mortgage-backed securities in the 2006-2007 period.
Sports Authority Declares Bankruptcy
Sporting goods retailer Sports Authority recently filed for bankruptcy, claiming over $1 billion in debt. The retailer cited a variety of company issues in its bankruptcy filing, including acquisitions that led to inconsistent store formats, expensive leases, frequent executive turnover, and outdated information systems. The U.S. Bankruptcy Court in Delaware has already approved a $595 million bankruptcy loan for the sporting retailer, and has given the company authorization to immediately begin using up to $275 million of the loan and to start liquidating stores.
As part of the bankruptcy loan agreement, Sports Authority plans to find a buyer for its business by April. Potential bidders include Modell’s Sporting Goods and asset manager Columbia Threadneedle Investments. In the meantime, Sports Authority will close or sell 140 of its 450 nationwide stores.
“Tenure voting” as a New Voting Structure for Corporate Shareholders
Thinking About Gender Quotas in the Boardroom
A recent study involving thousands of public companies in 91 countries found a positive correlation between profitability and the number of females in senior management positions (including top executives and boards of directors). Despite this correlation, the study found that, as of 2014 approximately one-third of companies worldwide have no women in senior management; 60 percent have no female board members; 50 percent have no female top executives; and only 5 percent have a female CEO.
US Country-by-Country Reporting Rules Expected to Finalize Early
Robert Stack, Deputy Assistant Secretary for International Tax Affairs in the US Treasury Department, said that the country expects to finalize its rules on country-by-country reporting by June 30. This is a full six months earlier than expected under the proposed rules (REG-109822-15). The reason for the regulation’s expedited finalization is that companies meeting threshold level of sales would thereafter be required to file a country-by-country report with their tax return “for all tax years that begin after that date, including years beginning on July 1, 2016, and September 1, 2016.” This follows the OECD’s Base Erosion and Profit Shifting (BEPS) initiative to push for global country-by-country reporting initiatives, among other international tax reforms, to increase transparency. Finalized on October 5, 2015, the discussion on country-by-country reporting (Action 13) can be found here. The sooner the US regulations are finalized, the sooner the initiative can be implemented.
Monsanto and SEC Reach Settlement over Inaccurate Financial Disclosures
On February 9, 2016, the Monsanto Company (NYSE: MON), a multinational agricultural chemical manufacturer based in St. Louis, Missouri, and the Securities and Exchange Commission (SEC) announced their agreement to settle charges that Monsanto’s public disclosures in fiscal years 2009, 2010, and 2011 had materially misstated the firm’s financial results. The provisions of the settlement require Monsanto to pay the SEC an $80 million fine and retain independent compliance monitors.
National Legal and Policy Center Mounts Question for MBA President David H. Stevens
On February 29, 2016, a nonprofit ethics watchdog, National Legal and Policy Center (NLPC), launched a call to the U.S. Attorney for District of Columbia and the Inspector General of the Department of Housing and Urban Development for an in-depth investigation of David H. Stevens, President and CEO of the Mortgage Bankers Association (MBA). The NLPC argues that Stevens might have violated ethics laws when he was acting as commissioner of the Federal Housing Administration (FHA) for the U.S. Department of Housing & Urban Development (HUD). In December 2015, Campaign for Accountability made a similar request to the Justice Department. These groups want government officials to investigate whether Stevens lobbied on some of the same issues he worked on when he was a FHA commissioner.