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Let the Games Begin: Regulatory Reform Gets Underway with the Proposed FAOB

By dave

Let the Games Begin: Regulatory Reform Gets Underway with the Proposed FAOB

It would be nice to see (for once) some sort of orderly, coordinated effort to move us to where we have to be on reforming the financial regulatory system. There is obviously a great sense of urgency, whether real or manufactured, and no one good answer seems to exist for how best to tackle the multitude of concerns about the quality and effectiveness of our regulatory structure.

I firmly believe that rushing toward political solutions on regulatory reform may be the worst thing that we could do at this point, particularly if the result is implementation of a new regulatory structure just at the time when institutions and companies are turning the corner toward improvement. As we all learned from the Sarbanes-Oxley Act, a rush job on regulatory reform can have some near term benefits for restoring confidence, but also some long term costs and concerns.

Unfortunately, we may not get the chance to actually see any orderly effort toward reform. Late last week, for instance, Congressman Ed Perlmutter (D-CO) and Congressman Frank Lucas (R-OK) introduced H.R. 1349, the "Federal Accounting Oversight Board Act of 2009." As this CFO.com article points out, the bill contemplates that the SEC would cede its accounting oversight to a newly created five member board consisting of the Federal Reserve Chairman, the Treasury Secretary, the SEC Chairman, the FDIC Chairman and the PCAOB Chairman.

This Federal Accounting Oversight Board (FAOB) would get its funding from assessments on accounting firms, and would have the power to "approve and oversee accounting principles and standards for purposes of the Federal financial regulatory agencies and reporting requirements required by such agencies." Among the things that the FAOB would need to consider in the course of approving and overseeing accounting standards would be "the extent to which accounting principles and standards create systemic risk exposure for (i) the United States public; (ii) the United States financial markets; and (iii) global markets." Based on the other standards outlined, the bill is clearly seeking to get at fair value accounting standards through the authority of the proposed Board.

The bill has been referred to the House Committee on Financial Services and will be discussed at a hearing scheduled for tomorrow on the topic of mark-to-market accounting.

Recovering Costs: This is the Big One

Earlier this month, the US Court of Appeals for the Tenth Circuit affirmed a district court award of $611,964.20 in costs against the plaintiffs in a securities class action lawsuit (In re: Williams Securities Litigation - WCG Subclass (Docket Number 08-5100)). The plaintiffs in this case claimed that the district court's award represented the highest costs award in the history of American jurisprudence. As discussed in this Gibson Dunn & Crutcher memo:

The Tenth Circuit acknowledged that the costs awarded were "undoubtedly higher than the norm," but the size was not particularly surprising "given the massiveness and complexity of the litigation at issue" and the fact that the Plaintiffs sought almost $3 billion in damages. Slip Op. at 12. "Defendants' costs were, quite plainly, driven upward by the cold, hard facts of this case," and in particular, "Plaintiffs' litigation choices; including the number of defendants, the high amount of damages sought, the broad allegations asserted, the complexity of the claims at issue, and Plaintiffs' aggressive course of discovery …" Slip. Op. at 13. No abuse of discretion was found in awarding over $610,000 in costs: "In this case, the stakes were indisputably high, and 'it was incumbent on [De]fendants to fully prepare their case on the merits.'"

Guidance on Exiting '34 Act Reporting

The March-April issue of The Corporate Counsel was just mailed. This issue includes pieces on:

- Exiting 1934 Act Reporting-Recent CDIs Provide Much-Needed Guidance
- Getting Into the Reporting System-The Easy Part
- Getting Out-The Hard Part
- Significant Negative Numbers in the Summary Compensation Table This Year
- More on Issuers' Ability to Eliminate Non-Binding Shareholder Proposals
- FAS 5 Follow-Up
- Shareholder Approval of Cash Incentive Plans-Not Always "Routine" under NYSE Rule 452
- New Oil and Gas Rules Not Applicable to 2008-But, SAB 74/Topic 11:M
- Goodwill Impairment MD&A Disclosure Not Just for the Impaired!

Act Now: Get this issue on a complimentary basis when you try a 2009 no-risk trial today. As all subscriptions are on a calendar-year basis, renew now to continue receiving upcoming issues during a time of great change.

- Dave Lynn

Full post as published by The Corporate Counsel.net Blog on March 11, 2009 (boomark / email).