Dodd-Frank Reform Wanes in Senate
Remember the “repair or replace” debate over Dodd-Frank late last year? Citing a lack of conviction by big banks and large company CFOs, we thought repair was the most we could hope for.
The GOP’s answer to the Dodd-Frank overhaul took the form of the proposed Financial Choice Act – a whole cloth attempt at reform. That legislation is now stalled in the Senate, according to panelists at the Practicing Law Institute’s 49th Annual Institute on Securities Regulation.
“The Financial Choice Act is too big, it’s not going to make it through the Senate,” said Meredith Cross, a former director of the SEC’s corporation finance division and leader of the panel. “It’s hard to know what comes next after the bill is defeated,” she added.
Noting the intense partisan environment in Washington, some regulatory experts on the panel suggest that an “a la carte” approach might be more successful than a comprehensive legislative package.
For his part, SEC Chair Jay Clayton repeated his aim to slim down the SEC’s mission and alleviate burdensome requirements.
Unfortunately, though much regulatory relief may come by way of presidential executive order and through regulatory agencies, without legislative action that relief may only be temporary — as short as a presidential term.
SEC Approves New Auditor’s Reporting Standard
Marking the first major change to the auditor’s report in 70 years, the SEC unanimously approved the PCAOB’s new Auditor’s Reporting Standard, supporting the communication of “critical audit matters” (CAMs) as a way for auditors to provide more information to investors and the public.
Requiring the inclusion of CAMs in the auditor’s report came under fire from the U.S. Chamber of Commerce in a strongly worded letter (8/11/17) to the SEC, stating that it would require the disclosure of a great deal of immaterial information, and in complying with the rule, “auditors may disclose original (confidential) information that would not otherwise be made public by the company.”
The responsibility of auditors is to render an opinion on whether the reporting by management is in conformity with GAAP. By requiring auditors to report what under state laws only management is required to report, the PCAOB’s rule would place “both auditors and management in an untenable position that may lead to conflict of legal obligations and increased liability,” according to the Chamber’s letter.
SEC Chairman Jay Clayton said in a statement that he supports the new standard, but acknowledged that some commenters were concerned that divulging critical audit matters would result in an increase in litigation. He said he will be disappointed if the new standard results in frivolous litigation costs or defensive, lawyer-driven auditor communications.
In the recently released 2017 BDO Board Survey, the audit firm found roughly half of public company board members surveyed said that including CAMs in audit reports would not make reports more transparent or useful to investors.
Startups Upset with Senate Version of Tax Reform
It’s not soup yet, but a proposed change to the way employee stock options are taxed has Silicon Valley startups boiling mad.
“This would be a catastrophic blow to early stage companies,” Michael Boswell, co-founder of health startup Cue told Bloomberg News. “This is like paying taxes on the winning of the lottery without knowing whether you’re going to win.”
Though likely to change, the Senate’s current version of the tax reform bill would require employees to pay tax on stock options at the time they vest instead of when they are exercised.
That is a big problem for a compensation model for startup employees and founders who often take lower salaries in hopes of a larger payout if the company does well and share prices increase. It is especially onerous now as companies are staying private longer and would result in an increasing number of employees paying tax way before they take ownership of shares.
Shareholder Voting Overhaul Sought
Testifying before the House Financial Services Committee last month, SEC Chair Jay Clayton urged a review of how shareholders weigh in on public companies’ executive pay proposals, board of director nominees and contentious issues raised by activist investors, reports the Wall Street Journal.
Chairman Clayton told a New York legal conference that retail-investor participation in such elections is so low that it “may be a signal that our proxy process is too cumbersome and needs updating.” Mr. Clayton, who took over the SEC in May, said he would seek public input on how to overhaul the proxy-voting system.
(…and sometimes it yells!)
In case you’re keeping score, Asia has pulled to the front of the billionaire pack. Overall billionaire wealth increased 17% to $6 trillion in 2016, according to a report by UBS Group AG and PricewaterhouseCoopers. Led by China, the number of the region’s billionaires surpassed the U.S. for the first time, with one billionaire created every three weeks in China alone. Chin up America, U.S. billionaires still control the most wealth at $2.8 trillion.
Jeff Bezos gets $6.6 Billion Delivery
When Amazon.com Inc. last month delivered third-quarter results that topped Wall Street estimates, investors were thrilled — none more so than Amazon founder Jeff Bezos whose personal wealth surged by as much as $6.6 billion.
If the gains hold, Bezos is set to overtake Bill Gates atop the Bloomberg Billionaires Index of the 500 richest people. Forbes puts Bezos’ real time net worth (11/13/17) at $95.8B. The 53 year old owns 17% of Amazon, which he founded in a Seattle garage in 1994 after quitting his hedge fund job to sell books. Yeah, but is he happy? He is!? Damn it!
Money talks… so does credit
It’s been over two months since Equifax disclosed one of the worst data breaches in history, where hackers accessed data including names, dates of birth and Social Security numbers for 145.5 million U.S. consumers. Testifying before a Senate committee, the Wall Street Journal reported that interim chief Paulino do Rego Barros Jr. said Equifax had quadrupled spending on security, updated its security tools and changed its corporate structure since the breach.
All was going well until Senator Cory Gardner asked whether Equifax was now encrypting the consumer data stored on its computers, a practice the company said it did not do before the breach. Mr. Barros replied, “I don’t know at this stage.”
And while we’re on the subject…
After the Equifax data breach the immediate focus was on fraud alerts, credit freezes and credit monitoring, but experts are warning that we should also be thinking ahead to tax season when criminals could potentially use those stolen Social Security numbers to file fraudulent tax returns and snare refunds, reports NBR/CNBC.com.
The IRS maintains a “Dirty Dozen” list (no, it’s not Lois Lerner’s top 12 conservative 501(c)(4) non-profits). It’s actually an IRS list of tax scams.
Near the top of the list is tax-related identity theft. The IRS estimates that during the first nine months of 2016, beefed up safeguards helped it stop 787,000 fraudulent returns totaling more than $4 billion. Unfortunately, the agency still paid out $239 million in what it called “suspect” refunds.
Having a credit freeze or other monitoring in place does not prevent tax-related identity theft, but filing your tax return as early as possible can help.
“Our motto is, file first and beat the crooks. It does have an impact. You are not giving them an open window,” says Eva Velasquez, CEO and president, Identity Theft Resource Center.
SIMPLY STATED STATS
Over 1,450 companies globally went public so far this year — highest number since 2007.
Over $170 billion was raised by those 1,450 companies — compared with $120 billion raised by 950 companies last year.
Two thirds of IPOs were in the Asia-Pacific region — far exceeding the U.S.
There are now 170 global private companies valued at or over $1 billion — up from about 75 last year at this time.
377 Chinese companies have completed IPOs in Shanghai and Shenzhen this year — the most since 1995 representing one-fourth of all global IPOs.
Hong Kong was the world’s most popular venue for new listings the past two years.
Shares of newly public companies in Asia-Pacific on average rose nearly 154% this year from their IPO prices — compared to a 32% gain in the Americas and 12% in Europe, Middle East and Africa.
Like U.S. stocks in the late 1990s, some worry that IPOs in Asia are dominated by smaller, unprofitable companies with unproven business models.
Nonetheless, Asian stock markets have been among the best global performers with indexes in Hong Kong, Korea and India gaining a least 20% apiece so far this year.
Source: Dealogic, WSJ, Dow Jones Venture-Source