Covers SEC rules applicable to officers and directors

• Including those added by the SOX Act

Also covers NYSE / NASDAQ rules applicable to
officers and directors

Many of these rules are covered on dedicated Topic Pages:

• Section 16 (Insider trading restrictions)
• Regulation BTR (Pension fund blackout periods)
• Codes of ethics
• Related party transactions
• Director independence
• D&O liability / indemnification
• S-K 402: Executive compensation disclosure

Director: Exchange Act § 3(a)(7)

Officer: Rule 3b-2

Executive officer: Rule 3b-7

Prohibits false or misleading statements, or omissions,
to accountants by directors or officers

• During audits
• During preparation of SEC filings

See "Books and records"

Ban on improperly influencing audit

• SOX Act §303 overlaps with Rule 13b2-2
• Directed SEC to adopt rule prohibiting officers / directors
  from improperly influencing audit
• Added Rule 13b2-2(b)(1)
• Added Rule 13b2-2(b)(2)

Final release 34-47890 2003

• SEC summary
• Proposal release 34-46685 2002
• Comment letters

Statute

• Provides for forfeiture of certain bonuses and profits by CEOs and CFOs when a restatement is required due to an issuer's noncompliance with any financial reporting requirements of the securities law, if the noncompliance arises from misconduct

Neer v Pelino (ED PA 2005)

• No private right of action for SOX Act §304
• Opinion 9.27.05
• Amended complaint 1.19.05: Pt 1 / Pt 2
• Motion to dismiss / brief 3.23.05
• Plaintiffs brief 4.06.05
• Reply brief 4.13.05
• See Private Rights of Action
• Client mailing 11.05

Developments

• Nortel Networks Ltd. 2005

• Management voluntarily repays 2003 bonuses
  following financial restatement
• Repaid net of taxes
• Also forego restricted stock grants

• New York Times survey 2005

See Restatements

Statutory ban on personal loans to directors and executive officers by issuers

• Codified as Exchange Act § 13(k)
• Effective July 30, 2002, without need for SEC rule-making
• Applies to "any director or executive officer
  (or equivalent thereof) of that issuer"
• Applies to material modification or renewal of
  any pre-existing loan
• Doesn't apply to registered investment companies
  per Sox Act § 405
• Makes exceptions for financial institution issuers

Exemption for foreign banks - Rule 13k-1

25 firm joint interpretive memo 2002

• Given lack of SEC rules, addresses interpretive issues
  for § 402, including:

• travel expense and similar advances
• personal use of company credit card
• personal use of company car
• relocation payments
• "stay" and "retention" bonuses
• indemnification advances
• deferred compensation
• leveraged co-investment
• tax indemnity payments
• loans to subsidiary's executive officers
• loans from 401(k) plans, annuities, other benefit programs
• cashless option exercises
• securities-related loans
• drawdowns on pre-existing commitments
• pre-existing demand loans
• forgiveness of pre-existing loans
• modifications favorable to issuer

SEC brings first enforcement action

• In re Goodfellow and Molaris
• C&D Order 12.01.05

Developments

• Nexstar Broadcasting IPO 11.17.03
  Discloses that CEO will be paid a $4.0 mm IPO "success fee"
  which will pay off pre-existing loan guaranteed by issuer
• Radio One Inc 2.08.05
  Executive officers to repay pre-SOX Act loans
• Conseco Inc
  Officers owed hundreds of millions

Exchange Act § 21(d)(2)

• SEC can bar persons from serving as directors and officers
• SOX Act § 305 lowered applicable standard
  from "substantial unfitness" to "unfitness"

SOX Act § 305

SOX Act § 1105

Participation in discounted private placements

• Rules 4200(a)(21); 4200(a)(31) and 4350(i)(1)(d)
• NASDAQ rule filing 3.14.03

Section 16 (Insider trading restrictions)

Regulation BTR (Pension fund blackout periods)

Codes of ethics

Related party transactions

Director independence

D&O liability / indemnification

S-K 402: Executive compensation disclosure