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As head of the SEC’s Corporate Finance Division, Alan Beller’s new duties after the Enron affair are strengthening the finance bureau’s review of filings, developing disclosure rules and guidelines and refining SEC policy on corporate governance. Beller spoke with The Daily Deal about the division’s expanded role and the challenges of operating in an age of heightened corporate scrutiny. The Daily Deal: The SEC recently started asking companies to provide fuller financial disclosure, including more details on liquidity, capital resources and asset transactions, among other things. Has this made an impact? Alan Beller: Our first release looking for more disclosure came out in December, so people didn’t have a lot of time to adjust their approach. And we got back some disclosure that I would describe as a thoughtful attempt to identify the critical accounting policies as we’ve defined them. On the other extreme we have a fair number of examples that are little more than boilerplate recitations of what a company’s significant accounting policies are. And that’s not what we’re looking for. If you have a company that sells products that have long-term warranties, then a critical element in preparing your financial statements is how do you estimate the future warrantee claims. That requires estimates on frequency, estimates of severity and in some cases estimates of uncertain costs. DD: You’re also zeroing in on issues of corporate governance, which obviously have taken on special importance. AB: The Commission is deeply interested in corporate governance issues. We have historically been involved in corporate governance issues principally through approving listing standards for stock exchanges. We are very interested to know what the NYSE and Nasdaq come up with as they go through the process of reviewing their listing requirements for boards. We are available to them if they have questions. There’s a lot going on in the corporate governance realm. We’re addressing corporate governance issues actively, but we haven’t said very much about it yet. DD: Are you generally in favor of greater independence for corporate boards? AB: Certainly there are areas of corporate governance that probably have to be focused on and improved, such as audit committees. Listing standards have a role to play on how one does that. DD: How has Enron’s collapse affected your approach at the SEC? AB: In essence, we’re reacting to Enron in two ways that are important or appropriate. One is that Enron is the definitive evidence that there are aspects of our system that need improvement and updating. The second is that Enron is one of those important catalytic events that allows for a really thorough evaluation of how the system can be improved, and the challenge for regulators when faced with those kinds of events is how to act to make the improvements that are now possible but not overreact. DD: Do you have a timeline for Securities Act reform? AB: I honestly don’t at this point. I’m hoping that we’ll propose it in a few months. DD: Elaborate on the SEC’s efforts to improve the shelf registration process, which would speed companies’ access to capital. AB: Securities Act reform is something that is on [SEC Chairman Harvey Pitt's] and my agenda, but for now it’s taken a back seat to some of the disclosure initiatives, including improvements to disclosure and more timely disclosure. The two sets of proposals — Securities Act reform and improved disclosure — are not unrelated. It seems to me that improving access, and especially the immediacy or timeliness of issuers’ access to market, should probably depend on those issuers having good current disclosure. DD: What sort of changes are you considering? AB: We haven’t really reached any decisions. I would say that we’re looking more at size issues and less at reporting history issues. Being public one year seems to be about right. DD: Would you ever consider scrapping shelf registration altogether? AB: No. With respect to shelf registration, what we’re looking at are two different items that are related. One is whether there is a way to assure an issuer of faster access to the market, assuming its disclosure is current. A related element is “pay as you go,” which means that issuers would have to pay fees only as the shares are issued. That is an improvement because it doesn’t require issuers to prepay significant fees. If you put out a $10 billion shelf registration statement today you pay the fee on the $10 billion today, even though you issue the securities over a significant period of time. If you allowed a company to file a registration statement for what is in fact an indefinite amount of securities, it would stay in effect indefinitely, and they would just pay fees as they used that capacity. That would be a more sensible method of access. DD: How do you propose to increase access to capital? AB: At the moment, a company that files a registration statement might find itself subject to SEC review of that registration statement. When it comes to large, seasoned companies, we want to focus more on reviewing their periodic filings. We might review somebody’s 10-K without regard to whether they file a registration statement. There are some transactions that we always decide to review — IPOs for example. When it comes to large, seasoned companies, I think the review process is better thought out if we focus on periodic reports and not on reviews triggered by arbitrary registration statement filings. One of the consequences of that will be for large, seasoned issuers to have assurance of immediate access to capital. They wouldn’t be held up by a review triggered by a registration statement. DD: How long do registration statement reviews take now? AB: We try to get a first round of comments out in 30 days. How long it takes after that depends on the comments and on the company’s response. And that of course can be very disruptive for large issuers. In terms of Securities Act reform, we have to think about what category of issuers belongs in this large, seasoned category to which we will provide increased access. The current rule is that companies need to be public for at least a year, current in its reporting for the year and with at least $75 million of public float. We’re thinking about whether or not that’s the right category of issuers. DD: Can you address the reform efforts under way to ease communications between brokers and their clients? AB: We are thinking about relaxing the Securities Act prohibition on written offers. It makes very little sense that a broker can read a script to her customer over the phone that explains the 12 reasons why they should buy and is not able to send that in an e-mail. This is a balanced writing, but it’s an illegal document. According to the Securities Act, this communication has to be in the prospectus delivered by mail or made on the phone. Institutional money managers don’t want to talk to their securities salespersons on the telephone anymore. They tell me what you want in an e-mail — I’ll read it when I’ve got a chance. That’s illegal today. If an investor goes on the Internet and finds offering material, that’s a written offer and is also illegal. It’s important to recognize in connection with this that we’re not changing the liability standard. The antifraud and disclosure provisions of the Securities Act apply to all communications, they apply to prospectuses and they would apply to written communications. The general philosophical point here is that we have to update the statute so it comports with current reality without giving away anything in terms of investor protection. Copyright (c)2002 TDD, LLC. All rights reserved.

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