Examples of Dodd-Frank Disclosures in SEC Filings
Dodd-Frank disclosures have begun to proliferate in SEC filings. We reviewed many recent filings and disclosures fall into the following general categories: internal controls, forward looking statements, executive compensation, regulatory matters and risk factors. Examples are set forth below.
PDC 2004-D Limited Partnership (Filed September 30, 2010)
Internal Control over Financial Reporting in Exchange Act Periodic Reports
On July 21, 2010, the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act made permanent the SEC’s non-accelerated filer’s exemption, previously set to expire after December 15, 2010, from compliance with Section 404(b) of the Sarbanes-Oxley Act of 2002, or SOX. Therefore, as a non-accelerated filer, the Partnership is permanently exempted from the SOX requirement that SEC registrants provide an attestation report on the effectiveness of internal controls over financial reporting by the registrant’s external auditor.
Asia Carbon Industries, Inc. (Filed September 29, 2010)
Recently, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which became effective on July 21, 2010, has amended Section 404 of the Sarbanes-Oxley Act of 2002 (the “Act”). The rules adopted by the SEC pursuant to the Act require an annual assessment of our internal control over financial reporting. The SEC extended the compliance dates for non-accelerated filers, as defined by the SEC. Accordingly, we believe that the annual assessment of our internal controls requirement will first apply to our annual report for the 2010 fiscal year. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. We may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting. Pursuant to the amended Act, as neither a “large accelerated filer” nor an “accelerated filer”, we are exempt from the requirements of Section 404(b) of the Act to obtain an auditor’s report on management’s assessment of the effectiveness of the Company’s internal control over financial reporting.
Golden River Resources Corp (Filed September 29, 2010)
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to an exemption for smaller reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Forward Looking Statements
Western Union (Filed September 30, 2010)
Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include the following: . . . the impact on our business of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules promulgated there-under . . .
Unilife Corp (Filed September 29, 2010)
Under our incentive plans, our board of directors has the authority to revoke equity grants of employees who commit misconduct. These provisions are designed to deter and prevent detrimental behavior and permit us to prevent such employees from exercising stock options or retaining restricted stock, which would lapse if that employee has engaged in certain misconduct.
Our compensation committee will evaluate various “claw-back” alternatives and consider the advisability of adopting such policies as will protect our investors from financial misconduct and satisfy the requirements of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act.
Versailles Financial Corp. (Filed September 28, 2010)
Versailles Savings and Loan Company is subject to examination, regulation and supervision by the Ohio Division of Financial Institutions, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. As a result of The Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed by the President on July 21, 2010 (the “Dodd-Frank Act”), the powers and duties of the Office of Thrift Supervision with respect to state-chartered savings and loan associations such as Versailles Savings will be transferred to the Federal Deposit Insurance Corporation within one year of the date of the legislation, subject to extension of up to six months. At that time, Versailles Savings will be subject to the rules and regulations of, and supervision by, the Federal Deposit Insurance Corporation. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection of the Federal Deposit Insurance Corporation’s deposit insurance funds, the banking system and depositors, and not for the protection of security holders. Under this system of federal regulation, financial institutions are periodically examined to ensure that they satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity and sensitivity to market interest rates. Versailles Savings also is a member of and owns stock in the Federal Home Loan Bank of Cincinnati, which is one of the twelve regional banks in the Federal Home Loan Bank System. Versailles Savings and also is currently regulated to a lesser extent by the Federal Reserve Board, governing reserves to be maintained against deposits and other matters. The Ohio Division of Financial Institutions and the Office of Thrift Supervision examine Versailles Savings and prepare reports for the consideration of its Board of Directors on any operating deficiencies. Versailles Savings’ relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a much lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of Versailles Savings’ loan documents.
Versailles Financial Corporation, as a savings and loan holding company, is required to file certain reports with, is subject to examination by, and otherwise must comply with the rules and regulations of the Office of Thrift Supervision. As a result of the Dodd-Frank Act, the powers and duties of the Office of Thrift Supervision with respect to savings and loan holding companies such as Versailles Financial Corporation will be transferred to the Federal Reserve Board within one year of the date of the legislation, subject to extension of up to six months. At that time, Versailles Financial Corporation will be subject to the rules and regulations of, and supervision by, the Federal Reserve Board. Versailles Financial Corporation is also subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.
Alexza Pharmaceuticals Inc. (Filed September 29, 2010)
We are subject to changing rules and regulations of federal and state government as well as the stock exchange on which our common stock is listed. These entities, including the Public Company Accounting Oversight Board, the SEC and the Nasdaq Global Market, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations and requirements in response to laws enacted by Congress. On July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas such as “say on pay” and proxy access. Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from other business activities.
Northeast Bancorp (Filed September 28, 2010)
On July 21, 2010, the President of the United States signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). The goals of the new legislation include restoring public confidence in the financial system following the 2007-2008 financial and credit crises, preventing another financial crisis and allowing regulators to identify failings in the system before another crisis can occur. Among other things, the Act creates the Financial Stability Oversight Council, with oversight authority for monitoring and regulating systemic risk, and the Bureau of Consumer Financial Protection, which will have broad regulatory and enforcement powers over consumer financial products and services. The Act also changes the responsibilities of the current federal banking regulators, imposes additional corporate governance and disclosure requirements in areas such as executive compensation and proxy access, and limits or prohibits proprietary trading and hedge fund and private equity activities of banks. The scope of the Act impacts many aspects of the financial services industry, and it requires the development and adoption of many implementing regulations over the next several months and years; thus, the effects of the Act on the financial services industry will depend, in large part, upon the extent to which regulators exercise the authority granted to them under the Act and the approaches taken in implementing regulations. The Company and the entire financial services industry has begun to assess the potential impact of the Act on business and operations, but at this early stage, the likely impact cannot be ascertained with any degree of certainty. However, it would appear that the Company is likely to be impacted by the Act in the areas of corporate governance, deposit insurance assessments, capital requirements and restrictions on fees charges that may be charged to consumers.
Sandridge Energy Inc. (Filed September 28, 2010)
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act creates a new regulatory framework for oversight of derivatives transactions by the Commodity Futures Trading Commission (the “CFTC”) and the SEC. Among other things, the Dodd-Frank Act subjects certain swap participants to new capital, margin and business conduct standards. In addition, the Dodd-Frank Act contemplates that where appropriate in light of outstanding exposures, trading liquidity and other factors, swaps (broadly defined to include most hedging instruments other than futures) will be required to be cleared through a registered clearing facility and traded on a designated exchange or swap execution facility. There are some exceptions to these requirements for entities that use swaps to hedge or mitigate commercial risk. While SandRidge may qualify for one or more of such exceptions, the scope of these exceptions is uncertain and will be further defined through rulemaking proceedings at the CFTC and SEC in the coming months. Further, although we may qualify for exceptions, our derivatives counterparties may be subject to new capital, margin and business conduct requirements imposed as a result of the new legislation, which may increase our transaction costs or make it more difficult for us to enter into hedging transactions on favorable terms. Our inability to enter into hedging transactions on favorable terms, or at all, could increase our operating expenses and put us at increased exposure to risks of adverse changes in oil and natural gas prices, which could adversely affect the predictability of cash flows from sales of oil and natural gas.
The Dodd-Frank Act also expands the CFTC’s power to impose position limits on specific categories of swaps (excluding swaps entered into for bona fide hedging purposes), and establishes a new Energy and Environmental Markets Advisory Committee to make recommendations to the CFTC regarding matters of concern to exchanges, firms, end users and regulators with respect to energy and environmental markets.
MxEnergy Holdings Inc. (Filed September 29, 2010)
The federal government recently enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act pursuant to which various federal agencies will implement new regulations that will have significant impacts on the operations of financial institutions. The impact of such regulations may affect the ability of financial institutions to offer credit and hedging instruments without significant additional capital or other costs to them. Such increases in capital and other costs to financial institutions may result in higher costs to us in connection with our Commodity Supply Facility, which could increase our commodity, operating or financing costs or otherwise impact our profitability.
Citigroup Inc. (Filed September 29, 2010)
Citigroup may view redemption of the junior subordinated debt securities to be in its interest if certain changes in regulatory capital law or interpretation have effect on or after October 30, 2015. While Citigroup believes the capital securities are exempt from the mandatory disqualification of certain types of Tier 1 capital under Section 171(b)(5)(A) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Basel Committee on Banking Supervision (“Basel”) has proposed, among other proposals, revisions to its definition of Tier 1 capital for banks (the “Basel Proposal”) and has announced the timeframe for phasing in its new Tier 1 capital requirements. Under the Basel Proposal, Citigroup believes the capital securities represent a capital injection in the Company made by the Selling Securityholder in January 2009 and thus, currently expects the capital securities should continue to be included as Tier 1 capital of the Company until January 1, 2018. Ultimately, however, the date on which the capital securities may be excluded from the Company’s Tier 1 capital will be determined by the Capital Regulator implementing the Dodd-Frank Act and the Basel Proposal.
Walker & Dunlop, Inc (Filed September 30, 2010)
It is widely anticipated that the U.S. Congress will address GSEs as part of its next major legislative undertaking, although it is not known when, or if, that will occur. In Section 1491 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), signed into law on July 21, 2010, Congress stated that the “hybrid public-private status of Fannie Mae and Freddie Mac is untenable and must be resolved” and, further, “[i]t is the sense of the Congress that efforts to enhance by [sic] the protection, limitation, and regulation of the terms of residential mortgage credit and the practices related to such credit would be incomplete without enactment of meaningful structural reforms of Fannie Mae and Freddie Mac.”
Currently, we originate a substantial majority of our loans for sale through Fannie Mae and Freddie Mac programs. Furthermore, a substantial majority of our servicing rights derive from loans we sell through Fannie Mae and Freddie Mac programs. Changes in the business charters, structure or existence of Fannie Mae or Freddie Mac could eliminate or substantially reduce the number of loans we originate, which would have a material adverse effect on us.
Regulatory and legal requirements are subject to change. For example, Fannie Mae has indicated that it will be increasing its collateral requirements from 35 basis points to 60 basis points, effective as of January 1, 2011. The incremental collateral required for existing and new loans will be funded over approximately the next three years in accordance with Fannie Mae requirements. Ginnie Mae has indicated that it is currently considering a change to its programs that would eliminate the Ginnie Mae obligation to reimburse us for any losses not paid by HUD in return for our receiving an increased servicing fee, although it is uncertain whether these changes will be implemented. In addition, Congress has also been considering proposals requiring lenders to retain a portion of all loans sold to GSEs and HUD. The Dodd-Frank Act imposes a requirement that lenders retain “not less than 5 percent of the credit risk” of certain securitized loans, particularly those that are not “qualified residential mortgages.” It is currently unclear whether and how the Dodd-Frank Act will apply to commercial real estate lenders. The Dodd-Frank Act requires the federal banking agencies, the Federal Trade Commission (the “FTC”), HUD, and FHFA to issue rules implementing this requirement no later than 270 days after Dodd-Frank’s enactment. It also requires the federal banking agencies, the FTC, HUD, and FHFA to issue a joint rule defining a “qualified residential mortgage.” Therefore, the applicability of this provision to us and its effect upon our business will not be fully known until these agencies issue the joint rule. It is also impossible to predict any future legislation that Congress may enact regarding the selling of loans to GSEs or any other matter relating to GSEs or loan securitizations. GSEs, HUD and other investors may also change underwriting criteria, which could affect the volume and value of loans that we originate. Changes to regulatory and legal requirements could be difficult and expensive with which to comply and could affect the way we conduct our business, which could materially and adversely affect us.
Check dodd-frank.com frequently for updates on the Dodd-Frank Act.
Contact Jill Radloff for more information.