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CALIFORNIA CORPORATE & SECURITIES LAW

Materiality – “Shoulda, Coulda, Woulda?”

John Jenkins recently took note of this letter from the SEC’s Office of Investor Advocate commenting on a proposal by the Financial Accounting Standards Board to amend the definition of “materiality” in Concepts Statement No. 8, Conceptual Framework for Financial Reporting.  That Concepts Statement currently defines “materiality” as follows: Information is material if omitting it or…

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The Case Of The Wholly Owned, But Not Totally Held, Subsidiary That May Or May Not Be 100% Owned

When someone says that a subsidiary is “wholly owned”, I believe that the common understanding is that the parent company owns all of the issued and outstanding equity of the subsidiary.  What if the statement is that the subsidiary is “totally” or “100%” owned?  I suspect that most people would not intuit a different understanding. …

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The SEC’s Sorcerer’s Stone – Changing EBITDA From A Performance Measure Into Liquidity Measure

Recently, Broc Romanek hosted another one of his excellent webcasts.  This one covered the SEC’s Division of Corporation Finance’s recent issuance of several new and modified Compliance & Disclosure Interpretations regarding Non-GAAP financial measures.  The three panelists were Mark Kronforst, Chief Accountant, SEC’s Division of Corporation Finance Meredith Cross, Partner, WilmerHale LLP, and Dave Lynn, Editor, TheCorporateCounsel.net and…

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Ninth Circuit Finds No Reliance On Auditor’s Qualified Opinions

In 2009, the Securities and Exchange Commission sued Danny Pang and his two companies for allegedly defrauding investors of hundreds of millions of dollars by misrepresenting investments in the life insurance policies of senior citizens and in timeshare real estate.  At the same time, the SEC obtained an emergency court order appointing a receiver over…

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A Not So Frequently Asked Question – When Is An Event Infrequent?

Last January, the Financial Accounting Standards Board, which is better known as the FASB, issued Accounting Standards Update 2015-01.  The update eliminates the concept (and definition) of “extraordinary item”.  According to the FASB, the update is part of its “initiative to reduce complexity in accounting standards”.  I wish the FASB the best of luck in that Sisyphean task. Although…

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To Whom Does “Related Parties” Refer In A.S. No. 18?

In June of last year, the Public Company Accounting Oversight Board adopted Auditing Standard No. 18 which “establishes requirements regarding the auditor’s evaluation of a company’s identification of, accounting for, and disclosure of relationships and transactions between the company and its related parties.”  Because A.S. #18 is effective for audits of financial statements for fiscal years beginning…

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Capturing The SEC

Suppose you are selling a service with some success.  You want to increase sales, but how?  You could promote the value of your services, but some may disagree and others may be indifferent.  A more certain solution would be to get the government to mandate that everyone buy your services.  In 1971, future Nobel Laureate…

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This Court’s Ruling Puts The Opinion In Auditor’s Internal Control Opinion

A brief ruling issued this week by U.S. District Court Judge James C. Mahan makes it clear that an auditor isn’t always liable even when a subsequent auditor uncovers fraud.  In Oaktree Capital Mgmt., L.P. v. KPMG, 2014 U.S. Dist. LEXIS 106538 (D. Nev. 2014), the plaintiffs had purchased notes issued by a company that…

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Questions About Third-Party Confirmations Of Accredited Investor Status

Countless memoranda and alerts have been issued about the SEC’s adoption of rule amendments eliminating the prohibition against general solicitation and general advertising in Rule 506 and Rule 144A offerings.  Congress ordered the SEC to adopt these amendments as part of the Jumpstart Our Business Startups Act, or JOBS Act.   Issuers that wish to engage in general solicitation take “reasonable…

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Grand Theft Auto Meets The Sarbanes-Oxley Act

Arthur Andersen was one of the many casualties of the collapse of Enron Corporation.  In 2002, a jury found the once well respected firm guilty of violating 18 U.S.C. §§ 1512(b)(2)(A) and (B).  These sections make it a crime to “knowingly use intimidation or physical force, threaten, or corruptly persuade another person . . .…

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