What does the ISS equity plan scorecard have to do with life on easy street and baseball? All three of these things were part of the Philadelphia and DC/VA/MD chapters’ half day meeting on June 18. I attended the meeting, in my role as Executive Director and official NASPP photographer. Here are some pics from the day:
The half-day meeting was held at Urban Outfitter’s headquarters in the old naval yards in Philadelphia. This ship was outside the main entrance to the office. If you’ve never seen the Urban Outfitter’s office, it’s a pretty cool place (see my pics from the last time I attended a Philly chapter meeting there).
A big thank-you to Urban Outfitters for providing the space and another big thank-you to AST and Fidelity for sponsoring the meeting.
Here we have John Hammond of BendyStraw and Dan Kapinos of Radford. Dan is the current Philly chapter president and John is a former president. Kudos to the boards of both the Philly and DC/VA/MD meetings for organizing such a great event (even managing to get the rain to stop just before the baseball game started).
Lots of awesome prizes were raffled off to attendees, including themed gift baskets for all of the regions represented by the two chapters.
Emily Cervino of Fidelity and Laura Wanless of Aon Hewitt, two of the presenters for the day.
The day started off with a panel on “Everything You Need to Know About ISS’ Equity Plan Scorecard in 75 Minutes,” presented by Melinda Hanzel of DF King, Ken Lockett of AST, Scott McCloskey of Lincoln Financial and Laura Wanlass of Aon Hewitt.
Next up, Emily Cervino of Fidelity and I presented “Living on Easy Street: Innovative Ideas to Make Your Life Easier.”
After the presentations, everyone enjoyed a great lunch, courtesy of AST, Fidelity, and Urban Outfitters and then we adjourned to the afternoon Phillies game. The Phillies won, making a great ending to a great day!
While I was on the east coast, I also attended meetings of Boston and NY/NJ chapters. Check out pics from the Boston meeting and the NY/NJ meeting.
After the NY/NJ meeting, Maria Robins of Morgan Stanley and I had lunch at Grand Central Station. Recognize the clock in the background?
Lastly, Maria showed me a neat trick with my camera. Here is a video I took of Grand Central Station with it, that will only take two seconds of your day. Well maybe four seconds. You would think a two-sec video would have trouble buffering, but you’d be wrong. You might have to play it a second time for it to work right.
Take in an NASPP chapter meeting before you take off for the July 4th holiday:
Orange County: The chapter presents a Lunch and Learn event, “The Heat is On: Accounting Foibles, Missteps and Process Improvement.” (Monday, June 29)
Las Vegas: Emily Cervino of Fidelity and Jon Burg of Radford present “No Holds Barred: A Look at Employee Holding Behavior and Post-Vest Holding Requirements of Restricted Stock.” (Tuesday, June 30, 12:30 PM)
Quick Survey on Global Stock Plans
Take the NASPP and Solium quick survey to tell us what you find most challenging about administering global stock plans. Don’t wait—the deadline to participate is this Friday, June 26.
NASPP To Do List
Here’s your NASPP To Do List for the week:
Take our quick survey on global stock plan management. You must complete the survey by this Friday, June 26.
Fake EDGAR filings are a thing. The EDGAR system requires more access codes than any of my financial accounts: there’s the CIK, CCC, password, password modification code, and passphrase. That’s five codes to access the system. And, to get the codes, you have to submit a notarized form to the SEC. So it seems surprising that anyone would be able to submit a fake EDGAR filing, but apparently it happens.
Recently, someone filed a fake Schedule TO announcing a takeover of Avon (“A Phantom Offer Sends Avon’s Shares Surging,” NY Times, May 14, 2015). In 2012, someone (probably the same someone) submitted a fake buyout offer for the Rocky Mountain Chocolate Factory. A guy named Johnny Earl Satterwhite has filed 61 highly suspicious Section 16 filings claiming, among other things, that he owns 999 billion shares of Microsoft and Exxon Mobil, which is something like more than 100 times the number of shares that actually exist in these companies (“Texan Plays April Fool’s Joke on SEC, Investors with 999 Billion Shares,” Footnoted*, June 20, 2011).
From Broc Romanek’s May 19 blog on TheCorporateCounsel.net:
This latest incident [fake Schedule TO for Avon] is a cautionary tale for investors as it’s not the first fake takeover announcement. My favorite dates back to 2001, as noted in this piece, when a fake “blank check” company calling itself “Toks Inc.” filed a Form SB-2 with the SEC announcing plans to take over General Motors, General Electric, AT&T, Hughes Electronics, AT&T Wireless, AOL Time Warner and Marriott International—roughly $2 trillion in “Toks” stock. The promoter—Ade O. Ogunjobi—didn’t give up even when the SEC issued a “Stop Order” to prevent the registration statement from going effective and suing him for selling unregistered securities, later launching a website to promote his wild ambitions and plans to then hold press conferences to announce his plans for these major US companies he was to take over!
While the idea of fake EDGAR filings may seem a little crazy and fantastical, the fraudulent filings can have serious repercussions. Avon’s stock price increased by about $1 per share (a 20% increase) after the fake Schedule TO filing, then dropped back to prior levels after the TO was revealed to be a hoax. But, according to Bloomberg, $91 million worth of Avon shares changed hands before trading was halted in Avon’s stock, four times Avon’s trading volume the prior day (“About $91 Million of Avon Stock Traded at Peak of Frenzy,” Bloomberg Business, May 14, 2015). The SEC has charged a Bulgarian, Nedko Nedev, with filing using the fake buyout offer to manipulate Avon’s stock price for his personal gain, (“S.E.C. Charges Man in Bulgaria in Fake Takeover Offer for Avon,” NY Times, June 4, 2015).
Here are my key takeaways on this:
Don’t believe everything you read on the internet, even if it is on EDGAR.
Don’t submit fake EDGAR filings for your own personal gain because it seems like it probably isn’t going to be all that hard for the SEC to catch you, even if you are in Bulgaria. Definitely don’t do it more than once.
I feel like I should have some key takeaways on how you an prevent your company from being a victim of a fake EDGAR filing, but I’ve got nothin’ on that. I would suggest not sharing your CIK, but that number is already publicly available all over EDGAR.
Thanks to Tami Bohm of Radian for suggesting this topic.
Quick Survey on Global Stock Plans
Take the NASPP and Solium quick survey to tell us what you find most challenging about administering global stock plans. Don’t wait—the deadline to participate is next Friday, June 26.
FASB Exposure Draft
Check out the NASPP’s newest alert, on the FASB’s exposure draft of the amendments to ASC 718. The alert includes a helpful discussion of the amendments from PwC.
NASPP To Do List
Here’s your NASPP To Do List for the week:
Last week, I blogged that the FASB has issued the exposure draft of the proposed amendments to ASC 718. In this week’s blog entry, I cover some of the additional issues addressed by the amendments.
Cash Flow Statement
The proposed amendments suggest changes to how a couple of items should be categorized in the cash flow statement. Most significantly, excess tax benefits realized from stock plan transactions would be presented as an operating activity. Currently, excess tax benefits are reported twice in the cash statement: as a cash inflow in the financing activities and a cash outflow in operating activities. In her “Meet the Speaker interview” last summer, Ellie Kehmeier highlighted the failure to do this as a very common error that companies make, so this change will clearly be helpful.
It is often very difficult for private companies to estimate the expected term of option grants. To assist with this, the proposed amendments would allow private companies to use a method similar to simplified method allowed under SABs 107 and 110. I think a lot of private companies are already doing this, so I’m not sure how revelatory this is. Also, the FASB imposes the same limitations that the SEC does, (i.e., the approach can only be used for options that are exercisable for only a short time after termination of employment), making this somewhat less than helpful.
The FASB is also under the impression that there are a bunch of private companies with liability awards that did not know that they could have elected to value these awards using the intrinsic value method back when they adopted the standard and are now stuck with using the fair value method for them. The proposed amendments would give these companies a one-time opportunity to change the measurement of liability awards from fair value to intrinsic value without having to justify the change.
I don’t encounter a lot of liability awards at either public or private companies, so I am skeptical about how helpful this is, but maybe there are a bunch private companies that just cannot wait to change over to the intrinsic value method for their liability awards. Assuming they are paying attention and don’t miss this opportunity. Considering that they apparently already missed the opportunity once, I’m not optimistic. Are we going to have to go through this all again in another ten years? Maybe the FASB should just give private companies a free pass on changing the valuation method for liability awards once every ten years so we don’t have to discuss this again.
FSP FAS 123(R)-2
In somewhat more exciting news, the amendments would make permanent the guidance in FSP FAS 123(R)-2. This means that we no longer have to worry that, in the future, options that are exercisable for an extended period of time after termination of employment will be subject to liability treatment. I know you probably had forgotten that this was even a possibility, but it’s something I’ve been thinking about as I see FASB alerts that seem to indicate that the FASB is making progress on the other projects that would have impacted this. Now we all have one less thing to worry about. I also think this might be a sign that the FASB may eventually allow awards to non-employees to receive the same treatment as awards to employees—how awesome would that be!
Here’s what’s happening at your local NASPP chapter this week:
Boston: Emily Cervino of Fidelity and I present “Living on Easy Street: Innovative Ideas to Make Your Life in Equity Comp Easier.” (Tuesday, June 16, 8:30 AM)
Los Angeles: Jon Doyle of International Law Solutions presents a global equity regulatory update. (Wednesday, June 17, 11:30 AM)
Silicon Valley: Loren Rodgers of the NCEO and Alison Wright of Hansen Bridgett present “Recent Employer Stock Litigation.” (Wednesday, June 17, 11:30 AM)
Philadelphia and DC/VA/MD: The chapters join together to host a equity and baseball extravaganza. The day begins with a half-day meeting featuring Jordan Kovler of DF King, Ken Lockett of AST, Scott McCloskey of Lincoln Financial and Laura Wanlass of Aon Hewitt presenting “Everything You Need to Know About ISS’ Equity Plan Scorecard in 75 Minutes” and Emily Cervino of Fidelity and I presenting “Living on Easy Street: Innovative Ideas to Make Your Life Easier.” After the meeting, participants will attend the Phillies game. (Thursday, June 18, 8:00 AM)
San Francisco: The chapter hosts another of its “lunch and two sessions” meetings. Josh McGinn of AST and Jason Flaherty of Orrick present “Restricted Stock Review and Update” and John Wolff of Guidespark presents “The Art & Science of Simplifying Equity Communications.” (Thursday, June 18, 11:30 AM)
Seattle: Daniel Hunninghake and Takis Makridis of Equity Methods present “Equity Compensation in 2015: Best Practices and Emerging Next Practices.” (Thursday, June 18, 11:30 AM)
NY/NJ: Martin Somelofske and Daniel Moynihan of Hay Group present “The Wall Street Journal/Hay Group CEO Compensation Study 2014.”
I will be that NY/NJ meeting in addition to the Boston and Philadelpha/DC/VA/MD meetings—I hope to see you while I’m making my tour of the northeast!
The FASB has issued the exposure draft of the proposed amendments to ASC 718. The FASB alert showed up in my email at approximately 1 PM Pacific yesterday and it’s 105 pages long. Suffice it to say, I haven’t exactly read the whole thing yet. Here are some initial thoughts based on a quick skim of the draft.
Don’t remember what the proposed amendments are about? Refresh your memory with my blog entry “Proposed Amendments to ASC 718 – Part I.” Also, don’t miss the 23rd Annual NASPP Conference, where we will be waxing nostalgic about the first ten years under ASC 718 (FASB Chair Russ Golden is even going to say a few words) and will have special session focused on the steps companies need to take to prepare for the amendments.
I Thought This Was About Simplification
105 pages! Come on. The whole entire standard including all the illustrations and basis for conclusions was only 286 pages. This “simplification” is over one-third the length of the original standard.
There’s More to It Than You Might Think
I’ve been focusing on just three areas that will be amended, but the exposure draft addresses nine issues. Two of the issues relate to the classification of stuff on the cash flow statement (snore). Three relate to private companies—I’ll get to these in a subsequent blog entry. And one makes FSP FAS 123(R)-1 permanent, which is a relief. You will recall that this relates to the treatment of options that provide for an extended time to exercise after termination of employment. Perhaps I wasn’t paying attention, but I wasn’t aware that the FASB was considering this.
The proposed amendments relating to share withholding clarify that the company must have a withholding obligation to avoid triggering liability treatment. So share withholding for outside directors and ISOs will still trigger liability treatment. But, as expected, where the company is obligated to withhold taxes, the proposal allows share withholding for taxes up to the maximum individual tax rate. The proposal doesn’t address mobile employees (i.e., can you use the maximum rate out of all of the applicable jurisdictions?) or whether rounding up is permissible if you are withholding at the maximum rate.
Also, as expected, the proposal provides that all tax effects will run through the income statement. What may come as a surprise is that this eliminates the tax benefit under the Treasury Stock Method calculation used for diluted EPS. Because net earnings (the numerator of EPS) is reduced for the full tax benefit to the company, there won’t be any adjustment to the denominator for this benefit anymore.
For service conditions only, the proposal would allow companies to account for forfeitures as they occur, rather than applying an estimated forfeiture rate to expense accruals. For performance conditions, however, companies will still be required to estimate the likelihood of the condition being achieved.
Comments on the exposure draft can be submitted using the FASB’s Electronic Feedback Form and must be submitted by August 14, 2015.
Here’s what’s happening at your local NASPP chapter this week:
Sacramento: Carly Campioni of Radford Valuation Service presents “The Latest & Greatest in Relative TSR.” (Tuesday, June 9, 11:30 AM)
Houston: The chapter hosts “Plugging the Gaps: What Does Outsourcing Mean for You?” (Wednesday, June 10, 11:30 AM).
Atlanta: Tom Potter and Chet Hosch of Burr & Forman present “NEW FROM THE SEC—SEC Proposed Rules on Pay for Performance and Recent Enforcement Actions.” (Thursday, June 11, 2:00 PM)
San Fernando Valley: Tara Tays and Paul Gladmen of Deloitte present “How Different Are We? A Look at Long Term Incentives, ESPP and Stock Administration Practices Among California Companies.” (Thursday, June 11, 11:30 AM)