The change in Congressional leadership may have an immediate and significant impact on the SEC and the securities laws. Rep. Barney Frank (D-MA) is scheduled to become Chairman of the House Financial Services Committee in the next Congress. His recent actions may suggest the direction that committee will take. For example, Rep. Frank introduced H.R. 4291, “The Protection Against Executive Compensation Abuse Act.” Under that bill, a company would be able to recapture incentive compensation tied to performance numbers where those numbers proved to be inaccurate and require a restatement (See also SOX Section 304). The bill would also require shareholders to specifically approve any “golden parachute” tied to the sale or purchase of substantial company assets. Compensation filings would also have to be posted on the corporation’s website under the proposed legislation.

Previously, Rep. Frank introduced a bill directing the President’s Working Group on Financial Markets to conduct a study on hedge funds, “The Hedge Fund Study Act,” H.R. 6079. This bill has passed the House. Another bill dealing with hedge funds is H.R. 5712. This bill would authorize the registration and monitoring of hedge funds by the SEC, effectively reversing the decision of the DC Circuit in Goldstein v. SEC, 2006 WL 1715766 (D.C. Cir. June 23, 2006) (No. 04-1434) (see secactions.com post August 20, 2006).

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On November 14, 2006, the SEC entered an order sanctioning the City of San Diego in a settled administrative proceeding based on multiple fraudulent municipal bond offerings. According to the Order, the City of San Diego engaged in fraud by making misleading statements to investors in five municipal bond offerings in 2002 and 2003. Specifically, the Order discusses that the City made misleading statements in: (1) its “official statements” to investors, which were intended to disclose material information and in the “preliminary official statements” that were used to gauge investor interest in the offerings; (2) presentations to credit rating agencies; and (3) in “continuing disclosure statements” about the financial condition of the City. When the City later fully disclosed its financial condition in 2004, the credit rating agencies lowered its credit rating. The Order directed the City to cease and desist from committing violations of the antifraud provisions of the securities laws and to retain an independent consultant to review and assess its policies and procedures regarding disclosures and to make recommendations on these matters. The City agreed to adopt the consultant’s recommendations. http://www.sec.gov/litigation/admin/2006/33-8751.pdf

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