Results for: Activision
PLI panel offers hot tips on accounting and auditing issues
At the PLI Securities Regulation Institute last week, the accounting and auditing update panel provided some useful insights—especially for non-accountants. The panel covered the new requirements for segment reporting, the intensified focus on controls, PCAOB activities (including NOCLAR) and errors and materiality. Below are some takeaways.
Chancellor McCormick, law professors weigh in on controversy over proposed DGCL amendments
Last month, this PubCo post discussed the recent controversy over proposed amendments to the Delaware General Corporation Law. As noted in the post, the Council of the Corporation Law Section of the Delaware State Bar Association proposes amendments annually, but some of the amendments proposed this year, submitted as Senate Bill 313 to the Delaware General Assembly, have elicited a substantial amount of pushback. The controversy has revolved largely around proposed amendments designed to address the outcome of the decision in West Palm Beach Firefighters’ Pension Fund v. Moelis & Company, which many practitioners viewed as inconsistent with current market practice. Then, a letter on this topic, dated April 12, surfaced (hat tip to Law 360) from Delaware Chancellor Kathaleen McCormick to the Delaware State Bar Committee. Adding even more fuel to the fire is a letter submitted to the Delaware legislature, just posted on the Harvard Law School Forum on Corporate Governance, by a group of over 50 law professors in opposition to the amendments.
SEC reports Enforcement stats for fiscal 2023 —with big contributions from whistleblowers
The SEC has announced its Enforcement stats for fiscal 2023, which revealed that the SEC filed 784 total enforcement actions, up 3% from the 760 filed in fiscal 2022. However, the level of financial remedies declined in fiscal 2023 to $4.9 billion from a record $6.4 billion last year. Nevertheless, it was still the second highest amount in SEC history. (Of course, you might recall that Gurbir S. Grewal, Director of the Division of Enforcement, said last year that the SEC didn’t expect to break last year’s records and set new ones every year because they “expect behaviors to change. We expect compliance.”) Of those financial recoveries, in fiscal 2023, the SEC distributed $930 million to harmed investors, representing the second consecutive year of distributions in excess of $900 million. But the standout statistics this year related to the SEC’s whistleblower program, where new records were set with whistleblower awards totaling almost $600 million, and 18,000 whistleblower tips in fiscal 2023, about 50% more tips than were received in fiscal 2022. A new record was also set with a $279 million award to one whistleblower. Overall, in fiscal 2023, the SEC received over “40,000 tips, complaints, and referrals in total,” a 13% increase over last year. According to SEC Chair Gary Gensler, the “investing public benefits from the Division of Enforcement’s work as a cop on the beat….Last fiscal year’s results demonstrate yet again the Division’s effectiveness—working alongside colleagues throughout the agency—in following the facts and the law wherever they lead to hold wrongdoers accountable.” Grewal added that “[i]nvestor protection and enhancing public trust in our markets requires that we work with a sense of urgency, using all the tools in our toolkit. As today’s results make clear, that’s precisely what the Enforcement Division did in fiscal year 2023….Whether it was by leveraging risk-based initiatives, seeking robust remedies, rewarding cooperation, protecting whistleblowers, or returning nearly a billion dollars to harmed investors, the Enforcement Division stood up for the investing public.”
SEC charges CBRE for violation of whistleblower protections
One area where SEC Enforcement appears to have focused its attention recently is whistleblower protections. In this Order against CBRE, Inc., the SEC brought settled charges against the commercial real estate services and investment firm for using an employee release form that the SEC alleged violated Exchange Act Rule 21F-17, the SEC’s whistleblower protection rule. The purpose of the whistleblower provisions in the Exchange Act, added in 2010 as part of Dodd-Frank, was to “encourage whistleblowers to report possible securities law violations by providing, among other things, financial incentives and confidentiality protections.” To prevent obstruction of that reporting, the SEC adopted Rule 21F-17, which provides that “[n]o person may take any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement…with respect to such communications.” The SEC’s order found that, “by conditioning separation pay on employees’ signing the release, CBRE took action to impede potential whistleblowers from reporting complaints to the Commission.” According to an SEC Regional Director, it “is critical that employees are able to communicate with SEC staff about potential violations of the federal securities laws without compromising their financial interests or the confidentiality protections of the SEC’s whistleblower program….We commend CBRE for its swift and far-reaching remediation and for its high level of cooperation with our staff, which is reflected in the terms of the resolution.” Is it time to take another look at your employee separation agreements and release forms?
COSO introduces “internal control over sustainability reporting”
Under the pressure of institutional investors, environmental groups, employees, consumers and other stakeholders, many companies have sought to demonstrate their bona fides when it comes to ESG through disclosure about their sustainability efforts, goals and achievements, whether in periodic reports or in separate sustainability reports. But, as reporting increases, so do concerns by some about potential greenwashing. How can companies assure the quality of their sustainability reporting and create more trust and confidence among stakeholders? One way might be through effective internal controls. So far, however, according to a new report from Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, ”[f]ew best practices have been established. While some larger institutions have progressed in building controls around environmental, social, and governance (ESG) reporting, many organizations have designed ad hoc controls around certain key sustainable business metrics. Many also perform internal verification and assurance procedures to ensure management comfort with this information. Yet few of them seem to have developed effective, integrated systems of internal control over their material or decision-useful sustainable business information.” Now, leveraging insights gleaned from development of the most widely used internal control framework—the COSO Internal Control-Integrated Framework—COSO has developed the concept of ”internal control over sustainability reporting” (ICSR). In its new report, which weighs in at 114 pages, COSO provides supplemental guidance that explains and interprets how each of the 17 principles in the 2013 version of the COSO ICIF applies to sustainable business activities and sustainable business information. According to the authors, “[i]nternal controls have value beyond compliance and external financial reporting. Effective internal controls can help an organization articulate its purpose, set its objectives and strategy, and grow on a sustained basis with confidence and integrity in all types of information.” As companies seek to “generate sustained value—ethically and responsibly—over the longer term,” with an emphasis on sustainability and ESG, both companies and their stakeholders need effective controls and oversight to provide the reliable and high-quality data needed for “decision making in this changing world.”
Workplace misconduct again! SEC charges failure of disclosure controls
Alleged workplace misconduct—and the obligation to collect information and report up about it—rears its head again in yet another case, this time involving Activision Blizzard, Inc. Just last month, in In re McDonald’s Corporation, the former “Chief People Officer” of McDonald’s Corporation was alleged to have breached his fiduciary duty of oversight by consciously ignoring red flags about sexual harassment and misconduct in the workplace. According to the court in that case, the defendant “had an obligation to make a good faith effort to put in place reasonable information systems so that he obtained the information necessary to do his job and report to the CEO and the board, and he could not consciously ignore red flags indicating that the corporation was going to suffer harm.” (See this PubCo post.) Now, the SEC has issued an Order in connection with a settled action alleging that Activision Blizzard, Inc., a videogame developer and publisher, violated the Exchange Act’s disclosure controls rule because it “lacked controls and procedures designed to ensure that information related to employee complaints of workplace misconduct would be communicated to Activision Blizzard’s disclosure personnel to allow for timely assessment on its disclosures.” In addition, the SEC alleged that the company violated the whistleblower protection rules by requiring, in separation agreements, that former employees “notify the company if they received a request from a government administrative agency in connection with a report or complaint.” As a result, Activision Blizzard agreed to pay a $35 million civil penalty. These cases suggest that company actions (or lack thereof) around workplace misconduct and information gathering and reporting about it have resonance far beyond employment law. It’s also noteworthy that this Order represents yet another case (see this PubCo post) where a “control failure” is a lever used by SEC Enforcement to bring charges against a company notwithstanding the absence of any specific allegations of material misrepresentation or misleading disclosure, a point underscored by Commissioner Hester Peirce in her dissenting statement, discussed below.
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