The Dodd-Frank Wall Street Reform and Consumer Protection Act

1 Jul
By: Daniel W. Rumsey

What’s in it for me (or you), and should we be worried?

The Act

President Barack Obama today signed into law the Dodd- Frank Wall Street Reform and Consumer Protection Act, clearing the way for new regulations likely to affect most public companies, accounting firms, financial institutions and consumers in one way or another. However, the provision most likely to bring relief to non-accelerated filers, which include smaller reporting companies with a public float of less than $75.0 million, and a smile to the face of their chief financial officers and shareholders, is the provision permanently exempting these companies from Sarbanes Oxley Section 404(b), the so called auditor attestation requirement. This requirement mandates that companies evaluate the internal controls over financial reporting and have their conclusions audited by their external auditors. The exemption found a receptive audience in Congress, despite the SEC’s objections.

It’s About Time!

Ever since Sarbanes Oxley was adopted in 2002, the Act has been criticized due to its disproportionate impact on smaller reporting companies. Because of the uproar, the SEC has on numerous occasions delayed the applicability of the requirement to smaller reporting companies, most recently in October 2009. It’s now taken an act of Congress, literally, for smaller reporting companies to get the relief they’ve lobbied for since the adoption of SOX. The savings are expected to certainly make a difference. The SEC’s 2009 survey of smaller reporting companies that actually complied with Section 404(b) despite the continued postponements revealed that they annually spent more than $440,000 on compliance with Section 404(b). With the exemption now permanent, those dollars can be directed to more productive means that truly bring value to their shareholders. Companies with market caps between $75.0 million and $250.0 million, while not exempt from 404(b), at least received consideration under the Act. The Act requires the SEC to complete a study within nine months addressing potential methods to reduce the burden of compliance with the auditor attestation requirement, and whether such methods, or a complete exemption, would encourage companies to list on U.S. exchanges. Stay tuned!

So What Else?

Lots.  The Act promises to make major changes to the world of securities enforcement and regulation, with much of its impact yet to be determined. The ultimate impact will depend on rulemaking by the SEC.

However, the Act will surely bring new incentives for whistleblowers to report securities violations, and will result in greater liability for secondary actors in securities fraud cases. Specifically, lawyers and accountants who are merely reckless participants in acts of securities fraud rather than knowing participants, which is the current standard, will now find themselves in the crosshairs of the SEC’s Division of Enforcement. The Act goes further and directs the Government Accountability Office to study whether private plaintiffs should also be allowed to sue secondary actors – or aiders and abettors as they’re referred to in the Act. These provisions are in addition to the myriad of other provisions likely to impact securities lawyers and other securities professionals over time, including the ability of the SEC to obtain penalties in administrative proceedings, seek securities industry-wide bars resulting from securities law violations, as well as bars from participation in private placements under Regulation D for certain bad actors.

What’s Next?

While the Act provides immediate relief from Section 404(b) for non-accelerated filers, for securities lawyers concerned about disclosure rules and regulations under the Securities Act of 1933 and the Securities Exchange Act of 1934, the impact from the Act remains to be determined, as many of the rules and regulations need to be written, and that will take time given the incredible demands placed upon the SEC by the Act. Those burdens will be lessened, however, as the Act provides for the SEC’s budget to nearly double over the next five years, using dollars that no doubt will come from all those additional fees and penalties the SEC will be collecting as a result of passage of the Act.

Introducing DCAF!

SEC Connect is getting ready for the debut of its Disclosure, Collaboration and Filing System (DCAF) at the 49th Annual Corporate Counsel Institute in Chicago on September 29, 2010, sponsored by Northwestern Law School. Be one of the first to experience DCAF, by signing up at our website located at, and clicking on “Become a Client”, or visit our booth at the Corporate Counsel Institute. Hope to see you there!

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