How Many Ways Can The SEC Describe A “Year”?

It’s not easy to write regulations and lawyers can be a hypercritical group. Nonetheless, the Securities and Exchange Commission’s rules can be maddingly inconsistent. As one small example, I offer Item 405 of Regulation S-K and its many references to “year”.

In general, the purpose of Item 405 is to require disclosure of late filers under Section 16(a) of the Securities Exchange Act of 1934. In paragraph (a), the regulation refers to “most recent fiscal year”. In subparagraph (1), the regulation refers to “the fiscal year”, ” the most recent fiscal year”, and “prior years”. In the following note, the regulation refers to the “most recent fiscal year” and the “most recently concluded fiscal year”. Finally, in paragraph (b)(1), the regulation refers to “two years” and “that year”. Is there a difference between these various descriptions or are they simply an effort on the part of the SEC to exercise elegance of variation? That’s a lot of variation in rule that barely exceeds 500 words.

In Item 304 of Regulation S-K, the SEC is consistent in using the term “two most recent fiscal years” in paragraphs (a)(1) and (a)(1)(iv) but the SEC staff interprets these references differently as set forth in this Compliance & Disclosure Interpretation:

Item 304(a)(1)(iv) uses the phrase “the registrant’s two most recent fiscal years and any subsequent interim period preceding such resignation, declination or dismissal,” whereas Item 304(a)(1) uses the phrase, “the registrant’s two most recent fiscal years or any subsequent interim period.” The Division staff has been asked whether the period referenced in Item 304(a)(1)(iv) is coterminous with the period referenced in Item 304(a)(1), or instead refers to a period of such duration preceding the accountant’s resignation or dismissal, as the language would literally suggest. The Division staff takes the position that Item 304(a)(1)(iv) refers to the time period preceding the resignation or dismissal. [July 3, 2008]

The references to years in the California General Corporation Law can be equally challenging. In prescribing when the requirements of California’s “pseudo-foreign corporation” are applicable, the legislature had this to say in Section 2115(d):

“For purposes of subdivision (a), the requirements of subdivision (b) shall become applicable to a foreign corporation only upon the first day of the first income year of the corporation (1) commencing on or after the 135th day of the income year immediately following the latest income year with respect to which the tests referred to in subdivision (a) have been met . . . .”

What could be more clear?

 

Topics:  Fiscal Year, Regulation S-K, SEC, Securities Exchange Act

Published In: Business Organization Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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