Both the Securities and Exchange Commission (SEC) and the US Department of the Treasury (Treasury Department) announced executive compensation initiatives on 10 June 2009. The SEC announced that it will be considering enhanced disclosure requirements for all US public companies. The Treasury Department outlined five broad-based principles governing compensation for all US public companies.

The SEC and the Treasury Department demonstrate a united voice on the Government's role in regulating executive compensation. The Government will not directly regulate compensation by imposing explicit pay caps or mandating certain compensation structures. Rather, its interest is to protect investors by:

While no explicit laws or regulations have been adopted, these initiatives signal the regulatory direction going forward.

Enhanced SEC disclosure rules. The SEC announced that it is actively considering enhancements to the proxy disclosure rules in the following areas:

The Treasury Department's five principles of compensation. The Treasury Department's five broad-based principles purport to align compensation practices with sound risk management and long-term growth. These principles outline "best practices" that the administration encourages all public companies to adopt and are not intended to cap compensation or prescribe how companies should set compensation. These principles include the following:

In furtherance of these principles, the Treasury Department proposed legislation in two areas. The first proposal would mandate an annual "say-on-pay" advisory vote on executive compensation programs. The second proposal would provide for greater independence standards for compensation committees (similar to those for audit committee members) and impose independence standards for compensation consultants and advisors.

Regulations for TARP entities. The Treasury Department also released interim final rules interpreting the comprehensive overhaul of executive compensation for entities receiving government assistance under the Troubled Asset Relief Program (TARP), effective from 15 June 2009.

For more information on these developments and their implications for executive compensation planning, see:

During the recent turbulence in the financial markets, numerous investors discovered that funds they entrusted with their investment adviser were not actually invested, and that the account statements they received were illusory. The most notable of these frauds was the massive Ponzi scheme operated by Bernard L. Madoff, who was able to hide his fraud by using his own investment business as the custodian for his clients' funds and retaining a small, unknown accounting firm to act as auditor.

In response to the Madoff fraud, and other frauds like it, the Securities and Exchange Commission (SEC) recently proposed amendments to the investment adviser custody rules which apply to registered investment advisers. The SEC's stated purpose for the new rules is to "promote independent custody and enable independent public accountants to act as third-party monitors."

The most significant of the new rules are:

Annual surprise examination for all registered advisors with custody of client funds or securities. Under the proposed amendments, all registered advisors with custody of client funds or securities are subject to an annual surprise examination. This requirement would apply to advisors who are deemed to have custody solely because they have authority to debit fees from their clients' accounts.

An accountant conducting the surprise examination must:

Internal control report. Under the proposed amendments, an advisor that self-custodies client funds or securities must obtain, at least annually, an internal control report from a PCAOB-registered accountant. The report must include an opinion by the PCAOB-registered accountant that describes the:

Changes to the account statement delivery rule. Under the proposed amendments, an advisor that sends its own account statements, even though subject to an annual surprise examination, will no longer be able to avoid the requirement that the advisor have a reasonable belief that the custodian also send account statements.

The most controversial of the new rules is the surprise examination requirement in the case of deemed custody as a result solely of fee debiting authority. Commentators argue that the added protection to clients will be minimal and the added administrative burden significant, in terms either of operationally providing for fee debits only at a client's direction or in organising the surprise examinations. Several commentators suggest that the SEC's estimated US$8,100 per annum cost for the surprise examinations is both unrealistically low (not least because it seems to focus only on out-of-pocket costs as opposed to the costs implicit in staff distraction) and, at least for the smallest advisors, will represent a significant reduction either in profits earned by the firm or, if the cost is shifted to clients, in client investment returns.

Comments on the SEC's proposed rules are due by 28 July 2009.

For more information, click here.

The Lehman Brothers chapter 11 debtors (collectively, the Lehman Debtors (see box, Debtors and commencement dates) filed a motion on 26 May 2009 (Bar Date Motion) seeking to establish 24 August 2009 at 5:00 pm (prevailing Eastern Time) (Bar Date) as the last date and time for all creditors, including affiliates of the Lehman Debtors, to file proofs of claims against the Lehman Debtors.

The Bar Date applies to claims arising before the date the applicable debtor filed its voluntary chapter 11 petition (Commencement Date) (see box, Debtors and commencement dates).

If a creditor's claim is not actually received by Epiq Bankruptcy Solutions, LLC (the noticing and claims agent for the Lehman Debtors) or the Bankruptcy Court (for details of where to send claims, see box, Addresses for claim forms) on or before the Bar Date then, among other things:

The bar date procedures. The proposed general procedures for filing proofs of claims provide that proofs of claims must:

Derivative contract claims, guarantee claims, and derivative contract guarantee claims. In addition, the Lehman Debtors are seeking to establish special procedures with regard to claims based on:

In summary, the proposed procedures require that the holders of such claims both:

The questionnaires would require that holders of such claims provide, via electronic upload, certain detailed supporting documentation for each claim, rather than submitting such information in paper format.

If a creditor files a proof of claim but fails to complete the applicable questionnaire(s) they will, among other things, be barred forever from asserting such claim against the Lehman Debtors, have their claim discharged, and they will not be permitted to vote on any chapter 11 plan or participate in any distribution with respect to such claim.

Executory contract and unexpired lease claims. The proposed procedures contemplate that, where the creditor holds a claim arising from the rejection of an executory contract or unexpired lease, the proof of claim must be filed by the later of:

Holders of Lehman securities. The Lehman Debtors also are seeking Bankruptcy Court approval to establish a Master List of Securities in respect of which it will not be necessary to file proofs of claims. This list has not yet been posted to the website indicated in the Bar Date Motion, and the Bar Date Motion does not provide further information about the securities that will be included on the Master List of Securities.

Hearing on the Bar Date Motion. Numerous parties have filed objections to the Bar Date Motion, primarily arguing that the documentation required by the questionnaires is overly burdensome and that, for those creditors who already have filed proofs of claims, re-filing such claims pursuant to the proposed procedures is unduly burdensome as well.

As a result of these objections, the hearing on the Bar Date Motion initially was scheduled for 17 June 2009. The Lehman Debtors then adjourned the hearing to 24 June 2009. Prior the 24 June 2009 hearing, the Lehman Debtors revised the proposed form of order to, among other things:

Change the Bar Date to 1 September 2009 at 5:00 pm (prevailing Eastern Time).

Change the deadline for completing the derivatives claim questionnaire to 1 October 2009 at 5:00 pm (prevailing Eastern Time).

Eliminate certain aspects of the derivatives questionnaire that many creditors felt were unduly burdensome.

At the 24 June 2009 hearing, the Bankruptcy Court adjourned the hearing to consider the Bar Date Motion until 29 June 2009 at 2:00 pm (prevailing Eastern Time). The 29 June 2009 hearing was an evidentiary hearing.