(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

SEC Adopts Voluntary E-Proxy Notice, Delivery Rules

The SEC adopted amendments to the proxy rules to permit the "notice and access" model of delivery in which companies may post their proxy materials on a Web site and send a notice to shareholders of the availability of the material. The use of the notice and access model is voluntary. Shareholders may still request paper delivery of the proxy materials. The SEC is also seeking comments on whether to require all companies and soliciting persons to follow the notice and access model for all proxy solicitations other than those relating to business combinations.

Companies that wish to take advantage of the amendments must post the proxy materials and send the notice of availability at least 40 days prior to the meeting date. The proxy card may not accompany the notice, but may be sent 10 days after the initial notice. Chairman Christopher Cox noted that the SEC will always guarantee shareholders the right to receive the material on paper. The notice and access model is entirely voluntary for issuers or soliciting persons who wish to rely on it.

At the same time, the SEC will consider whether to convert to a mandatory model at some time in the future and perhaps as early as the 2008 proxy season. If the mandatory system is adopted, shareholders may still request the proxy materials on paper.

The notice of the availability of the proxy material must be written in plain English. It must advise of the date, time and location of the meeting, as well as the location of the proxy materials on the Web site. The notice will include a toll-free telephone number and an email address for requesting paper copies of the material. The matters to be considered at the meeting must also be described.

Shareholders may make a one-time permanent election to receive the materials on paper or by email with respect to future proxy solicitations by the company or by soliciting persons. A soliciting person will not have to solicit all shareholders, but may limit the solicitation to large holders or to those who have chosen not to receive paper documents. The amendments are effective July 1, 2007. Early voluntary compliance is not permitted.

John White, the director of the Division of Corporation Finance, said the staff will review the use of the voluntary notice and access model after it goes into effect before going forward with the adoption of a mandatory rule.

While one of the benefits of the notice and access model is a decrease in costs, Commissioner Roel Campos noted that the most significant expenses are the fees paid to professionals, not for printing and mailing. Deputy Director Martin Dunn said that the e-proxy option will cut some of the costs, but the retention of certain costs may be useful in deterring nuisance solicitations.

Commissioner Annette Nazareth said the staff should thoroughly analyze the voluntary process before moving forward with a mandatory rule. The SEC will accept comments on the proposal to make the notice and access model mandatory for 60 days.

Antifraud and Accredited Investor Proposals

The SEC will also seek comments on a new antifraud rule under the Investment Advisers Act and new criteria for who will be considered an accredited investor under the Securities Act, both aimed at protecting investors in hedge funds and other pooled investment vehicles. Proposed Investment Advisers Act Rule 206 would make it a fraudulent act for an investment adviser to a pooled investment vehicle, whether registered with the SEC or not, to make false or misleading statements or to otherwise defraud investors in the pool. The proposed definition of an accredited investor in a hedge fund or a private investment pool would include one who meets the net worth or income test specified in Rule 501(a) or Rule 215 and who owns at least $2.5 million in investments.

Andrew Donohue, the director of the Division of Investment Management, explained that many individuals today qualify as accredited investors under the current test even though they may lack the level of sophistication needed to invest in unregulated investment pools. They meet the test largely due to the value of their homes, he said. The proposed rules are a response to the Goldstein v. SEC ¶93,890 decision which invalidated the SEC's hedge fund adviser registration rules.

Mr. Donohue noted that the proposal includes a built-in adjustment for inflation that will take place on April 1, 2012, and every five years after that. A joint assets test addresses investments held jointly with spouses. The proposal does not apply to investments in venture capital funds, he said, because of the role they play in the capital markets. The comment period on these two proposals is 60 days. 

Mutual Fund Governance Rules

Chairman Cox announced at the end of the meeting that the commissioners had approved the staff's recommendation that the SEC reopen the comment period on the investment company governance rules that were the subject of a court challenge by the Chamber of Commerce. The chairman said that additional material prepared by the Office of Economic Analysis will be posted on the SEC's Web site for further consideration.

The adopting and proposing releases will be published in a forthcoming Report.