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

Proposal Would Require CEO, CFO to Certify Reports

Chief executive officers and chief financial officers would be required to certify that their company's annual and quarterly reports are complete and accurate under new rules proposed by the SEC. The agency also proposed to expand the Form 8-K reporting regime by adding several new items subject to the form's current reporting requirements. Two items currently subject to reporting on a quarterly or annual basis, the unregistered sales of equity securities by the company and material modifications to rights of shareholders, would also require Form 8-K reporting under the rules as proposed. The time period for filing the reports would also be reduced to two business days from the current five to 15 days.

The SEC stated that "it is important both to the quality of disclosure and investor confidence for senior executives to provide assurance that they have reviewed and evaluated the information contained in their companies' quarterly and annual reports." Under the proposal, which relates to Exchange Act Forms 10-Q, 10-QSB, 10-K and 10-KSB, a company's CEO and CFO must certify that 1) they have read the report, 2) to their knowledge, the information in the report is true in all important respects as of the end of the relevant period and that 3) the report contains all known information believed to be important to a reasonable investor. Each report would also contain a statement explaining this "important to a reasonable investor" standard.

According to the SEC, the rules are intended to reflect the current disclosure standards for "material" information applicable in fraud litigation under Exchange Act Section 10(b) and in Exchange Act reporting requirements. According to the Commission, an officer providing a false certification potentially could be subject to agency enforcement actions under Exchange Act Section 13(a) and administrative actions under Section 10(b). In the proposing release, however, the SEC commented that the proposed rules would not "change the underlying liability standard as to materiality or create an unacceptable risk of increased liability for a company's principal executive officer and principal financial officer." Noting that such officers could currently be liable as signatories for report contents and generally for other false or misleading statements, the Commission concluded that the proposal "is consistent with an appropriate level of liability where a principal executive officer or principal financial officer fails to review his or her company's quarterly or annual reports or certifies the accuracy and completeness of these reports when, based on his or her knowledge and belief, the certification is false."

Currently, companies must file a Form 8-K in response to 1) a change in control of the company, 2) the acquisition or disposition of a significant amount of assets, 3) bankruptcy or receivership, 4) a change in the company's certifying accountant, 5) the resignation of a company director and 6) a change in the company's fiscal year. With regard to the proposed additional items, the SEC stated that it "identified the following extraordinary events as specific disclosure items because we believe such events are presumptively of such importance to investors that prompt disclosure is necessary. "

As proposed, Form 8-K would include several new triggering events, including 1) making or terminating any material agreements that are not in the ordinary course of business, 2) changes to a customer agreement that would have a significant revenue impact, 3) the creation of a material financial obligation, whether direct or contingent, including loan guarantees, 4) defaults or other events that trigger a material financial obligation, 5) material write-offs, restructurings or other exit activities, 6) material charges for impairments to company assets, 7) credit rating changes, 8) changes in the trading of company securities, such as a change in exchanges, delistings or notices of non-compliance with listing standards, 9) the withdrawal by an auditor of an audit report or a company decision that it cannot rely on a previous audit report, and 10) any material limitations or prohibitions in employee benefit, retirement or stock ownership plans, such as lock-out periods when company stock cannot be traded through these plans.

The proposal would also expand the current Form 8-K item that requires disclosure about the resignation of a director to include 1) the departure of a director for reasons other than a disagreement or removal for cause, 2) the appointment or departure of a principal officer and 3) the election of new directors. Additionally, the revised form would combine the current Form 8-K item regarding a change in a company's fiscal year with a new requirement to disclose any material amendment to a company's articles of incorporation or bylaws.

Modified Form 8-K would also require filings to be made within two business days from the triggering event. Currently, most events require filings within 15 days, while disclosures regarding the company's independent auditors and director resignations must be filed in five business days. According to the SEC, the two-day period would appropriately "balance investors' need for timely access to information about the companies in which they have invested or as to which they are making investment decisions with the time needed by companies to prepare accurate and complete information." Comments on the certification and Form 8-K proposals are due 60 days after publication in theFederal Register.

¨ Release Nos. 33-8106 and 34-46079 will be published in a forthcoming Report.