(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.)

Commission Issues Supplemental Information on CEO Certifications

The SEC issued supplemental information concerning its proposed rule (¶86,702) on executive certification of disclosures in quarterly and annual reports. Issued in light of the enactment of the Sarbanes-Oxley corporate reform bill, the release discusses the rules that the agency be required to adopt pursuant to Section 302 of the act and the differences between those rules and the previously proposed measures.

Section 302 of the Sarbanes-Oxley Act requires the Commission to adopt final rules that must be effective by August 29, 2002, under which the principal executive officer or officers and the principal financial officer or officers must provide a specified certification in issuers' annual and quarterly reports. Under the statute, the certification must be provided by the officers of a broader group of issuers, particularly foreign issuers, and is different in certain respects from the certification requirements previously proposed by the SEC.

The SEC noted that its June 2002 proposal used a "plain English" approach to reflect the applicable disclosure standard for "material" information, while the act uses the formulation found in Exchange Act Rules 10b-5(b) and 12b-20. The act also requires an attestation regarding the financial disclosure included in these reports, and requires additional information with regard to the completion of a review of internal procedures and controls aimed at assuring adequate disclosure.

Foreign Issuers

There is also a difference in the scope of the two certification schemes with regard to foreign issuers. The SEC's proposed rules would only have applied to issuers subject to the reporting requirements of Exchange Act Section 13(a) or 15(d) that filed annual reports on Forms 10-K and 10-KSB and quarterly reports on Forms 10-Q and 10-QSB. These proposals would have applied to U.S. companies and to companies domiciled in foreign jurisdictions that have a majority of U.S. security holders and U.S.-based businesses or management. Section 302 of the act, however, also applies to foreign private issuers. The SEC stated that it plans to adopt final rules that would apply the certification requirement to foreign private issuers filing annual reports on Form 20-F and Canadian issuers filing Form 40-F.

Internal Controls

The agency noted that while Section 302 requires the principal executive officer or officers and principal financial officer or officers to make specific attestations in their certifications as to the company's internal controls, the statute does not directly address the maintenance of these requirements. The SEC proposals would require the maintenance of sufficient procedures to provide reasonable assurance that the company is able to collect, process and disclose, within specified time periods, all information required to be disclosed in their periodic and current reports. According to the SEC, it does not intend to modify and continues to solicit comment on proposed Exchange Act Rules 13a-15(a) and 15d-15(a) concerning these control measures.

Investment Companies

Comment is also requested on the application of Section 302 to registered investment companies. In addition to general comments, the SEC asked for specific comments on 1) the appropriate location for the certification, such as in the Form N-SAR report to shareholders, 2) the appropriate individuals to provide the certification, and 3) the application of rules should apply to different types of investment companies, such as managed investment companies and unit investment trusts.

Comments on the proposed rulemaking are due by the original comment date, August 19, 2002.

Release No. 34-46300 is reported at ¶86,715.