Business Law Advisory

May 2006

Nasdaq to Become National Securities Exchange – Impact on Listed Companies

On May 15, 2006, the Nasdaq Stock Market announced plans to begin operating as a national securities exchange in the second quarter of 2006, with an expected effective date of June 1, 2006.  Securities that are currently listed on Nasdaq are generally registered under Section 12(g) of the Securities Exchange Act of 1934. When Nasdaq begins operating as an exchange, all listed securities must be registered under Section 12(b) of the Exchange Act. To facilitate the registration process, the Nasdaq Stock Market is filing one application to transition all of its listed issuers to Section 12(b) registration; no affirmative action is required by any of the listed issuers to effect the change. 

Nasdaq will notify its listed issuers after it begins operating as an exchange. Thereafter, listed companies should indicate in their Exchange Act filings as appropriate of the Section 12(b) status, e.g., on the cover page of the Form 10-K. The Exchange Act registration numbers of listed companies will remain unchanged. Nasdaq does not believe that there will be any other changes in disclosure requirements imposed on listed companies under the Exchange Act. For further information, please contact James A. Giesel of our Public Companies and Securities Group at or  502-568-0307. 

SEC Intends to Provide Additional SOX Section 404 Guidance; Rejects Exemption for Small Companies

On May 17, 2006, the SEC promised to provide more guidance to all public companies to aid them in complying with Sarbanes-Oxley Act Section 404, but specifically rejected an SEC advisory committee’s call to exempt smaller companies from the reporting provisions. Section 404 requires public companies to report on the effectiveness of their internal control over financial reporting and requires outside auditors to verify whether those controls are effective. The SEC also stated that it expects to issue another “short postponement” of the Section 404 compliance deadline for non-accelerated filers, although it anticipates that the management assessment of Section 404(a) will nonetheless be required for all filers for fiscal years beginning on or after December 16, 2006. For further information, please contact James A. Giesel of our Public Companies and Securities Group at or 502-568-0307. 

PCAOB Announces Plan to Improve Implementation of Internal Control Reporting Requirements

On May 17, 2006, concurrent with the announcement of a similar initiative by the Securities and Exchange Commission,  The Public Company Accounting Oversight Board announced a plan to improve auditors’ implementation of the internal control reporting provisions of Section 404 of the Sarbanes-Oxley Act of 2002 to reduce the costs associated with internal control reporting while maintaining the benefits to investors.  The Board’s initiatives include (1) considering amendments to its Auditing Standard No. 2 to ensure that auditors’ primary focus during an integrated audit is on areas that pose higher risk of fraud or material error; and (2) using inspections of registered public accounting firms to reinforce that firms focus on efficiency in conducting internal control audits.  The Board also plans to implement guidance and education programs for auditors of small companies; and continuing its forums on Auditing in the Small Business Environment. For further information, call Alan K. MacDonald of our Public Companies and Securities Group at or 502-568-0277.

DHS Announces Second Phase of the Secure Border Initiative

On April 20, 2006, the Department of Homeland Security and the Immigration Customs and Enforcement Division of the U.S. Citizenship and Immigration Services announced a "comprehensive enforcement strategy for our nation's interior". This initiative is the second phase of the Secure Border Initiative which was originally announced by Department of Homeland Security Secretary Michael Chertoff in November of 2005. At that time, Chertoff emphasized that the DHS would be increasing interior enforcement by targeting work sites. Since the announcement on April 20, 2006, there have been at least four major raids of companies located in the Midwest and southern part of the United States, resulting in thousands of arrests of allegedly undocumented workers and criminal charges against employers for allegedly harboring or conspiring to transport illegal aliens, document fraud and money laundering. Section 274 of the Immigration and Nationality Act prohibits the employment of unauthorized aliens and also penalizes the employers for failing to properly complete and document the I-9 form, which is required to be completed for virtually any employee hired after November 6, 1986. There are also potential criminal penalties and injunctions for pattern or practice violations in hiring illegal aliens and more serious criminal provisions for harboring, transporting or importing them for immoral purposes, document fraud and money laundering. It is clear that ICE has now refocused on these criminal elements while continuing to assess administrative penalties for paperwork violations and unauthorized employment of foreign nationals. More than ever before, employers clearly need a policy to insure strict I-9 compliance and the creation of proactive defenses to avoid criminal prosecution for any of these prohibited acts. For further information, please contact Dan Owens of our Immigration Group at or 502-568-0383.

Tax Law

On May 15, 2006, the U.S. Supreme unanimously agreed that individual taxpayers do not have the legal right to challenge Ohio's investment tax credit program for economic development. The Court ruled that the taxpayer-plaintiffs had not established that they had suffered any injury. The Court noted that "it is unclear that tax breaks of the sort at issue here do in fact deplete the treasury: The very point of the tax benefits is to spur economic activity, which in turn increases government revenues." Moreover, because state budgets frequently contain an array of tax and spending provisions, granting standing to these taxpayer-plaintiffs "would interpose the federal courts as 'virtual continuing monitors of the wisdom and soundness' of state fiscal administration" which is not a proper role for the courts. For more information, please feel free to contact Jeff Teeters at or 502-568-0277.

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