NYSE, NASD to Issue New IPO Rules

Exchanges looking to limit laddering, spinning. Elsewhere: Subpoena delivered to U-Haul, Reliant settles with SEC, and ex-CFO sues Vital Signs.

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A 14-member joint panel of the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD) is expected to issue recommendations on tougher disclosure rules this week. Those new guidelines will govern how Wall Street firms manage initial public offerings, according to an AP report.

Reportedly the recommendations include limits on how an IPO issue price can vary from the last disclosed price, and restrictions preventing so-called friends and family of companies launching IPOs from getting shares.

The NYSE and NASD recommendations will also include limits on stock “laddering.” In such arrangements, companies are given larger IPO allocations if they promise to buy shares at a higher price. The new rules will also attempt to rein in “spinning,” a practice where CEOs of companies are given shares of hot IPOs in exchange for their investment-banking business.

Further, the new rules will require underwriters to disclose the identities of share recipients, while issuers would be responsible for putting together a committee of directors to monitor the pricing of the shares.

Before going into effect, however, the recommendations must be approved by the Securities and Exchange Commission, a process that observers say could take months.

Truckload of Trouble at U-Haul

Management at Amerco, U-Haul’s parent company, announced on Monday that it has received a subpoena from the SEC. PricewaterhouseCoopers, Amerco’s auditor, was also subpoenaed by the commission.

The truck-rental company and its auditor have been embroiled in disagreements and infighting for months. Amerco fired PwC last year after a flap arose over the auditor’s reappraisal of Amerco’s financial statements involving off-balance-sheet financial vehicles, according to a Financial Times report. PwC had served as Amerco’s independent auditor for seven years prior to the firing.

Last year PwC reportedly told the SEC that Amerco had internal financial-control problems, and that the company had admitted to “material weaknesses.”

Amerco then sued PwC in April, seeking damages in excess of $2.5 billion. The company’s management claimed the auditor’s accounting opinion ruined Amerco’s standing in the financial markets and hampered its ability to raise capital. Last week PwC said that it would no longer be associated with Amerco’s 2001 and 2002 financial statements.

BDO Seidman, Amerco’s new auditor, is now reexamining the company’s 2001 and 2002 financial statements. The reaudits could lead to further restatements at the end of June.

The Reno, Nevada-based company’s new auditor has apparently already identified a need for prior period adjustments related to insurance reserves. Amerco is expected to report final adjustments and any resulting restatements in late June for the fiscal year that ended March 31, 2003.

Compound the problems at U-Haul’s parent: Amerco missed a debt payment late last year and has been in emergency talks with creditors ever since. The company’s management recently said it was close to securing the necessary financing, but details have yet to be announced.

An outside lawyer retained by Amerco told the FT that the SEC’s probe was “not surprising, given that the company had restated certain financial statements, discharged its former auditors and retained new independent accountants, all within the past year.”

Indeed, that sort of accounting trifecta will usually garner the attention of the commission’s division of enforcement.

Reliant Settles

In other SEC-related news, energy trader Reliant Resources—which has been under investigation for allegedly using questionable power swaps to artificially inflate revenues—reached a settlement with the commission yesterday. Reliant management neither admitted nor denied the SEC’s allegations, and the company was not required to pay a fine.

SEC attorneys reportedly said the company’s ready cooperation in the investigation helped the company avert a stiff penalty.

According to the commission, the Houston-based company made 17 large power swaps (also known as “wash trading” or “round-trip trading”) from 1999 to 2001, according to the Associated Press. Attorneys at the SEC claim Reliant used “earnings shifting” transactions to move profits out of current periods and into future periods. In those future periods, record-high energy prices were more likely to decline, an AP report said. The alleged shifting, therefore, helped the company smooth out its revenues.

The SEC said the swaps involved “simultaneous, prearranged” purchases and sales of the same commodity with the same buyer or seller, for the same amount at the same price.

In January Reliant agreed to refund $13.8 million to consumers in California. The refund covered two days in June 2000. Transcripts of telephone calls between Reliant employees apparently showed the company held back power to help drive up prices in California’s newly deregulated market.

Ex-CFO Sues Vital Signs

Joseph Bourgart, a former CFO at Vital Signs, a medical-products provider, has filed a lawsuit against the New Jersey—based company. Bourgart claims the company improperly booked sales and overstated earnings, according to a Financial Times report. Management at Vital Signs, a maker of anesthesia and intensive-care respiratory products, insists the claims are “erroneous.”

Current management at Vital Signs maintains that any alleged wrongdoing would have happened during Bourgart’s tenure as CFO, when he signed off on the company’s financial results without bringing up concerns. For his part, Bourgart claims he warned other Vital Signs executives about potential accounting-rule violations.

Bourgart told Reuters he doubted whether the company’s inventory was accurately reported in August and suggested that a write-down might be needed. But because his doubts couldn’t be fully proven at the time, Bourgart said he certified the company’s financial results, according to the report.

The next month, after collecting alleged evidence of loose accounting at the company, Bourgart reportedly brought the purported problem to the attention of other executives. He claims his allegations went unheeded.

Bourgart resigned as Vital Signs’s CFO in January with no severance pay after company management discovered he had provided an investor with material corporate information. Bourgart was then replaced by Frederick Schiff, a former finance chief at Bristol-Myers Squibb. Schiff himself was cut loose from the drugmaker after problems with the company’s inventory were uncovered.

“We are appalled at the allegations made today by a disgruntled former employee, and look forward to proving in court that these claims are erroneous and without merit,” said Vital Signs CEO Terry Wall.

Short Takes

• Management at Hollywood, California-based Gemstar-TV Guide International named Brian Urban as CFO. Urban takes over from Paul Haggerty, who has been the company’s acting CFO since November, when Elsie Ma Leung resigned. Gemstar is currently under SEC investigation into its accounting practices.

Last week, a federal judge ordered Gemstar managers to continue to withhold $37.6 million in severance payments to Leung and former chief executive Henry Yuen. Urban will join the company on July 1, and will be based in Los Angeles. Before joining Gemstar, Urban held various senior financial roles at Unilab Corp., where he was most recently executive vice president, CFO, and treasurer. Gemstar, which publishes TV Guide magazines, reported $1 billion in revenues in 2002.

• Former film executive Ronald Nelson is the new finance chief at Cendant Corp., a provider of travel and real-estate services. Nelson joins Cendant from Dreamworks SKG, where he was co-chief operating officer. He replaces Kevin Sheehan, who is taking over as head of Cendant’s vehicle-services unit.

• Michael Sears, chief financial officer of Boeing, has been appointed to Sprint Corp.’s board of directors. Sears will join the board immediately as an independent director, replacing Ronald LeMay, Sprint’s former president and chief operating officer. LeMay was reportedly ousted over concerns about his use of a questionable tax shelter. The company has yet to name a new president and chief operating officer. As part of a settlement with shareholders in two class-action lawsuits tied to Sprint’s failed merger with WorldCom Inc., the Overland Park, Kansas-based company reportedly agreed to increase the number of independent directors on its board.

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