NYSE's Grasso Files Late Stock Reports; Advice Blamed (Update1)
By Miles Weiss
Washington, Aug. 26 (Bloomberg) -- Richard Grasso, who as chairman of the New York Stock Exchange helps set rules for U.S. companies, failed to meet disclosure requirements as a Computer Associates International Inc. board member the past five years.
Five directors, including Grasso and former Senator Alfonse D'Amato, didn't include information on stock compensation in year- end reports required by the Securities and Exchange Commission. Computer Associates said the directors relied on the company's mistaken legal advice.
Grasso filed a catch-up report this month, disclosing stock awards dating back to August 1996. In Computer Associates' proxy filing to shareholders, the Islandia, New York, software maker also cited Grasso and the other directors as delinquent filers.
``No insider ever wants to see his name in a proxy statement listed as someone who didn't comply with the law,'' said Peter Romeo, an attorney at the law firm of Hogan & Hartson who specializes in the rules that govern insider transactions.
Ray Pellecchia, a spokesman for Grasso, who is stepping down from the Computer Associates board this year, declined to comment on the proxy disclosure. The exchange, which Grasso heads, sets corporate-governance rules for its 2,800 listed companies.
Lawyer's Letter
Attached to Grasso's late filing was an Aug. 13 letter to the Big Board chairman from Computer Associates' general counsel saying the company had reversed earlier legal advice and concluded that a deferred stock plan for directors amounted to ``derivative securities'' requiring reporting to the SEC.
``We understand that you have justifiably relied on the company and its counsel to make the determination on whether certain types of transactions are reportable, particularly the credits under the plan,'' wrote Steven M. Woghin, general counsel.
In its proxy statement, Computer Associates said outside directors receive an annual fee in the form of company shares that they cannot claim until they retire from the board. Securities rules require directors to report the exact number of shares credited to their accounts in a year-end report known as a Form 5.
``All director compensation has been fully disclosed in our annual proxies,'' company spokeswoman Rita O'Brien said in a written statement. ``Because director compensation is deferred until retirement, we and our directors did not believe that a Form 5 filing was necessary. We have recently been advised that such filings by our directors should be amended to comply and correspond with the proxy disclosure. This is a technicality and in no way does this have any impact on the company's reported financials.''
While many companies file stock-transaction reports for executives and directors, federal law makes the individual insiders responsible for the disclosures. The SEC, which rarely takes action for late filings, requires companies to disclose the names of late filers in proxies.
Timeliness of insider filings became an issue in March when President George W. Bush called for prompt disclosure of insider trades in a 10-point plan to improve corporate accountability. Bush then came under criticism himself for reporting his 1990 sale of stock at Harken Energy Corp. more than eight months late.
Lay's Sales
Also this year, Kenneth Lay, the former chairman or Enron Corp., disclosed in insider filings that he had sold about $100 million of Enron stock in 2001 as the energy trader was sliding toward bankruptcy.
Trying to restore investor confidence after the collapse of Enron and WorldCom Inc., Congress passed legislation that included shortening the period in which insiders must disclose their stock trades to two days.
``There used to be a lot less focus on transactions between the insider and the company,'' said John Mitchell, a securities attorney at the law firm Hofheimer Nusbaum PC. ``After Enron everyone woke up to the fact that these transactions could be highly lucrative to the insider.''
Like many other public companies, Computer Associates prepares insider-transaction reports for executives and directors so that they don't have to grapple with the complexities of the SEC's rules.
``The rules are highly technical and people make mistakes in this area all the time,'' Mitchell said.
Grasso's membership on the Computer Associates board has prompted criticism from some investor advocates who say it's a conflict for him to serve on boards of companies that trade on the exchange. He said last month he would step down to comply with a new Computer Associates policy that prohibits outside directors from serving more than eight years.
`Phantom' Shares
Grasso's late report, filed with the SEC on Aug. 16, covers 4,928 ``phantom'' shares that he received under the deferred compensation plan between Aug. 14, 1996, and Jan. 10, 2001. According to the company's annual proxy statement, Grasso held a total of 20,000 shares as of July 3 with a market value of $224,000, along with stock options to purchase an additional 47,250 shares.
In addition to Grasso, Computer Associates listed four other directors who failed to report stock awards on time. They include D'Amato, a Republican who served as U.S. senator from New York; Shirley Strum Kenny, president of the State University of New York at Stony Brook; Roel Pieper, a managing partner with a venture capital firm called Favonius Insight Ventures; and Willem F.P. deVogel, the president of a private investment management firm called Three Cities Research Inc.
Those four directors didn't return calls for comment. D'Amato is a paid contributor to Bloomberg Radio. |
