This was started in another thread but I think worth breaking out on its own.

Bigg wrote:

"Ever think what the stock of these companies would be worth if they said they were not going to be compliant?"

Actually, it may work quite the other way around. Due to the securities laws and the resulting potential for personal director liability (i.e., litigating shareholders can go after the directors' homes, cars, et al.), the probability that these companies will misrepresent their status is actually quite low.

Here's why: First, as most of you know, reporting (i.e., public) companies are required by SEC regulations to report on their y2k status in their periodic reports (i.e., annual and quarterly reports). Second, those reports, being publicly available and filed with the Commission (and relied upon by the trading market), can constitute the grounds for a wide variety of state and federal securities law (and common law fraud) claims against these corporations (and their directors) in the event that those reports contain a material misstatement or omit to state a material fact. See, among other things, Section 18(a) of the Securities Exchange Act of 1934. Third, we will know with certainty whether these corporations ultimately prove (or are disproved) to be Y2k complaint shortly (and well within the relevant statute of limitations).

The result of these three facts means that the officers and directors are being adamantly advised by their attorneys and accountants to divulge ALL material y2k data and information about preparedness in a clear and accurate fashion. Corporate counsel are aware of the salivating securities plaintiff's bar, but our defense is truth. There is not any securities or common law fraud liability for stating "we won't be compliant", if it is in true. The fact that we haven't seen much of that simply reflects the officers' and directors' perception of their businesses' preparedness.

In short, think about it: you'd have to be pretty dumb to intentionally lie when you KNOW you'd be caught in that lie and you KNOW the consequences of being caught will be severe. You can say what you will about directors and officers of publicly held companies, but they aren't, on average, dumb.

One final point: much has been made of officers leaving certain companies and an alleged tie to Y2k liability. Keep in mind that liability arises under these securities provisions during the time of their employment (i.e., they don't still need to be employed or affiliated with the publicly held company to be sued under a securities law claim arising out of something they did [or failed to do] while employed). In fact, in some circumstances the company's obligation to indemnify directors terminates with the offcers' employment: so they'd be quite foolish to quit for an undisclosed liability...

-- Jeff Donohue (jeff_donohue@hotmail.com), June 10, 1999

Answers

Man...seven months from now, attorneys will be lying through their teeth about their very *impressive* choice of profession.

-- Will continue (farming@home.com), June 10, 1999.

But the problem is what is a lie nowdays? When high profile persons are getting off everyday for what most us recognize as boldfaced lying there is no "KNOW you'd be caught...KNOW the consequences..."

Every statement I've read is full of "weasel words". I have no confidence that these organizations are honestly forthcoming in their responses.

-- Kay (jkbrooks@bellsouth.net), June 10, 1999.

Lessee here...

Scenario:

Non-compliant companies LIE right up to Dec 31st, during which time the execs are quitely "cashing out". This money goes into banks in the Cayman Islands. On Dec 20th, these companies give their employees an extra-long "paid holiday" until January 5th.

On December 21st, these execs quietly lock the doors, and hit the planes to the Caymans. January 5th comes & goes.... Execs are diving for lobster, out of reach of the U.S. government.

What were we saying about LYING again...?

-- Dennis (djolson@pressenter.com), June 10, 1999.

Jeff

Have you read many of the disclosures? The Y2K parts. In some cases they are very informitive on the status of the orginization. Motorola comes to mind. Some have virtually no information. Microsoft still says they are assessing in their last disclosure.

It appears to me that most don't read the filings. I think that they are a wonderfull resourse for folks to check up on. Specially if the business has an impact on a individuals day to day life be it their community, work, suppliers and so on.

I think that it would be a good idea for folks to do a bit of research and check out the disclosures if the company is important to your life.

But from what I have seen business as a whole are not providing a clear picture of their Y2K status. In a perfect world that may be the case but Y2K is a sign of an imperfect world and it is the responsibility of the members of society to "keep them on their toes" So read the documents and figure it our for yourselves if the company that is important to you lives up to Jeff's thoughtfull post.

I think it is not the information that they give that is important but the information they leave out.

As mentioned above Motorola is a good statement. Texaco if memory serves correct is wishy washy. In their last statement they just reffered there disclosure to the one previous. We are in changing times and this is not a good sign.

-- Brian (imager@home.com), June 10, 1999.

I don't think there is overt lying by top management. I agree that they would be putting themselves in a very precarious position by falsifying SEC reports. On the other hand, I think they have made it known that they don't particularily want to hear about any failures from the IT department. They want to hear that the process is preceeding on schedule, and if there are any major problems, they ant to hear that they will be quickly resolved. Therefore, if June deadlines are missed, the reports will assure us that everything will be completed in September, and they will not mention that June dealines were missed. Thus, ot will be impossible to prove that anyone was lying.

-- Danny (dcox@ix.netcom.com), June 10, 1999.

Let me try to address some of these:

Someone wrote: "But the problem is what is a lie nowdays? When high profile persons are getting off everyday for what most us recognize as boldfaced lying there is no 'KNOW you'd be caught...KNOW the consequences...'"

Nothing is certain, true. However would you subject yourself to a foreseeable risk intentionally? Litigation will commence if these filings are materially inaccurate, or, more accurately, if the plaintiff's bar believes they are materially inaccurate. This isn't an issue of being convicted by the government (i.e., plaintiffs only need to win by a preponderance of evidence, not by proving their case beyond a reasonable doubt), and plaintiff bar's costs can be recovered through class action suits (making them, on the whole, more likely to sue for any misrepresentation). The plaintiff's bar will probably seek out anything close to a misstatement in the hopes of a large settlment.

What do you think someone advising the company tells them to do?

Someone else wrote: "Man...seven months from now, attorneys will be lying through their teeth about their very *impressive* choice of profession."

Well, insofar as they are advising their clients not to lie on public documents, I don't see what the problem is. Insofar as they are helping injured shareholders sue companies and directors that did lie, again I don't see what the problem is. I guess I miss the point of your post, unless it is to complain (as I do) about the opportunistic and highway robber-esqe quality of some in the plaintiff's bar.

Yet another: "Non-compliant companies LIE right up to Dec 31st, during which time the execs are quitely 'cashing out'...."

You've been reading too many spy novels. (1) How are they "cashing out"? Selling their stock? If so, because they are "insiders" under the securities laws, they need to make filings with the SEC (which are public...) [Forms 3, 4, and 5 for those of you who care.] So it'd be a bit tricky to do undetected. (2) Cayman Bank accounts can be seized by U.S. plaintiffs just like any other (even, yes, Swiss bank accounts). (3) This would be fraud (a.k.a., a crime, for which they could be extradited [assume they are U.S. citizens]). (4) They'd have to be willing to, practically speaking, never return to the U.S. (and certainly never have assets in the U.S.). Tricky business to avoid the long arm of the law...

And another, "They want to hear that the process is preceeding on schedule, and if there are any major problems, they ant to hear that they will be quickly resolved."

Wilful blindness is not a defense. That's a aettled area of law even without Y2k (or don't you think execs would be running around saying "Don't tell me ANY bad news! Don't tell me that account just left! I don't want to know!"). Next?

"Have you read many of the disclosures? The Y2K parts. In some cases they are very informitive on the status of the orginization. Motorola comes to mind. Some have virtually no information. Microsoft still says they are assessing in their last disclosure."

Well, the SEC can only require them to be truthful and to disclose information on their status, not to do anything about it (unlike broker/dealers, which is a different story). The original thinking was that the market would demand information about Y2k, and if a company's disclosure was insufficient (or if it showed no remediation), the market would respond by devaluing that company's equity (i.e., selling it). That assumes that Y2k is a metric that people care about when measuring their investments. It hasn't proved to be, though, so businesses like the ones you describe can say things like "we're thinking about it." These businesses can only do this because they believe (1) the investing public doesn't, on the whole, care about y2k (which seems to have proven true); and (2) their stock, in particular, will not be impacted pre-y2k by not making more disclosures.

-- Jeff Donohue (Jeff_Donohue@hotmail.com), June 10, 1999.

"The result of these three facts means that the officers and directors are being adamantly advised by their attorneys and accountants to divulge ALL material y2k data and information about preparedness in a clear and accurate fashion." Jeff Donahue Here is a sample from a March 1999 10Q"

"XXXX'S READINESS STATUS Management currently believes that XXXX has in place the appropriate programs and plans to achieve timely year 2000 readiness for its safety and mission-critical systems. However, XXXX's on-going assessment program may, at some time in the future, reveal as yet unidentified or not fully understood issues that may not be addressable in a timely fashion contrary to the foregoing forward-looking assumption. Further, it is uncertain whether the year 2000 problems of XXXX's suppliers and customers will be resolved in a timely manner."

This sample is merely one of many that would indicate that if those attorneys and accountants are really doing as Jeff suggests they are doing, then the officers and directors are not taking their advice.

Occasionally a 10K or 10Q will get somewhat quantitative about some aspects of Y2K related potential problems, but the suggestion that anything close to ALL material Y2K data is being divulged is not supported by most of the 10Ks and 10Qs that I have perused. Indeed, quite the contrary.

Jerry

-- Jerry B (skeptic76@erols.com), June 10, 1999.

That did not format quite right. There should have been a blank line between

Jeff Donahue

and

Here is a sample etc.

Sorry about that.

Jerry

-- Jerry B (skeptic776@erols.com), June 10, 1999.

Last week's computerworld had a very interesting article about the legal problems facing those with y2k issues impacting customers. Half a dozen different aspects were explored.

The bottom line was: If your customers suffer problems because you had y2k errors, you'll have a very hard time defending yourself. After all, you had *plenty* of time to fix and test everything. In essence, the problems you caused are almost ipso facto negligence. Not a pleasant prospect.

-- Flint (flintc@mindspring.com), June 10, 1999.

The problem is: You can't "prove" that somebody's "perception" was that their company "is compliant" ("to the best of my knowledge...") Blah blah blah

-- NSmith (nitnat3@aol.com), June 11, 1999.

"The problem is: You can't "prove" that somebody's "perception" was that their company "is compliant" ("to the best of my knowledge...") Blah blah blah"

Well, actually, you can, and it's become far easier with e-mail. E-mail records of the sort that are created every day would prove a "smoking gun" for a non-compliant company. When proving knowledge (because it is a preponderance standard), you only need to prove it was more likely than not that the director or officer knew. With an e-mail trail, it's a heck of a lot easier than you might think.

"This sample is merely one of many that would indicate that if those attorneys and accountants are really doing as Jeff suggests they are doing, then the officers and directors are not taking their advice."

First, I know that most are providing this advice personally. Why? I'm one of them (an attorney).

More accurately (as I responded earlier), it indicates that these directors and officers do not feel that the market demands this sort of information (i.e., if their stock took a hit because they were being coy). Compare this with something that the market does care about: audited financial statements. Try to provide unaudited financials for your annual report and see what that does for your stock price.

Lesson: the market doesn't care about Y2k.

None of this, of course, has been intended as legal advice but just for informational and educational purposes.

-- Jeff Donohue (jdonohue@hotmail.com), June 11, 1999.

Lesson: the market doesn't care about Y2k.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Is it a case of whether they care or are they really aware of Y2K.

Not only that but this link may be of interest to the stock folk. Combine Y2K with what is below and the next year may be interesting

 FRB: Federal Reserve Board Testimony from 05/06/1999 

Testimony of Patrick M. Parkinson
Associate Director, Division of Research and Statistics
Hedge funds, leverage, and the lessons of Long-Term Capital Management
Before the Committee on Banking and Financial Services, U.S. House of Representatives
May 6, 1999

I am pleased to appear before this Committee to discuss the President's Working Group on Financial Markets' Report on Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management. Under Secretary Gensler has made a comprehensive presentation of the report's conclusions and recommendations. Chairman Greenspan participated actively in the Working Group's discussions and supports the contents of the report. My remarks this morning will be limited to highlighting a few key conclusions and recommendations.

-- Brian (imager@home.com), June 11, 1999.