The 'Aircraft Carrier' and director liability.

• Author: Ferrara, Ralph
• Position: Securities regulatory structure reforms released by the Securities and Exchange Commission

Proposed changes to signature and certification requirements may increase the exposure of board members.

IN NOVEMBER 1998, in an effort to modernize and clarify the regulatory structure for securities offerings, the SEC issued what has been dubbed the "Aircraft Carrier" Release because of its size and complexity. The re lease contains one of the most significant collection of reforms to the securities offering process since 1933. The reforms include, among other things, changes to:

-- disclosure requirements contained in registration statement forms;

-- rules governing pre-offering communications;

-- periodic disclosure requirements under the Exchange Act.

While many of the proposed rule changes may have the intended result of making registration more attractive to issuers without compromising investor protections, many others may make securities transactions more burdensome, including by increasing the liability exposure of officers and directors.

One proposed set of revisions relates to the signature requirements for registration statements and periodic reports filed under the Exchange Act.

First, the proposed rules would expand the class of persons required to sign certain forms (including Forms 8-A, 10, 20-F, 40-F and 10-Q) to include the principal executive officers and a majority of the registrant's board of directors.

Additionally, the SEC noted that senior management frequently execute the signature pages of Exchange Act reports without having even seen the report. In an attempt to increase the participation of officers and directors in the disclosure process, the proposal would require that persons who are required to sign any re port under the Exchange Act certify that they have read such statement or report and that, to their knowledge, it contains no material misstatements or omissions.

Such revisions could have a significant effect on the liability exposure of officers and directors. Most obviously, expanding the class of required signatories of Exchange Act filings would have the effect of making additional officers and directors potentially liable for such filings.

In addition, the fact that the language in the proposed certification is different from that contained in Rule 10b-5 under the Exchange Act, which prohibits "any untrue statement of material fact" or omission of a "material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading," the...