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You may not realize it, but recent laws and reporting requirements have been enacted which significantly impact the corporate governance, conduct and disclosure requirements of public companies. The Sarbanes-Oxley Act and subsequent SEC rulemaking have set a new standard for corporate governance standards that private companies cannot overlook.

Although most provisions of the Sarbanes-Oxley Act are not directly applicable to private companies, many of the Act’s provisions and listing standards represent “best practices” for private companies and should be carefully considered by all companies in the management, operation and governance of their businesses.

In this, the first of a two-part series, we will review those provisions of recent federal rulings which may be applicable to private companies. Part two will concern itself with how – and if – private companies should comply with components of the new corporate governance standards.

Provisions of recent rulings which may be applicable to private companies:

Retaliation Against Whistleblowers (Act § 1107). Anyone who intentionally retaliates against any person for providing truthful information to law enforcement that relates to a federal offense may be fined and/or imprisoned for up to 10 years.
Destruction of Records in Investigations (Act § 802). Fines and/or imprisonment for up to 20 years can be imposed on anyone who knowingly alters, destroys or conceals any record with the intent to obstruct or influence a governmental investigation or court proceeding in the United States.
Discharge of Debts (Act § 803). Debts incurred from: a.) violations of federal or state securities laws, b.) common law fraud connected to the purchase or sale of securities, or c.) judgments or settlements relating to such violations, are now nondischargeable in bankruptcy.
Expansion of Securities Fraud Penalties (Act § 804). The statute of limitations for a private fraud claim has been extended to the earlier of: 2 years after the discovery of the facts or 5 years from the violation.
Enhanced Liability for White Collar Crimes (Act §§ 902 & 903). The permissible prison terms for mail and wire fraud have been increased from 5 to 20 years.
Anyone who uses a telephone, telegraph or the US Postal Service to advance a fraud can be held liable for mail or wire fraud.
Mail fraud includes any use of the postal system to exchange correspondence to promote a fraud. Wire fraud encompasses any discussion related to a fraud over a telephone or telegraph, including a voice discussion or an electronic exchange.
Increased Criminal Penalties for Certain ERISA Violations (Act § 904). For certain ERISA violations, the available criminal monetary penalties have been increased (to $100,000 for individuals and $500,000 for non-individuals) and maximum prison terms lengthened from 1 year to 10 years.
Notice of 401(k) Plan Blackout Periods (Act § 306(b)). Plan administrators must give affected participants and beneficiaries 30 days advance notice of any blackout period in a 401(k) plan.
A “blackout period” is any period of more than three consecutive business days during which plan participants cannot reallocate the investments in their accounts in the 401(k) plan, for example during a change in investment providers.
Failure to abide by this notice requirement can result in the plan administrator being fined up to $100 per violation.

Though the foregoing stipulations are meant for publicly held companies, they soon may become standard for privately held companies as well. Determining how – and if – your corporate governing standards need to be amended will be the subject of our next article: Planning for the Future: Provisions To Consider Today for Tomorrow’s Best Practices.

Alyce Halchak is a Director of Gibbons, Del Deo, Dolan, Griffinger & Vecchione, P.C., and a member of the Corporate Department and Financial Services Practice Group. Ms. Halchak's practice is principally transactional with a concentration in the areas of mergers and acquisitions, securities, leveraged leasing, and corporate, and compensation counseling. She has extensive experience handling a wide variety of business transactions including U.S. and foreign multi-party acquisitions, divestitures and financings. Ms. Halchak has significant experience counseling public and private companies, and their Boards of Directors, on governance and regulatory matters, and structuring compensation packages including tax-deferral structures, equity and equity-based incentive plans and other benefit plans and executive and employer protections on a change of control.