New laws bring new liability! Post Enron, there are more new rules than you can shake-a-stick-at. Now, CPAs, Attorneys, Financial Advisors and Executives will be hit with the new liability bug by civil and criminal law. Welcome to the new liability circle. Rest assured - it includes you!

Do you know what conduct could get you in trouble in the new liability circle? Can a mere mistake put you in the new liability circle? Do you know what is required of you? Do you know how to stay out of the liability circle? [Call 949-798-6206 for The New Liability Circle! © TM 2003-4-5] Do you know what is expected of you post Enron? Part I of this article will give you a road map of some of the issues you need to know about, and implement before December 15, 2003, and Part 2 will give you the rule book for the Accountant's New Liability! © ; [You may call 877-WIN-4-YOU anytime and get your free Asset Protection Handout: "You're Begging to be Sued!TM"]

Note I. The Office of NYS Attorney General Eliot Spitzer's April 2003 Historic Settlement.

The date was April 28, 2003, three years and one month past the date that marked the greatest stock market boom in history. Within months, we all experienced one of the lowest and regretful points in stock market and corporate governance history. Some investors lost 70% of their investment wealth, or trillions in dollars. Some 85 million investors stand bewildered.  It is estimated that $40 billion per year is lost to securities fraud. With no time to spare, Eliot Spitzer, New York State's Attorney General, along with several SEC, NASD and State regulator groups, including intervention by Chairman of the New York Stock Exchange, Richard Grasso, and with the help of Congress, specifically the House Financial Services Committee and the Senate Banking Committee, scored what was termed the greatest settlement in investment business history. Ten of the biggest Wall Street firms were put in checkmate, at least for the moment. The settlement was for some $1.4 billion, more money than ever before, but it was the agreed self-discipline over the self-dealing, the greed unchecked, the boardroom fraud and the new laws or rules to preclude a reoccurrence, or lack of them, that should get our attention.

The 12 New Rules!

1. Brokerage vs. Research Services.

The settlement for example, requires: that "investmentbanking" (brokerage services) be separated from research services; seemingly to avoid or preclude conflicts of interest; and raise investor confidence! So stock brokers, financial advisors, and advisors of or with respect to money management, stock, finances, retirement, insurance/annuities, or other investments (e.g.: 1031-TICs, IPOs, PPMs, mutual funds, etc.), must make sure that the file can prove that independent research was disclosed to the client.

Note II. The Move Toward Uniform Stock Exchange Listing Rules & Governance.

The New York Stock Exchange (NYSE) and the Nasdaq Stock Market (Nasdaq) have each overhauled their respective corporate governance listing standards to the U.S. Securities and Exchange Commission (SEC). The SEC (as part of the Sarbanes-Oxley Act), approved a proposal requiring companies to adopt uniform Audit-Committee standards, including that all Audit-Committee members be independent. Committee members must understand the spirit of transparency, the culture of accountability and their role as shareholder advocates. In a nutshell, changes include a greater board independence and shareholder involvement. For example, the Board must be made up of a majority of independent Directors, and the Audit Committee, Nominating Committee and Compensation Committee be composed of solely independent Directors, and that shareholders approve stock options plans, revisions and revaluations.

2. SEC Adopts Rules on Disclosure of Off-Balance Sheet Arrangements and Aggregate Contractual Obligations.

Table of contractual obligations in Commission filings.

Effective April 7, 2003, for the fiscal years ending on or after June 15, 2003, registrants will be required to comply with the disclosure requirements for off-balance sheet arrangements in Commission filings. For the fiscal years ending on or after Dec. 15, 2003, registrants will be required to comply with the disclosure requirements. The following describe other rules in more detail:

3. Boards of Directors: Majority of Independent Directors.

Audit Committee composed entirely of independent Directors will survive the exemption.

The NYSE requires Boards of Directors of listed companies to be composed of a majority of independent Directors. An exemption from the majority independent requirement for "controlled" companies exists where more than 50 percent of the voting power is held by an individual, a group or some other entity or company. The requirement that Nominating/Corporate Governance and Compensation Committees composed of independent Directors will not be required under this exemption. The requirement that all controlled companies have at least a minimum three-persons.

Definition of Independent Director.

An independent Director requires an affirmative finding (and negative disclosure) by the Board of Directors that the Director has no material relationship with the listed company. Material relationships can include "commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships (among others)."

4. Frequent Executive Sessions of Non-Management Directors.

To foster more quality communication and prevent any negative inference, NYSE requires regular executive meetings of non-management Directors, in which non-management Directors meet without management participation.

5. Independent Committee of Nominating/Corporate Governance.

Listed companies (other than controlled companies) shall authorize an independent Nominating/Corporate Governance Committee made up of solely independent Directors with the responsibility of new Director and committee member nominations. The Committee of Nominating/Corporate Governance shall have a written charter. NYSE rules require the company to adopt and disclose corporate governance guidelines with respect to director qualification standards; director responsibilities; director access to management and, as necessary and appropriate, independent advisors; director compensation; director orientation and continuing education; management succession; and annual performance evaluation of the board.

6. Independent Audit Committee.

Listed companies (other than controlled companies) shall authorize a Committee of Independent Audit Committee made up of solely independent Directors. In addition to the required minimum three-person audit committee made up of solely independent directors, directors' fees can be the only compensation that the audit committee members receive from the company.

7. Independent Compensation Committee.

The Compensation Listed companies (other than controlled companies) shall have Compensation Committees comprised of independent directors only. Committee shall have a written charter.

8. Internal Audit Function.

NYSE rules require that a company have an internal audit function, even if out sourced, however, independent auditors are strictly prohibited from performing internal auditing functions by the Sarbanes-Oxley Act.

9. Shareholder Approval of Equity-Compensation Plans.

Equity-based compensation plans will require shareholder approval, including revisions and repricing of options, with exemptions for inducement grants, option plans assumed in mergers and acquisitions, and tax-qualified plans (e.g., 401(k) plans and ESOPs). We need to make sure this exemption does not prove to minimize public confidence.

10. Code of Business Conduct and Ethics: ¿ETHICAL RISKS¿

The code must address a review by the board and management on areas of ethical risk, including conflicts of interest; corporate opportunities; confidentiality; fair dealing; protection and proper use of company assets; compliance with laws, rules and regulations (including insider trading laws); and encouraging the reporting of any illegal or unethical behavior.

11. CEO & CFO Certifications.

The Chief Executive Officers of listed companies must certify that they are unaware of any violation of NYSE corporate governance listing standards, and file a quality of the company's public disclosure with the SEC.

12. Restriction on Loans to Officers and Directors.

Similar to the Sarbanes-Oxley Act, NYSE and Nasdaq companies would be prohibited from extending or maintaining credit in the form of a personal loan to its

directors and officers.

Note III - Nasdaq Stock Market (Nasdaq).

Nasdaq rules are very similar and mirror the spirit of the NYSE rules and the Sarbanes-Oxley Act, the detailed comparison of which is beyond the scope of this paper. However, it is noteworthy that Nasdaq intends to have an additional educational requirement to its fix-it program requiring all Directors of Nasdaq-listed companies to attend continuing education classes. The NYSE is aggressively educating Directors throughout the country with its "Directors Institute on Corporate Governance".

More to Come!

The Accounting Standards Board, FASB, may require worthless stock options to be expensed, preempting shareholder votes, which to date, are electing not to expense same to artificially support the stock price. Stay tuned!

What to Do? Learn the New Tools & Skills of Success:

Shake Up The Board!

The Board, Audit Committee, Directors, Officers as well as Shareholders, should rise up and demand a structure review of the authority and responsibility of their companies. A board member not burdened with the management of the company should be put in charge and given the authority to lead the reviewing or reorganizing the Board, manage the meetings, and set the agenda independent of, but working in communication with the CEO.

Committees.

I propose that whenever there is an issue of concern, a committee is formed and the issues are explored and reported upon. The following committees should be a common practice: Independent Advisory Board | Audit Committee | Compensation Committee | Nominating Committee | Corporate Governance Committee | Contingency Committee (On & Off-Balance Sheet & Contractual Obligations Sub-Committees).

The independent or outside (non-management) Director should call and hold meetings frequently and without the presence or influence of the CEO or management. Some officers should report directly to the independent Board, not the CEO (management), in order to establish a higher level of "independent intelligence" on the company, its business, finances, operations, accounting, audit principles, procedures, management and reports.

All Directors should be made to review the new laws and SEC pronouncements. Directors can no longer get by without a true understanding of the company's financial and legal structure and operations. The SEC moved up its filing deadlines by 30 days (i.e.: 10K in 60, not 90 days after the year end; 10Q in 30 not 45 days after quarter-end). The Board should make sure that all information and reports are available and reviewed by each Director, the Board, and at its independent meetings before filing of same.

If a Director is not satisfied with the information or explanation of the reports and its disclosures or lack of them, that Director should dissent on the record, not only to protect his or her own interests or liability, but to fashion a new intellectual honesty in board reviews. Such forthright conduct will force management to live up to this standard for the benefit of the company at large, for it will foster a more sober check-and-balance system in the corporate environment, and ultimately add a higher level of business acumen to that company¿s affairs.

ENDNOTES:

1.) March 2000, height of the .com boom; USA Today. April 29, 2003 Contr. Matt Krantz, Adam Shell, Greg Farrell.

2.) Christine Bruenn, president of the North American Securities Administrators Association (NASAA); Securities Administrator in the state of Maine. Securities and Exchange Commission; Christine Bruenn, President of NASAA, "billions are lost to investment fraud every year. From the Yukon Territory to Miami, con artists don't discriminate ; they target men, women, the elderly and minorities. Investors need to be aware of the warning signs for fraud, where to turn for information and what protections they have." April 28, 2003.

3.) NASAA May 6, 2003 Letter to Chairman Wolf and Ranking Member Serrano by Christine Bruenn, President of the North American Securities Administrators Association (NASAA); Securities Administrator in the state of Maine.

4.) USA TODAY April, 29, 2003; By Christine Dugas; Deal makes Spitzer a political contender

5.) Effective Date: April 7, 2003. Compliance Date: Registrants must comply with the off-balance sheet arrangement disclosure requirements in registration statements, annual reports and proxy or information statements that are required to include financial statements for their fiscal years ending on or after June 15, 2003. Registrants (other than small business issuers) must include the table of contractual obligations in registration statements, annual reports, and proxy or information statements that are required to include financial statements for the fiscal years ending on or after December 15, 2003. Registrants may voluntarily comply with the new disclosure requirements before the compliance dates." (printed in part) Securities And Exchange Commission 17 CFR Parts 228, 229 and 249 [Release Nos. 33-8182; 34-47264; FR67International Series Release No. 1266File No. S7-42-02] RIN 3235-AI70 Disclosure in Management's Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Agency: Securities and Exchange Commission. Action: Final rule.

6.) The issue is independence from management. NYSE noted that it does not view ownership of a significant amount of stock, by itself, as a bar to independence. We need to make sure this does not prove to minimize public confidence. The Sarbanes-Oxley Act requires that, by April 2003 the SEC, must ensure the listing standards of the stock exchanges mandate that audit committees be composed solely of "independent" members, with board members being independent only if they receive no compensation other than directors' fees and are not "affiliated persons" (not defined in the Sarbanes-Oxley Act) of the company or its subsidiaries. The SEC standard definition of affiliate is "any person controlling, controlled by or under common control with the other person". The NYSE definition may conflict with the SEC standard definition. We need to make sure this does not prove to minimize public confidence. Thus ownership of a significant amount of stock, by itself, will not preclude a finding of independence. Pursuant to the NYSE definition, no director is deemed to be independent if the director, or any of his or her immediate family members, is or within the prior five years has been employed by the company; affiliated with or employed by a present or former auditor of the company (or of any of the company's affiliates); or employed by a company whose compensation committee includes an executive officer of the listed company.

7.) NYSE does support additional directors' fees compensation for audit committee members in circumstances where significant time and effort are required and expended to fulfill their duties as audit committee members. We need to make sure this does not prove to minimize public confidence. The audit committee will have an increased authority and responsibility under NYSE rules, in part, such as the sole authority to hire and fire the outside auditor, annually review a report by the company's independent auditors, and meet separately and periodically with each of management, internal auditors, and outside auditors, etc.

8) Additionally, Nasdaq rule changes propose:

* Harmonize the Nasdaq rule on the disclosure of material information with Regulation FD so that issuers may use Regulation FD compliant methods such as conference calls, press conferences and webcasts, so long as the public is provided adequate notice (generally by press release) and granted access.

* Require that a going concern qualification in an audit opinion be disclosed through the issuance of a press release.

* Clarify that Nasdaq will presume that a change of control will occur, for purposes

of the shareholder approval rules, once an investor acquires 20 percent of an issuer's outstanding voting power, unless a larger ownership and/or voting position is held on a post-transaction basis by: a shareholder, or an identified group of shareholders, unaffiliated with the investor, or

* The issuer's directors and officers that are unaffiliated with the investor.

* Clarify the authority of Nasdaq to deny re-listing to an issuer based upon a corporate governance violation that occurred while that issuer's appeal of the delisting was pending.

ONLINE "Certificate of Duty of Care in Corporate Governance"

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of Care in Corporate Governance) for CPAs, CEOs. CFOs, Boards, Board Members, Directors, Executives, Management, Lawyers, Financial Advisors, Investment Bankers, Committees, Committee Members, Advisors, and all "secondary" or "primary" actors -in person or online. This class will serve to certify completion of study for the listed company executive in the new laws, Post Enron, and the opportunities that abound. Pac West also teaches non-listed companies, and small businesspersons; and asset and liability protection techniques. Learn how a Director, CPA or Financial Advisor can be protected from liability, by law and insurance. Call Pacific West Law at 714-634-3738 to get your Liability Check-Up Kit and Certification! Also learn how The New MBA (Master of Arts in Law) can serve the needs of the new MBA-LAW skills set requisite in today's economy, Post Enron. Send an email and request the complete Sarbanes-Oxley Act.

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Look for the Call for The New Liability Circle! to be published

in the next issue of The Successful CALIFORNIA ACCOUNTANT.

All Rights Reserved Richard Rydstrom 2003-2005

949-798-6206

rydstromlaw@yahoo.com