SEC Law Firms: Comment Letter Activity

Imagine a CFO walking into his office to start the day. As he puts down his cup of coffee, he notices an envelope placed on his keyboard, where he can’t miss it. On the envelope is the unmistakable seal of the Securities and Exchange Commission. His heart stops and his mind races: “What was in our last filing? Did we say anything controversial? Did I certify something that was in error? What does the SEC want?”

What’s the best way to respond to a comment letter?1  Some companies panic and rush to restate. Others delay and procrastinate. One way to avoid these potential mistakes is to follow best practices: make sure you have the right personnel assembled. One of the best resources at a CFO’s disposal is the company’s outside legal counsel; especially, in this case, one with expertise in SEC matters and securities law.

Who are the top law firms when it comes to dealing with SEC comment letters? Using the Audit Analytics SEC Comment Letter database, we investigated the involvement of law firms in SEC correspondence since January 2013.

But first, some context: between January 1, 2013 and the beginning of September 2013, approximately 7,800 comment letters, to 2,300 unique companies, have been posted to EDGAR. Of those letters, 4,000 were CORRESPs2 sent from 2,100 distinct entities.

We used our People Search tool to narrow down the 4,000 CORRESP letters to only those letters that included law firms.3 We found that since January 2013, law firms have been involved with almost 2,000 letters from 1,100 distinct companies. So, about 50% of calendar 2013 SEC CORRESP letters involved a law firm.

Lastly, in order to reduce potential outliers, we added one more parameter to this search. We limited the analysis to Russell 3000 companies. By doing so, we came up with 357 unique companies that included their law firms in a CORRESP letter response to the SEC. The following chart shows the top ten law firms that were involved in SEC correspondence with the most unique registrants.4

Comment Letter Law Firms 111

Latham & Watkins and Skadden top the list. Latham is one of the largest firms in the world, and Skadden is one of Wall Street’s most powerful law firms. It’s no surprise to see that these two combined are involved in more than 10% of the total. Indeed, most of the law firms represented here are international firms with thousands of associates. Even the smallest firm on the list, Wachtell Lipton, has been ranked as one of the most prestigious law firms. These 10 law firms are involved with 30% of all the letters which involve a law firm (sent from Russell 3000 companies).

Keep in mind that this is a relatively small sample of letters (our database has more than 200,000 letters in total), so stay tuned for further analysis of this market. In our upcoming posts on this topic, we plan to delve into the most common issues being raised in these letters. Another post down the line will perform a year-by-year trending analysis, so we can get a sense of changes in the market. Some of the questions we’ll look to answer include: whether some firms are gaining market share in this niche; what kind of issues the SEC is focused on and how that’s changing over time; which partners in these firms are most involved; etc.

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1. Pursuant to the Sarbanes-Oxley Act’s “Enhanced Review” requirement under Section 408, the SEC must review the periodic disclosures of issuers at least once every 3 years. The SEC does not release comment letter correspondence (all letters written in response to the SEC’s first Upload letter) until 20 days after a filing review and such a review does not occur until the final letter is sent by the registrant. A series of letters typically takes three to six months to transpire.
2. CORRESP letters are those from an entity addressed to the SEC, as opposed to UPLOAD letters, which are those from the SEC.
3. These are primarily letters on which law firms are copied. A smaller number of letters (less than 35%) are actually from the law firm itself.
4. The data in this post is based on a download of the Audit Analytics Comment Letter Database as of 9/5/13. The parameters were set to include all CORRESP letters (i.e., those sent to the SEC) that were from or copied a law firm, with a letter date on or after 1/1/13. Note that the grand total in the chart is 399, while the total number of Russell 3000 companies is only 357. This is because a number of letters included more than one law firm. That is, two law firms for one company, which is why the total count of law firms exceeds the number of companies.