No official word yet, but given that the SEC said a few weeks ago that it has enough “carryover balances” to fund it for a few weeks during the shutdown, the agency probably just has a handful of days left before it needs to implement its shutdown plan. Luckily, yesterday was a federal holiday – so that bought the SEC one more precious day.
If the SEC implements its shutdown plan, roughly 250 of the SEC’s 4000-plus staffers would keep on working and EDGAR would remain operational – but most core Corp Fin operations would stop including registration statement reviews. So bear in mind this notice that companies should plan to accelerate their registration statements while they can if at all feasible.
We wait with bated breath for the SEC to post an update as to when a change in its operational status will take place…
Court Challenges to SEC Conflict Mineral Rules Continue
Here’s news from Davis Polk’s Ning Chiu from this blog:
Last week, the National Association of Manufacturers, Chamber of Commerce and the Business Roundtable began their appeal of the SEC conflict minerals decision with an opening brief filed in the U.S. Court of Appeals for the District of Columbia. We discussed previously the district court case upholding the SEC rules. The Appellants’ arguments are largely similar to those raised in the district court case.
The brief contends that the Commission’s analysis was “woefully inadequate” in four respects: refusing to create a de minimis exception, requiring reports if minerals “may have originated” in the Congo, expanding the scope to include non-manufacturers and allowing only a limited transition period for larger companies. Below is a summary of each argument:
De minimis exception. While the SEC inferred that Congress intended to preclude a de minimis exception because it did not do so explicitly, and even a very small amount of minerals could be necessary to a product’s functionality, the appellants attest that the Commission has express statutory authority to create exemptions for the Exchange Act section that governs these rule as well as implied authority to provide exemptions if the regulatory burdens yield little gain. In addition, the SEC’s decision not to provide any exception, even in some narrow form, lacked any rational analysis.
“Did originate” requirement. The appellants assert that the statute only requires disclosure of whether minerals “did originate” and the SEC wrongly adopted a “may have originated” standard instead. The district court had found the SEC’s interpretation to be reasonable as a means for how companies would determine whether their minerals “did originate,” and believed that the distinction is merely one of “semantic(s).” Appellants, however, claim the SEC’s standard is extremely broad in its application, forcing companies to “prove a negative” that their minerals did not originate from the DRC.
Including non-manufacturers. Appellants maintain that the statute is not ambiguous as to the types of companies that are subject to the law, as the statutory reference to “contract to manufacture” was intended to be restricted only to the products to be included, while “manufacture” was the appropriate trigger for determining which companies are covered.
Phase-in period. Appellants emphasize that the SEC was flawed in giving small companies four years and larger companies only two years to comply, given that larger companies will need to rely on those small companies for their reports.
Finally, the brief alleges that the rule violates the First Amendment by forcing companies to publicly state on their own websites that their products are “not DRC conflict free,” which serves as a “scarlet letter,” and will also frequently be false or misleading.
A Conflict Minerals Rulemaking Petition: From the Corporate Perspective
It’s not every day that someone in our community submits a rulemaking petition to the SEC. Recently, Troutman Sanders’ Brink Dickerson submitted this petition for further rulemaking in the conflict minerals arena – which perhaps could also be viewed as a way to help direct the SEC to consider given the efforts that companies are having to go through in order to become compliant.
Remember that you can submit comments on a rulemaking petition – unfortunately, you can do so only by email (which the SEC would then convert into a PDF and post) – not through an online form like you can with any of the SEC’s proposed rules. The SEC does not formally consider rulemaking petitions that often – most are submitted by special interest groups – but any positive comments might help this one get attention.
Brink reminds us that where a SEC registrant sells a business during a year, the seller still is responsible for conflict mineral reporting for the portion of the year that it owned the business and needs to make sure that its sale agreement provides it with appropriate access to information and support in fulfilling that obligation.
– Broc Romanek