April 30, 2014

Corp Fin Issues Conflict Minerals Guidance: (Mostly) Full Steam Ahead

Yesterday, during a House Financial Services Committee hearing about the SEC’s budget, SEC Chair White said that the SEC will continue to implement the bulk of its conflict minerals rule despite the recent ruling by the US Court of Appeals for the DC Circuit (here’s her written testimony – which doesn’t include this statement). Not a surprise given the joint statement from the Republican Commissioners urging a full stay as I blogged yesterday. That was a failed preemptive plea. But still no word whether the SEC will seek a rehearing, etc.

Then in the early evening, Corp Fin issued interpretive guidance, coming in the form of a statement from Corp Fin Director Keith Higgins. The statement notes:

June 2nd Deadline Remains the Same – Companies are still required to file initial Form SDs by June 2nd.
No Need to Label – The big change is that – in line with the appellate decision – companies aren’t required to characterize any products as “DRC conflict free” if they have not been found to be “DRC conflict free” or “DRC conflict undeterminable.” My guess is that most companies will decide to drop the label until this court wrangling gets sorted out, particularly if the label isn’t important to a company’s due diligence discussion or its plans going forward.
Requisite Disclosures – For products that otherwise would have merited a label other than “DRC conflict free,” disclosure is required for the facilities used to produce the conflict minerals, country of origin and efforts to determine the mine or location of origin.
Need Audit If Voluntarily Label – For those that voluntarily decide to use “DRC conflict free” label, they must obtain a private sector audit (but no audit required if no products identified as “DRC conflict free”).

The SEC’s Internal Battle Over WKSI Waivers: Are Some Companies “Too Big to Bar”?

Yesterday, I blogged that Democratic Commissioner Kara Stein had dissented on a WKSI waiver. This was a waiver granted to the Royal Bank of Scotland Group, whose subsidiary was criminally convicted for its conduct in manipulating LIBOR. Kara notes that “since the inception of WKSI nearly a decade ago, the Commission had not granted a WKSI waiver for criminal misconduct” until one instance last fall and then this case. She also fears “that the Commission’s action to waive our own automatic disqualification provisions arising from RBS’s criminal misconduct may have enshrined a new policy—that some firms are just too big to bar.” Here’s a Bloomberg article that notes that Commissioner Aguilar also voted against – while Chair White and Commissioners Gallagher and Piwowar voted in favor (and here’s another piece).

Yesterday afternoon, Commissioner Gallagher issued a statement on WKSI waivers that explains his approach to them. Essentially, he is against a “punishment-based view” (here’s a Reuters’ article about his statement). Here is an excerpt from his statement:

Philosophically, the punishment-focused view of WKSI waivers is even more troubling. I am not proposing to ignore the severity or gravity of criminal misconduct. These types of violations are serious, and should be treated as such. But the misconduct itself is appropriately punished through the underlying criminal or civil enforcement process. It is only when that process has been exhausted, and the entity appropriately punished, that we turn to the question of whether the collateral consequence of that punishment—the loss of WKSI status—should be waived. The question of whether to grant a WKSI waiver is, or at least used to be, a dispassionate analysis, undertaken by the technical experts in the Division of Corporation Finance, separate and apart from the enforcement process.

How the Supreme Court’s Lawson Case Impacts Public Companies

In this podcast, Steve Pearlman of Proskauer addresses whistleblower protections in the context of the recent Supreme Court decision – Lawson v. FMR – and the implications for both public and private companies (here are memos on that case), including:

– Can you describe the Majority’s ruling and the reasoning it used to reach that result?
– Are there any particular risks for employers that this ruling creates?
– What types of new claims should we expect to see as a result of this ruling?
– How does this ruling affect public companies, and what should they do?

– Broc Romanek