TheCorporateCounsel.net

Last Friday, the U.S. Chamber of Commerce issued a press release that it has filed a lawsuit in the U.S. Court of Appeals for the Fifth Circuit challenging the SEC’s new Share Repurchase Disclosure Modernization rules:

The Chamber’s lawsuit challenges the SEC’s rule under the Administrative Procedure Act, as well as the U.S. Constitution. The agency’s mandatory disclosure requirements not only risk the public airing of important managerial decisions but also compel speech in violation of the First Amendment.

The Chamber worries that the rule will discourage buybacks and harm investors that benefit from them. As Dave blogged last week after the rules were adopted, the SEC acknowledged in the adopting release that repurchases, together with dividends, provide an avenue to return capital to shareholders and are often employed in a way that may be aligned with shareholder value maximization. And when Commissioner Peirce asked whether the Staff believed the level of buybacks was suboptimal, Corp Fin Director Erik Gerding responded that the release does not take a position but instead requires greater information to allow investors to do so. But, as Dave further notes, it seems the SEC still questions the motives behind repurchases and the “rationale here seems to be that the data dump of daily repurchase activity will facilitate speculative analysis as to the rationale for share repurchases based on the relative timing of those repurchases.”

Will this granular disclosure requirement discourage repurchases even though investors will still want them? I always think about how the plaintiffs’ bar will use new information, and I suspect any chilling effect on repurchases will depend on how that all plays out, as predicted in this Freshfields blog:

We also expect to see increased interest from the plaintiffs bar scrutinizing the issuer’s rationale for its share repurchases, the criteria used to determine the amount of repurchases as well as whether insiders can participate during the pendency of the repurchases, all information that was previously not readily available to the public.  Lastly, this information may be used by regulators—not just to determine compliance with these rules, but also as evidence of an issuer’s intent and views on the company and its valuation.

– Meredith Ervine