Monday, January 20, 2014

SEC Report on Disclosure Requirements: Has the SEC Done as Congress Instructed?

Late last month, the SEC released its Report on Review of Disclosure Requirements in Regulation S-K. This report is in response to section 108(a) of the JOBS Act, which provides that

The Securities and Exchange Commission shall conduct a review of its Regulation S-K . . . to

(1) comprehensively analyze the current registration requirements of such regulation; and

(2) determine how such requirements can be updated to modernize and simplify the registration process and reduce the costs and other burdens associated with these requirements for issuers who are emerging growth companies.

The SEC is required by section 108(b) to transmit the report to Congress, including "the specific recommendations of the Commission on how to streamline the registration process in order to make it more efficient and less burdensome for the Commission and for prospective issuers who are emerging growth companies."

This report was supposed to be submitted by October 2, 2012, 180 days after the passage of the JOBS Act. It was actually released on December 20, 2013, more than a year after that deadline.

The SEC apparently believes this report satisfies the requirements of section 108. The first page of the report includes a label "As Required by Section 108 of the Jumpstart Our Business Startups Act." But does this report really satisfy the Congressional mandate?

First, the statute requires the Commission to conduct a review and issue a report. The report is issued by the SEC staff, not the Commission itself, and expressly disclaims any Commission responsibility for its contents: "This is a report by the staff of the U.S. Securities and Exchange Commission. The Commission has expressed no view regarding the analysis, findings or conclusions contained herein."

Obviously, no one in Congress expected the commissioners to do their own research and write a report without staff involvement. But that doesn't mean a majority of the Commission shouldn't have to approve the report before sending it to Congress. There's a huge difference between having the staff's views on an issue and having the Commission's views on the same issue.

Setting that aside, there's another problem with this report. Section 108 requires "the specific recommendations of the Commission on how to streamline the registration process." The report has no specific recommendations. It indicates (at p. 108) that "the staff believes that further information gathering and review is warranted in order to formulate specific recommendations regarding specific disclosure requirements." And the press release accompanying the report says that SEC Chair Mary Jo White has "directed the staff to develop specific recommendations for updating the rules that dictate what a company must disclose in its filings." In other words, at some point in the future, the staff is going to do what Congress actually asked the Commission to do: develop specific recommendations for change.

I understand why the SEC couldn't submit the report by the 180-day deadline, but it's now been 655 days since the passage of the JOBS Act and we still don't have what Congress asked for: a report by the Commission making specific recommendations about how to improve the registration process.

http://lawprofessors.typepad.com/business_law/2014/01/sec-report-on-disclosure-requirements-has-the-sec-done-as-congress-instructed.html

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