Sunday, May 26, 2013
Demanding Substance or Form? The SEC's Plain English Handbook as a Basis for Securities Violations, by Scott Colesanti, Hofstra University - Maurice A. Deane School of Law, was recently posted on SSRN. Here is the abstract:
In 1998, the United States Securities and Exchange Commission (“SEC” or “Commission”) released a style manual titled “The Plain English Handbook.” The culmination of a drive by its Chairman, Arthur Levitt, the Handbook drew upon the rules of grammar, best industry practice, and even the support of billionaire Warren Buffett in calling for a layman’s translation of corporate disclosure documents.
To varying degrees, commentators noted the significance of the Handbook. Initial textual studies provided mixed results. The press marveled at its novelty, but securities regulation experts were less sanguine, chiding Commission members for naming themselves “language czars of the universe.”
Meanwhile, the cause of corporate disclosure – a mission long defined by federal case law – continued its second phase as the SEC, the courts, and stock issuers sought to strike a balance between financial expertise and consumer satisfaction. From this effort came the separate but related causes of evaluating substantive content and delivering it in good faith. These causes eventually morphed, however, forcing jurists to locate further authority animating the remedial securities laws. Consequentially the Handbook, at times, tipped this balance of corporate disclosure.
Accordingly, this Article traces the gradual yet impressive growth in importance of a nearly 15-year old exhortation. To be sure, the authoritative value of a style manual is a topic of great moment. In the Fall of 2012, changes implemented by the controversial federal healthcare law required insurers to publish marketing materials in “plain language.” Further, the Commission itself is gradually expanding the Handbook’s application to additional mutual fund disclosures, proxy materials, and investment adviser communications. Those commenting on the rule's primacy will undoubtedly note the lessons of indirect agency rulemaking. Of more immediate consideration, this Article seeks to examine the subtle means by which a call for simplicity may have become grounds for violations of securities law, in the eyes of the government and others. Ultimately, the SEC’s continuing emphasis on simplicity begs the question of which shareholder communications are being read at all.