Securities Regulation and Corporate Governance

Yesterday the U.S. Court of Appeals for the D.C. Circuit heard oral argument in a suit challenging the SEC’s conflict minerals rules, which were mandated under the Dodd-Frank Act and issued by the SEC on August 22, 2012.  The case came to the D.C. Circuit on appeal from a July 2013 district court decision upholding the SEC’s rules.  The rules had been challenged by the National Association of Manufacturers, the U.S. Chamber of Commerce and the Business Roundtable (the “Appellants”).

D.C. Circuit Judges David Sentelle, A. Raymond Randolph and Sri Srinivasan heard oral argument.  The Appellants argued that the SEC erroneously and arbitrarily refused to create a de minimis exception, misinterpreted the statute’s “did originate” requirement, extended the rules to non-manufacturers contrary to the statute, and designed an arbitrary and capricious phase-in period.  They also argued that the rules compel speech in violation of the First Amendment.  During oral argument, the topics that received the most attention from the parties and the Court were (1) the requirement to make disclosures if a company has reason to believe that its conflict minerals “may have originated” in the DRC region, rather than if its conflict minerals “did originate” in the DRC region, as the Dodd-Frank Act provides, and (2) whether certain aspects of the conflict minerals disclosure requirements—specifically, the requirement to designate a company’s products as “not found to be DRC Conflict Free” in reports filed with the SEC and posted on the company’s website—are compelled speech in violation of the First Amendment.  

The first reports under the conflict minerals rules are required to be filed on or before June 2, 2014, and the Court’s decision is expected before then.