Court vacates SEC's "extractive industries" rule (DC District Court)
The U.S. Chamber of Commerce joined a business coalition including the American Petroleum Institute, the Independent Petroleum Association of America, and the National Foreign Trade Council to challenge the U.S. Securities and Exchange Commission’s (SEC) final “extractive industries rule” requiring energy companies registered on American exchanges to publicly release commercially sensitive and detailed payment information about foreign energy investments.
On August 22, 2012, by a 2-1 vote (with two recusals), the SEC approved the “Disclosure of Payments by Resource Extraction Issuers” rule, requiring public companies to disclose payments of more than $100,000 made to foreign governments for “projects” relating to the commercial development of oil, natural gas, or minerals.
On October 10, 2012, the Chamber and its association partners filed a complaint with the U.S. District Court for the District of Columbia and a petition for review with the U.S. Court of Appeals for the D.C. Circuit, charging that the rule violates the First Amendment, the Administrative Procedure Act (APA), and the Exchange Act of 1934. The lawsuits allege that the SEC failed to conduct an adequate cost-benefit analysis as required by law, that the SEC grossly misinterpreted its statutory mandate to make a “compilation” of information available to the public, and that the regulation is incompatible with the First Amendment.
Excerpts from the complaint filed with the D.C. District Court:
- On the inadequate estimate of the rule’s total costs to the American economy: “By the Commission’s own reckoning, the Rule will cost U.S. public companies at least $1 billion in initial compliance costs and $200 to $400 million in ongoing compliance costs, and “could add billions of dollars of [additional] costs” through the loss of trade secrets and business opportunities.” Page 2.
- On the likelihood that the rule will force American companies out of some countries: “Indeed, while the Commission did not quantify how many ‘billions of dollars’ more its Rule might cost U.S. businesses, it acknowledged that American companies may be forced to ‘sell their assets in the . . . host countries at fire sale prices,’ or else keep existing assets idle and ‘not use them in other projects.’” Pages 2-3.
- On the SEC’s refusal to include an exemption when foreign law prohibits disclosure: “In calculating the competitive costs associated with the potential for lost business in countries that prohibit the required disclosures, the Commission did not even bother to determine how many countries had laws on the books prohibiting disclosure. Rather, it merely stated that commenters’ concerns regarding lost business ‘appear warranted,’ and that host country laws “could add billions of dollars of costs to affected issuers.” Pages 25-26.
- On the SEC’s decision to selectively ignore its statutory duty to conduct a meaningful cost-benefit analysis: “Commissioner Gallagher dissented from adoption of the Rule, criticizing the Commission for failing to adequately tailor the Rule to avoid significant adverse effects on competition and capital formation. ‘[W]e are not at liberty,’ he explained, ‘to ignore selectively the longstanding congressional mandate to consider the impact our rulemaking is likely to have on competition.’” Pages 26-27.
The District Court granted the Chamber's motion for summary judgment and vacated the SEC's rule and remanded to the Agency for further proceedings.
Complaint filed 10/10/12. Petition for review filed 10/10/12. Motion to determine jurisdiction filed 10/15/12. Oral argument held 3/22/13. Order dismissing case for lack of jurisdiction 4/26/13. Motion for summary judgment granted 7/2/13.
This case has been assigned to Judge John Bates of the Federal District Court of the District of Columbia.